UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 29, 2021~~March 30, 2022


☐			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)

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

Indicate by check mark ifwhether 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. Yes ☑ o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule-405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

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

As of ~~October~~April 27, ~~2021,~~2022, there were ~~39,140,045~~39,223,790 shares of Class A common stock outstanding and ~~2,921,587~~2,906,587 shares of Class B common stock outstanding.

SHAKE SHACK INC.

TABLE OF CONTENTS

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 from the statements made herein. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including, but not limited to, statements about our growth, strategic plan, and our liquidity. 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," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Some of the factors which could cause results to differ materially from the Company's expectations include the continuing impact of the COVID-19 pandemic, including the potential impact of any COVID-19 variants, the Company's ability to develop and open new Shacks on a timely basis, increased costs or shortages or interruptions in the supply and delivery of our products, increased labor costs or shortages, inflationary pressures, the Company's management of its digital capabilities and expansion into ~~delivery,~~new channels, including drive-thru, our ability to maintain and grow sales at our existing Shacks, and risks relating to the restaurant industry generally. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020~~29, 2021 as filed with the Securities and Exchange Commission (the "SEC").

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. The Company undertakes 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.

Shake Shack Inc.

Form 10-Q | 1

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).


			Page
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Income (Loss)			4
Condensed Consolidated Statements of Comprehensive Income (Loss)			5
Condensed Consolidated Statements of Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			87
Notes to Condensed Consolidated Financial Statements			98

2 | Shake Shack Inc.

Form 10-Q

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


			September 29 2021		December 30 2020				March 30 2022		December 29 2021
ASSETS	ASSETS						ASSETS
Current assets:	Current assets:						Current assets:
		Cash and cash equivalents	$	321,421	$	146,873		Cash and cash equivalents	$	279,251	$	302,406
		Marketable securities	80,082		36,887			Marketable securities	79,676		80,000
		Accounts receivable, net	11,311		9,464			Accounts receivable, net	11,755		13,657
		Inventories	3,525		2,888			Inventories	3,780		3,850
		Prepaid expenses and other current assets	2,841		7,074			Prepaid expenses and other current assets	12,155		9,763
		Total current assets	419,180		203,186			Total current assets	386,617		409,676
Property and equipment, net of accumulated depreciation of $207,763 and $166,156, respectively			370,016		336,541
Property and equipment, net of accumulated depreciation of $236,933 and $222,768, respectively							Property and equipment, net of accumulated depreciation of $236,933 and $222,768, respectively		398,971		389,386
Operating lease assets	Operating lease assets		338,886		306,317		Operating lease assets		346,128		347,277
Deferred income taxes, net	Deferred income taxes, net		300,818		287,007		Deferred income taxes, net		304,166		298,668

Other assets	Other assets		11,402		12,297		Other assets		13,846		12,563
TOTAL ASSETS	TOTAL ASSETS		$	1,440,302	$	1,145,348	TOTAL ASSETS		$	1,449,728	$	1,457,570
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:						Current liabilities:

		Accounts payable	$	17,841	$	23,487		Accounts payable	$	13,395	$	19,947
		Accrued expenses	34,165		25,920			Accrued expenses	38,997		36,892
		Accrued wages and related liabilities	14,169		10,441			Accrued wages and related liabilities	16,032		14,638
		Operating lease liabilities, current	38,811		35,657			Operating lease liabilities, current	36,951		35,519
		Other current liabilities	13,273		14,200			Other current liabilities	20,586		14,501
		Total current liabilities	118,259		109,705			Total current liabilities	125,961		121,497

Long-term debt	Long-term debt		243,280		—		Long-term debt		243,804		243,542

Long-term operating lease liabilities	Long-term operating lease liabilities		378,686		343,736		Long-term operating lease liabilities		399,487		400,113
Liabilities under tax receivable agreement, net of current portion	Liabilities under tax receivable agreement, net of current portion		234,048		232,954		Liabilities under tax receivable agreement, net of current portion		234,273		234,045
Other long-term liabilities	Other long-term liabilities		22,750		24,460		Other long-term liabilities		20,944		22,773
Total liabilities	Total liabilities		997,023		710,855		Total liabilities		1,024,469		1,021,970
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)		0		0		Commitments and contingencies (Note 13)		0		0
Stockholders' equity:	Stockholders' equity:						Stockholders' equity:

		Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of September 29, 2021 and December 30, 2020.	—		—			Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of March 30, 2022 and December 29, 2021.	—		—
		Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,139,379 and 38,717,790 shares issued and outstanding as of September 29, 2021 and December 30, 2020, respectively.	39		39			Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,218,290 and 39,142,397 shares issued and outstanding as of March 30, 2022 and December 29, 2021, respectively.	39		39
		Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,921,587 and 2,951,188 shares issued and outstanding as of September 29, 2021 and December 30, 2020, respectively.	3		3			Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,911,587 and 2,921,587 shares issued and outstanding as of March 30, 2022 and December 29, 2021, respectively.	3		3
		Additional paid-in capital	403,535		395,067			Additional paid-in capital	406,981		405,940
		Retained earnings	13,284		12,209			Retained earnings (accumulated deficit)	(6,608)		3,554
		Accumulated other comprehensive income	1		3			Accumulated other comprehensive income (loss)	—		1
		Total stockholders' equity attributable to Shake Shack Inc.	416,862		407,321			Total stockholders' equity attributable to Shake Shack Inc.	400,415		409,537
Non-controlling interests	Non-controlling interests		26,417		27,172		Non-controlling interests		24,844		26,063
Total equity	Total equity		443,279		434,493		Total equity		425,259		435,600
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,440,302	$	1,145,348	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,449,728	$	1,457,570

See accompanying Notes to Condensed Consolidated Financial Statements.

Shake Shack Inc.

Form 10-Q | 3

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share amounts)


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended						Thirteen Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020				March 30 2022		March 31 2021
Shack sales	Shack sales		$	186,972	$	126,288	$	519,110	$	353,855	Shack sales		$	196,791	$	150,668
Licensing revenue	Licensing revenue		6,923		4,113		17,527		11,502		Licensing revenue		6,600		4,614
TOTAL REVENUE	TOTAL REVENUE		193,895		130,401		536,637		365,357		TOTAL REVENUE		203,391		155,282
Shack-level operating expenses:	Shack-level operating expenses:										Shack-level operating expenses:
		Food and paper costs	57,925		37,903		157,472		107,494			Food and paper costs	59,884		44,630
		Labor and related expenses	58,208		37,898		157,221		110,597			Labor and related expenses	60,465		46,382
		Other operating expenses	26,613		18,743		74,032		50,826			Other operating expenses	30,237		23,144
		Occupancy and related expenses	14,640		13,093		43,427		37,974			Occupancy and related expenses	16,276		13,911
General and administrative expenses	General and administrative expenses		20,504		14,962		60,435		45,170		General and administrative expenses		31,320		19,565
Depreciation and amortization expense	Depreciation and amortization expense		15,183		12,376		43,381		36,233		Depreciation and amortization expense		16,855		13,726
Pre-opening costs	Pre-opening costs		2,933		1,822		8,767		5,799		Pre-opening costs		2,712		3,576
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		535		402		1,262		2,924		Impairment and loss on disposal of assets		577		369
TOTAL EXPENSES	TOTAL EXPENSES		196,541		137,199		545,997		397,017		TOTAL EXPENSES		218,326		165,303
LOSS FROM OPERATIONS	LOSS FROM OPERATIONS		(2,646)		(6,798)		(9,360)		(31,660)		LOSS FROM OPERATIONS		(14,935)		(10,021)
Other income, net			18		34		157		335
Other income (expense), net											Other income (expense), net		(289)		31
Interest expense	Interest expense		(350)		(143)		(1,224)		(697)		Interest expense		(355)		(515)
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(2,978)		(6,907)		(10,427)		(32,022)		LOSS BEFORE INCOME TAXES		(15,579)		(10,505)
Benefit from income taxes	Benefit from income taxes		(576)		(797)		(10,665)		(6,802)		Benefit from income taxes		(4,297)		(11,080)
NET INCOME (LOSS)	NET INCOME (LOSS)		(2,402)		(6,110)		238		(25,220)		NET INCOME (LOSS)		(11,282)		575
Less: Net loss attributable to non-controlling interests	Less: Net loss attributable to non-controlling interests		(224)		(551)		(837)		(2,490)		Less: Net loss attributable to non-controlling interests		(1,120)		(734)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(10,162)	$	1,309
Earnings (loss) per share of Class A common stock:	Earnings (loss) per share of Class A common stock:										Earnings (loss) per share of Class A common stock:
		Basic	$	(0.06)	$	(0.15)	$	0.03	$	(0.62)		Basic	$	(0.26)	$	0.03
		Diluted	$	(0.06)	$	(0.15)	$	0.01	$	(0.62)		Diluted	$	(0.26)	$	0.01
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	39,137		38,251		39,066		36,668			Basic	39,163		38,948
		Diluted	39,137		38,251		43,448		36,668			Diluted	39,163		42,789

See accompanying Notes to Condensed Consolidated Financial Statements.

4 | Shake Shack Inc.

Form 10-Q

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
				September 29 2021		September 23 2020		September 29 2021		September 23 2020					March 30 2022		March 31 2021
Net income (loss)	Net income (loss)			$	(2,402)	$	(6,110)	$	238	$	(25,220)	Net income (loss)			$	(11,282)	$	575
Other comprehensive income (loss), net of tax(1):
Other comprehensive loss, net of tax(1):												Other comprehensive loss, net of tax(1):
		Change in foreign currency translation adjustment		(1)		—		(2)		1			Change in foreign currency translation adjustment		(1)		(1)

			Net change	(1)		—		(2)		1				Net change	(1)		(1)
OTHER COMPREHENSIVE INCOME (LOSS)				(1)		—		(2)		1
OTHER COMPREHENSIVE LOSS												OTHER COMPREHENSIVE LOSS			(1)		(1)
COMPREHENSIVE INCOME (LOSS)	COMPREHENSIVE INCOME (LOSS)			(2,403)		(6,110)		236		(25,219)		COMPREHENSIVE INCOME (LOSS)			(11,283)		574
Less: Comprehensive loss attributable to non-controlling interests	Less: Comprehensive loss attributable to non-controlling interests			(224)		(551)		(837)		(2,490)		Less: Comprehensive loss attributable to non-controlling interests			(1,120)		(734)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	(2,179)	$	(5,559)	$	1,073	$	(22,729)	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	(10,163)	$	1,308

(1)Net of tax expense of $0 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020.~~March 31, 2021.

See accompanying Notes to Condensed Consolidated Financial Statements.

Shake Shack Inc.

Form 10-Q | 5

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share amounts)

For the Thirteen Weeks Ended September 29, 2021 and September 23, 2020
Class A
Common Stock Class B
Common Stock Additional
Paid-In
Capital Retained Earnings Accumulated Other Comprehensive Income Non-
Controlling
Interest Total
Equity
Shares Amount Shares Amount
BALANCE, JUNE 30, 2021 39,134,356 $ 39 2,921,587 $ 3 $ 401,567 $ 15,462 $ 2 $ 26,459 $ 443,532
Net income (loss) (2,178) (224) (2,402)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment (1) (1)
Equity-based compensation 2,354 2,354
Activity under stock compensation plans 5,023 (386) 354 (32)
Redemption of LLC Interests — — — — —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — —
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs — — — — —
Distributions paid to non-controlling interest holders (172) (172)
BALANCE, SEPTEMBER 29, 2021 39,139,379 $ 39 2,921,587 $ 3 $ 403,535 $ 13,284 $ 1 $ 26,417 $ 443,279
BALANCE, JUNE 24, 2020 38,236,538 $ 38 3,117,002 $ 3 $ 384,338 $ 37,196 $ 3 $ 29,707 $ 451,285
Net income (loss) (5,559) (551) (6,110)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment — —
Equity-based compensation 1,346 1,346
Activity under stock compensation plans 38,564 367 122 489
Redemption of LLC Interests 5,000 (5,000) 44 (44) —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis (84) — (84)
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs — — — — —
Distributions paid to non-controlling interest holders (164) (164)
BALANCE, SEPTEMBER 23, 2020 38,280,102 $ 38 3,112,002 $ 3 $ 386,011 $ 31,637 $ 3 $ 29,070 $ 446,762


For the Thirteen Weeks Ended March 30, 2022 and March 31, 2021
		Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Non- Controlling Interest		Total Equity
		Shares	Amount		Shares	Amount
BALANCE, DECEMBER 29, 2021		39,142,397	$	39	2,921,587	$	3	$	405,940	$	3,554	$	1	$	26,063	$	435,600

	Net income (loss)									(10,162)				(1,120)		(11,282)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											(1)				(1)
	Equity-based compensation							3,224								3,224
	Activity under stock compensation plans	65,893						(2,276)						252		(2,024)

	Redemption of LLC Interests	10,000			(10,000)			49						(49)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							44								44

	Distributions paid to non-controlling interest holders													(302)		(302)
BALANCE, MARCH 30, 2022		39,218,290	$	39	2,911,587	$	3	$	406,981	$	(6,608)	$	—	$	24,844	$	425,259

BALANCE, DECEMBER 30, 2020		38,717,790	$	39	2,951,188	$	3	$	395,067	$	12,209	$	3	$	27,172	$	434,493

	Net income (loss)									1,309				(734)		575
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											(1)				(1)
	Equity-based compensation							1,696								1,696
	Activity under stock compensation plans	355,849						3,359						82		3,441

	Redemption of LLC Interests	29,600			(29,600)			36						(36)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							213								213

	Distributions paid to non-controlling interest holders													(467)		(467)
BALANCE, MARCH 31, 2021		39,103,239	$	39	2,921,588	$	3	$	400,371	$	13,518	$	2	$	26,017	$	439,950

See accompanying Notes to Condensed Consolidated Financial Statements.

6 | Shake Shack Inc.

Form 10-Q

~~Table of Contents~~

For the Thirty-Nine Weeks Ended September 29, 2021 and September 23, 2020
Class A
Common Stock Class B
Common Stock Additional
Paid-In
Capital Retained Earnings Accumulated Other Comprehensive Income Non-
Controlling
Interest Total
Equity
Shares Amount Shares Amount
BALANCE, DECEMBER 30, 2020 38,717,790 $ 39 2,951,188 $ 3 $ 395,067 $ 12,209 $ 3 $ 27,172 $ 434,493
Net income (loss) 1,075 (837) 238
Other comprehensive income (loss):
Net change in foreign currency translation adjustment (2) (2)
Equity-based compensation 6,037 6,037
Activity under stock compensation plans 391,988 2,185 993 3,178
Redemption of LLC Interests 29,601 (29,601) 33 (33) —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 213 213
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs — — — — —
Distributions paid to non-controlling interest holders (878) (878)
BALANCE, SEPTEMBER 29, 2021 39,139,379 $ 39 2,921,587 $ 3 $ 403,535 $ 13,284 $ 1 $ 26,417 $ 443,279
BALANCE, DECEMBER 25, 2019 34,417,302 $ 35 3,145,197 $ 3 $ 244,410 $ 54,367 $ 2 $ 23,168 $ 321,985
Net income (loss) (22,730) (2,490) (25,220)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment 1 1
Equity-based compensation 4,088 4,088
Activity under stock compensation plans 180,068 627 (167) 460
Redemption of LLC Interests 33,195 (33,195) 239 (239) —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 929 929
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs 3,649,537 3 135,718 9,276 144,997
Distributions paid to non-controlling interest holders (478) (478)
BALANCE, SEPTEMBER 23, 2020 38,280,102 $ 38 3,112,002 $ 3 $ 386,011 $ 31,637 $ 3 $ 29,070 $ 446,762

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 7

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
				September 29 2021		September 23 2020					March 30 2022		March 31 2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES							OPERATING ACTIVITIES
Net income (loss) (including amounts attributable to non-controlling interests)	Net income (loss) (including amounts attributable to non-controlling interests)			$	238	$	(25,220)	Net income (loss) (including amounts attributable to non-controlling interests)			$	(11,282)	$	575
Adjustments to reconcile net income (loss) to net cash provided by operating activities	Adjustments to reconcile net income (loss) to net cash provided by operating activities							Adjustments to reconcile net income (loss) to net cash provided by operating activities
		Depreciation and amortization expense		43,381		36,233			Depreciation and amortization expense		16,855		13,726
		Amortization of debt issuance costs		605		—			Amortization of debt issuance costs		262		86
		Amortization of cloud computing asset		935		1,086			Amortization of cloud computing asset		332		313
		Non-cash operating lease cost		37,213		33,726			Non-cash operating lease cost		13,681		12,330
		Equity-based compensation		5,963		4,058			Equity-based compensation		3,188		1,681
		Deferred income taxes		9,708		8,680			Deferred income taxes		5,719		(1,523)
		Non-cash interest expense		348		48			Non-cash interest expense		5		337

		Loss (gain) on sale of marketable securities		5		(79)
		Impairment and loss on disposal of assets		1,262		2,924			Impairment and loss on disposal of assets		577		369
		Unrealized loss on equity securities		117		22			Unrealized loss on equity securities		400		46
		Other non-cash (income) expense		(2)		906			Other non-cash income		(1)		(1)

		Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
			Accounts receivable	(1,847)		2,241				Accounts receivable	1,902		626
			Inventories	(637)		(162)				Inventories	70		154
			Prepaid expenses and other current assets	4,233		(759)				Prepaid expenses and other current assets	(2,392)		(731)
			Other assets	(767)		(2,111)				Other assets	(2,111)		(216)
			Accounts payable	(6,780)		4,349				Accounts payable	(2,862)		1,474
			Accrued expenses	(18,682)		(13,361)				Accrued expenses	(10,369)		(9,420)
			Accrued wages and related liabilities	3,709		(2,214)				Accrued wages and related liabilities	1,394		2,865
			Other current liabilities	(2,202)		437				Other current liabilities	5,312		(158)

			Long-term operating lease liabilities	(31,886)		(25,298)				Long-term operating lease liabilities	(11,726)		(10,754)
			Other long-term liabilities	(1,174)		2,992				Other long-term liabilities	(985)		(1,828)
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES			43,740		28,498		NET CASH PROVIDED BY OPERATING ACTIVITIES			7,969		9,951
INVESTING ACTIVITIES	INVESTING ACTIVITIES							INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment			(68,852)		(47,002)		Purchases of property and equipment			(27,974)		(23,155)
Purchases of marketable securities	Purchases of marketable securities			(47,321)		(314)		Purchases of marketable securities			(77)		(4,073)
Sales of marketable securities				4,004		20,000

NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES			(112,169)		(27,316)		NET CASH USED IN INVESTING ACTIVITIES			(28,051)		(27,228)
FINANCING ACTIVITIES	FINANCING ACTIVITIES							FINANCING ACTIVITIES

Proceeds from issuance of convertible notes, net of discount	Proceeds from issuance of convertible notes, net of discount			243,750		—		Proceeds from issuance of convertible notes, net of discount			—		243,750
Proceeds from revolving credit facility				—		50,000
Payments on revolving credit facility				—		(50,000)

Deferred financing costs	Deferred financing costs			(123)		(64)		Deferred financing costs			—		(70)

Proceeds from issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs				—		144,997

Payments on principal of finance leases	Payments on principal of finance leases			(1,982)		(1,670)		Payments on principal of finance leases			(747)		(602)
Distributions paid to non-controlling interest holders	Distributions paid to non-controlling interest holders			(878)		(478)		Distributions paid to non-controlling interest holders			(302)		(467)

Payments under tax receivable agreement				—		(6,643)

Debt issuance costs	Debt issuance costs			(968)		—		Debt issuance costs			—		(649)
Proceeds from stock option exercises	Proceeds from stock option exercises			6,688		2,239		Proceeds from stock option exercises			84		6,451
Employee withholding taxes related to net settled equity awards	Employee withholding taxes related to net settled equity awards			(3,510)		(1,779)		Employee withholding taxes related to net settled equity awards			(2,108)		(3,010)

NET CASH PROVIDED BY FINANCING ACTIVITIES				242,977		136,602
NET INCREASE IN CASH AND CASH EQUIVALENTS				174,548		137,784
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES								NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(3,073)		245,403
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS								NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(23,155)		228,126
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			146,873		37,099		CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			302,406		146,873
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	321,421	$	174,883	CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	279,251	$	374,999

See accompanying Notes to Condensed Consolidated Financial Statements.

~~8 |~~ Shake Shack Inc.

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SHAKE SHACK INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

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NOTE 1: NATURE OF OPERATIONS

Shake Shack Inc. 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"). Shake Shack is the sole managing member of SSE Holdings and, as sole managing member, the Company operates and controls all of the business and affairs of SSE Holdings. As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of ~~September 29, 2021~~March 30, 2022 the Company owned 93.1% 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.

The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve ~~hamburgers,~~burgers, chicken, hot dogs, ~~chicken, crinkle-cut~~crinkle cut fries, shakes, frozen custard, beer, wine and more. As of ~~September 29, 2021,~~March 30, 2022, there were ~~350~~382 Shacks in operation, system-wide, of which ~~205~~225 were domestic Company-operated Shacks, 2427 were domestic licensed Shacks and ~~121~~130 were international licensed Shacks. ~~As of September 29, 2021, 2 domestic Company-operated Shacks and 7 licensed Shacks were temporarily closed primarily due to the COVID-19 pandemic.~~

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements~~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~~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 its Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020~~29, 2021 ("~~2020~~2021 Form 10-K"). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes thereto included in its ~~2020~~2021 Form 10-K. In the Company's opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as the Company has the majority economic interest in SSE Holdings and, as the sole managing member, has 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, the Company consolidates SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ the net assets of SSE Holdings were ~~$383,138~~$363,632 and ~~$383,669,~~$376,857, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. Refer to Note 6, Debt, for additional information.

Fiscal Year

The Company operates on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal ~~2021~~2022 contains 52 weeks and ends on December ~~29, 2021.~~28, 2022. Fiscal ~~2020~~2021 contained 5352 weeks and ended on December ~~30, 2020.~~29, 2021. Unless otherwise stated, references to years in this report relate to fiscal years.

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Use of Estimates

The preparation of these ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

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Recently Adopted Accounting Pronouncements

The Company adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal ~~2021.~~2022.


Accounting Standards Update	Description	Date Adopted
~~Simplifying the Accounting for Income Taxes~~Government Assistance (Topic 832)—Disclosures by Business Entities about Government Assistance (ASU ~~2019-12)~~2021-10)	This ~~standard simplifies various aspects related~~ASU requires certain disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for ~~income taxes by removing certain exceptions to~~ the ~~general principles in ASC 740, “Income Taxes” (“ASC 740”),~~transactions and ~~clarifying certain aspects~~the effect of the ~~current guidance to promote consistency among reporting entities.~~transactions on an entity’s financial statements. The ~~adoption~~guidance of this ~~standard~~ASU is primarily related to disclosures of certain transactions with a government and therefore did not have a material impact toon the ~~Company's condensed consolidated~~ financial statements.Refer to Note 10, Income Taxes, for disclosure of our accounting for the Employee Retention Credit received.	December ~~31, 2020~~
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. ~~(ASU 2020-06)~~	This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. ~~The Company elected to early adopt this standard, beginning December 31, 2020.~~ The guidance of this ASU is applicable to the convertible notes issued in March 2021. As a result, the convertible notes are accounted for as a single liability measured at amortized cost. The if-converted earnings per share ("EPS") method is used, with the effect of potential share settlement included in diluted EPS. Refer to Note 6, Debt, and Note 11, Earnings Per Share, for additional information.	~~December 31, 2020~~30, 2021

NOTE 3: REVENUE

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 the Company expects to be entitled to in exchange for those goods or services. Revenue from Shack sales ~~are~~is recognized when payment is tendered at the point of sale, net of discounts as the performance obligation has been satisfied.

~~Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold.~~ Sales tax collected from ~~customers~~guests 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 gift cards is deferred and recognized ~~upon~~over time as redemptions occur.

During fiscal 2022, we concluded we have accumulated a sufficient level of historical data from a large pool of homogeneous transactions to allow us to reasonably and objectively determine an estimated gift card breakage rate and the pattern of actual gift card redemptions. Accordingly, we will begin to recognize breakage income and reduce the related gift card liability for unredeemed gift cards in proportion to actual redemptions of gift cards. We will continue to review historical gift card redemption information at each reporting period to assess the continued appropriateness of the gift card breakage rate and pattern of redemption.

In accordance with ASC 250, Accounting Changes and Error Corrections, we concluded that this accounting change represented a change in accounting estimate. As a result, we recorded a cumulative catch-up adjustment during the thirteen weeks ended March 30, 2022 that resulted in $1,281 of gift card breakage income. Inclusive of this cumulative catch-up, we recognized $1,309 of gift card breakage income during the thirteen weeks ended March 30, 2022. Gift card breakage income is included in Shack sales in the Condensed Consolidated Statement of Income (Loss).

Licensing revenue includes 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~~good or ~~services~~service transferred to the licensee ~~in the 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~~license and considered as one performance obligation per Shack. The Company determines the transaction price for each contract, which is comprised of the initial territory fee, and an estimate of the total Shack opening fees the Company expects 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~~estimated number of Shacks the Company expects the licensee to open. The transaction price is then allocated equally to each Shack expected to open. ~~The~~Because the Company is transferring a license to access intellectual property throughout a contractual term, the performance ~~obligations are~~obligation is satisfied over time, starting when a Shack opens, through the end of the term of the

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license granted to the Shack. ~~Because the Company is transferring licenses to access intellectual property during a contractual term,~~Therefore, 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~~license agreement and payment for the Shack opening fees is received either in advance of or upon

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opening the related Shack. 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.

Revenue recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~and September 23, 2020,~~ disaggregated by type iswas as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			March 30 2022		March 31 2021
Shack sales	Shack sales	$	186,972	$	126,288	$	519,110	$	353,855	Shack sales	$	196,791	$	150,668
Licensing revenue:	Licensing revenue:									Licensing revenue:
Sales-based royalties	Sales-based royalties	6,711		3,867		16,961		10,943		Sales-based royalties	6,400		4,425
Initial territory and opening fees	Initial territory and opening fees	212		246		566		559		Initial territory and opening fees	200		189
Total revenue	Total revenue	$	193,895	$	130,401	$	536,637	$	365,357	Total revenue	$	203,391	$	155,282

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of ~~September 29, 2021~~March 30, 2022 was ~~$17,821.~~$18,433. The Company expects 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~~Contract liabilities and receivables from contracts with customers iswere as follows:


		September 29 2021		December 31 2020			March 30 2022		December 29 2021
Shack sales receivables	Shack sales receivables	$	5,612	$	5,373	Shack sales receivables	$	6,639	$	6,939
Licensing receivables, net of allowance for doubtful accounts	Licensing receivables, net of allowance for doubtful accounts	3,874		2,647		Licensing receivables, net of allowance for doubtful accounts	3,262		4,005
Gift card liability	Gift card liability	2,656		2,637		Gift card liability	1,847		3,297
Deferred revenue, current	Deferred revenue, current	759		608		Deferred revenue, current	837		763
Deferred revenue, long-term	Deferred revenue, long-term	12,745		12,151		Deferred revenue, long-term	13,277		12,669

Revenue recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020~~ that was included in ~~their~~the respective liability balances at the beginning of the period iswas as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			March 30 2022		March 31 2021
Gift card liability(1)	Gift card liability(1)	$	73	$	91	$	400	$	436	Gift card liability(1)	$	1,506	$	219
Deferred revenue	Deferred revenue	203		234		543		539		Deferred revenue	197		181

(1)For the thirteen weeks ended March 30, 2022, amount includes the cumulative catch-up adjustment that resulted in $1,281 of gift card breakage income as noted above.

NOTE 4: FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of the Company's Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses ~~approximate their~~approximates fair value due to the short-term nature of these financial instruments.

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As of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ the Company held certain assets that are required to be measured at fair value on a recurring basis including Marketable securities, which consist of investments in equity securities. ~~Fair~~The fair value of these investments is measured using Level 1 ~~inputs (unadjusted quoted prices in active markets for identical assets).~~inputs. The carrying value of these investments in equity securities approximates fair value.

Assets measured at fair value on a recurring basis as of ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020~~ were as follows:


			Fair Value Measurements						Fair Value Measurements
			September 29 2021		December 30 2020				March 30 2022		December 29 2021
			Level 1		Level 1				Level 1		Level 1
Equity securities:	Equity securities:						Equity securities:
		Mutual funds	$	80,082	$	36,887		Mutual funds	$	79,676	$	80,000
Total Marketable securities	Total Marketable securities		$	80,082	$	36,887	Total Marketable securities		$	79,676	$	80,000

Refer to Note 6, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments.

A summary of ~~Other~~other income ~~net~~(expense) from equity securities recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020 is~~was as follows:


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020					March 30 2022		March 31 2021
Equity securities:	Equity securities:											Equity securities:
		Dividend income	$	56	$	40	$	223	$	290			Dividend income	$	77	$	74

		Realized gain (loss) on sale of investments	—		—		(5)		79
		Unrealized gain (loss) on equity securities	(80)		—		(117)		(22)				Unrealized loss on equity securities	(400)		(46)
Total	Total		$	(24)	$	40	$	101	$	347		Total		$	(323)	$	28

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 long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. There were no impairment charges recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021. During the thirty-nine weeks ended September 23, 2020, the Company recognized an impairment charge of $1,132 at one location. Of the total impairment charge, $736 was attributed to property and equipment held and used, $383 was attributed to operating lease right-of-use assets, and $13 was attributed to finance lease right-of-use assets. The impairment charge was included in Impairment and loss on disposal of assets on the Condensed Consolidated Statements of Income (Loss). The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. There were no impairment charges recognized during the thirteen weeks ended September 23, 2020.

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NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities as of ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020 are~~were as follows:


		September 29 2021		December 30 2020			March 30 2022		December 29 2021
Sales tax payable	Sales tax payable	$	4,230	$	4,285	Sales tax payable	$	4,931	$	4,575

Gift card liability	Gift card liability	2,656		2,637		Gift card liability	1,847		3,297

Current portion of financing equipment lease liabilities	Current portion of financing equipment lease liabilities	2,553		1,998		Current portion of financing equipment lease liabilities	2,697		2,711
Legal reserve						Legal reserve	6,275		533
Other	Other	3,834		5,280		Other	4,836		3,385
Other current liabilities	Other current liabilities	$	13,273	$	14,200	Other current liabilities	$	20,586	$	14,501

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The components of Other long-term liabilities as of ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020 are~~were as follows:

September 29
2021 December 30
2020
Deferred licensing revenue $ 12,745 $ 12,151
Long-term portion of financing equipment lease liabilities 3,977 3,586
Other(1)
6,028 8,723
Other long-term liabilities $ 22,750 $ 24,460

~~(1)~~As of September 29, 2021, Other included $3,142 of deferred lease incentive liabilities related to leases with variable lease cost as well as $2,607 of deferred Social Security taxes associated with the Coronavirus Aid, Relief, and Economic Security Act. As of December 30, 2020, Other included $3,182 of deferred lease incentive liabilities related to leases with variable lease cost as well as $5,214 of deferred Social Security taxes associated with the Coronavirus Aid, Relief, and Economic Security Act.


	March 30 2022		December 29 2021
Deferred licensing revenue	$	13,277	$	12,669
Long-term portion of financing equipment lease liabilities	4,246		4,303
Other	3,421		5,801
Other long-term liabilities	$	20,944	$	22,773

NOTE 6: DEBT

~~Revolving Credit Facility~~

In August 2019, the Company entered into a revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $50,000, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100,000, to be made available subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon request of up to $15,000.

In March 2020, the Company drew down the full $50,000 available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. This amount was paid in full, plus interest, in June 2020.

In May 2020, the Company entered into a first amendment to the Revolving Credit Facility ("First Amendment"), which, among other things, provided for modified financial covenant compliance requirements for a period of time. The First Amendment required the Company to maintain minimum liquidity of $25,000 through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bore interest at either: (i) the London Interbank Offered Rate ("LIBOR") plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on the Company's net lease adjusted leverage ratio.

In March 2021, the Company entered into a second amendment to the Revolving Credit Facility (“Second Amendment”). The Second Amendment modified the applicable covenants and restrictions in the Revolving Credit Facility to permit the incurrenceLong-term debt consisted of the Convertible Notes (as defined below), including obligations and transactions in connection therewith. In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment; (ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iii) addedfollowing components:

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~~mechanics relating to the transition from the use of LIBOR to the Secured Overnight Financing Rate ("SOFR") upon the discontinuance or unavailability of LIBOR.~~

Subsequently, and also in March 2021, the Company entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) as Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A. The Third Amendment appoints JPMorgan Bank, N.A. as administrative agent under the Revolving Credit Facility. In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026. As of September 29, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

The obligations under the Revolving Credit Facility are 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' direct and indirect subsidiaries (with certain exceptions).

The Revolving Credit Facility requires the Company to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios. The Company is not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above. In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit the Company's ability to incur debt; incur liens; make investments; engage in mergers, consolidations, liquidations or acquisitions; dispose of assets; make distributions on or repurchase equity securities; engage in transactions with affiliates; and prohibits the Company, with certain exceptions, from engaging in any line of business not related to its current line of business. As of September 29, 2021, the Company was in compliance with all covenants.

As of September 29, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $86 which were included in Other assets on the Condensed Consolidated Balance Sheets. Total interest expense related to the Revolving Credit Facility for the thirteen and thirty-nine weeks ended September 29, 2021 was $37 and $442, respectively, and $143 and $697, respectively, for the thirteen and thirty-nine weeks ended September 23, 2020. Interest expense for the thirty-nine weeks ended September 29, 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility.


	March 30 2022		December 29 2021
2021 Convertible Notes	$	250,000	$	250,000
Discount and debt issuance costs, net of amortization	6,196		6,458
Total Long-term debt	$	243,804	$	243,542

Convertible Notes

In March 2021, the Company issued ~~$225,000~~$250,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Company granted an option to the initial purchasers to purchase up to an additional $25,000 aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250,000 aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

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~~Table of Contents~~

The Convertible Notes had an initial conversion rate of 5.8679 shares of Class A common stock per one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $170.42 per share of Class A common stock.

Shake Shack may not redeem the Convertible Notes prior to March 6, 2025. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, on or after March 6, 2025 if the last reported sale price of Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption

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price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

In addition, if Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require it to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert the Convertible Notes in connection with such a corporate event or convert the Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc. entered into an intercompany note with SSE Holdings (“Intercompany Note”). SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028. Shake Shack Inc. will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by Shake Shack Inc. and the aggregate number of outstanding shares of common stock.

As of ~~September 29, 2021,~~March 30, 2022, the Convertible Notes had a gross principal balance of $250,000 and a balance of ~~$243,280,~~$243,804, net of unamortized discount and debt issuance costs of $6,720. As of September 29, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method.$6,196. Total amortization expense was $262 and ~~$605 respectively,~~$86 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, respectively, and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the issuance of the Convertible Notes, the Company also incurred consulting and advisory fees of $236 for the ~~thirty-nine~~thirteen weeks ended ~~September 29,~~March 31, 2021 and was included in General and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

At ~~September 29, 2021,~~March 30, 2022, the fair value of the Convertible Notes was approximately ~~$215,898,~~$200,025, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy.

Revolving Credit Facility

The Company also maintains a revolving credit facility agreement ("Revolving Credit Facility"). As of March 30, 2022 and December 29, 2021, no amounts were outstanding under the Revolving Credit Facility.

As of March 30, 2022, the Revolving Credit Facility had unamortized deferred financing costs of $77 which were included in Other assets on the Condensed Consolidated Balance Sheets. Total interest expense related to the Revolving Credit Facility were $36 and $368 for the thirteen weeks ended March 30, 2022 and March 31, 2021, respectively. Interest expense for the thirteen weeks ended March 31, 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility.

The Revolving Credit Facility requires the Company to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of March 30, 2022, the Company was in compliance with all covenants.

NOTE 7: LEASES

Nature of Leases

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through ~~2038.~~2044. The Company evaluates 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. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met and the Company has identified a lease, the contract is accounted for under the requirements of Accounting Standards Codification Topic 842.

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Upon ~~the~~ possession of a leased asset, the Company determines ~~its classification as~~whether the lease is an operating or finance lease. ~~The real~~Real estate leases are classified as operating leases and most of the equipment leases are classified as finance leases. Generally,

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 16

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~~the~~ real estate leases have initial terms ranging from 10 to 15 years and typically include 2 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 the Company would exercise the ~~options to extend the lease. The real~~renewal options. Real estate leases typically ~~provide for~~contain fixed minimum rent payments and/or contingent rent payments which are 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.

Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, the straight-line lease expense and ~~any~~ contingent rent, if applicable, is recorded in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss).

~~As there are no explicit rates provided in the leases, the~~The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease ~~payments.~~payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is 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 IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings.

The Company expends cash for leasehold improvements to build out and equip ~~the~~ leased ~~premises.~~properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords asthrough landlord incentives pursuant to agreed-upon terms in the lease agreements. ~~If obtained, landlord~~Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as ~~required~~ milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

A summary of operating and finance ~~and operating~~ lease ~~right-of-use~~ assets and lease liabilities as of ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020 is~~were as follows:


		Classification	September 29 2021		December 30 2020			Classification	March 30 2022		December 29 2021
Operating leases							Operating leases	Operating lease assets	$	346,128	$	347,277
Finance leases	Finance leases	Property and equipment, net	$	6,328	$	5,409	Finance leases	Property and equipment, net	6,733		6,810
Operating leases		Operating lease assets	338,886		306,317
Total right-of-use assets	Total right-of-use assets		$	345,214	$	311,726	Total right-of-use assets		$	352,861	$	354,087

Operating leases:							Operating leases:
								Operating lease liabilities, current	$	36,951	$	35,519
								Long-term operating lease liabilities	399,487		400,113
Finance leases:	Finance leases:						Finance leases:
		Other current liabilities	$	2,553	$	1,998		Other current liabilities	2,697		2,711
		Other long-term liabilities	3,977		3,586			Other long-term liabilities	4,246		4,303
Operating leases:
		Operating lease liabilities, current	38,811		35,657
		Long-term operating lease liabilities	378,686		343,736
Total lease liabilities	Total lease liabilities		$	424,027	$	384,977	Total lease liabilities		$	443,381	$	442,646

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The components of lease expense for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020 was~~were as follows:


				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
			Classification	September 29 2021		September 23 2020		September 29 2021		September 23 2020				Classification	March 30 2022		March 31 2021
Operating lease cost												Operating lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	$	13,681	$	12,330
Finance lease cost:	Finance lease cost:											Finance lease cost:
		Amortization of right-of-use assets	Depreciation and amortization expense	$	715	$	531	$	2,003	$	1,710		Amortization of right-of-use assets	Depreciation and amortization expense	753		613
		Interest on lease liabilities	Interest expense	47		51		158		161			Interest on lease liabilities	Interest expense	52		54
Operating lease cost			Occupancy and related expenses Pre-opening costs General and administrative expenses	12,497		11,506		37,213		33,726
Variable lease cost												Variable lease cost		Occupancy and related expenses Other operating expenses Pre-opening costs General and administrative expenses	3,504		2,851
Short-term lease cost	Short-term lease cost		Occupancy and related expenses	79		138		228		331		Short-term lease cost		Occupancy and related expenses	98		82
Variable lease cost			Occupancy and related expenses Pre-opening costs General and administrative expenses	3,347		3,267		9,556		9,413
Total lease cost	Total lease cost			$	16,685	$	15,493	$	49,158	$	45,341	Total lease cost			$	18,088	$	15,930

As of ~~September 29, 2021,~~March 30, 2022, future minimum lease payments for ~~finance~~operating and ~~operating~~finance leases consisted of the following:


		Finance Leases		Operating Leases			Operating Leases		Finance Leases
2021		$	743	$	10,232
2022		2,560		50,556
2022(1)						2022(1)	$	34,003	$	2,252
2023	2023	1,671		61,009		2023	64,088		2,205
2024	2024	927		60,907		2024	64,127		1,450
2025	2025	574		59,962		2025	62,986		718
2026						2026	59,230		425
Thereafter	Thereafter	449		294,310		Thereafter	255,488		273
Total minimum payments	Total minimum payments	6,924		536,976		Total minimum payments	539,922		7,323
Less: imputed interest	Less: imputed interest	395		119,479		Less: imputed interest	111,396		392
Total lease liabilities	Total lease liabilities	$	6,529	$	417,497	Total lease liabilities	$	428,526	$	6,931

(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of March 30, 2022.

As of ~~September 29, 2021~~March 30, 2022 the Company had additional operating lease commitments of ~~$50,967~~$129,255 for non-cancelable leases without a possession date, which begin to commence in ~~2021.~~2022. These lease commitments are consistent with the leases that have been executed thus far.

A summary of lease terms and discount rates for ~~finance~~operating and ~~operating~~finance leases as of ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020 is~~were as follows:

September 29
2021 December 30
2020
Weighted-average remaining lease term (years):
Finance leases 5.3 5.2
Operating leases 9.5 9.7
Weighted-average discount rate:
Finance leases 3.1 % 3.6 %
Operating leases 3.5 % 4.2 %


		March 30 2022		December 29 2021
Weighted average remaining lease term (years):
	Operating leases	9.1		9.5
	Finance leases	5.3		5.4
Weighted average discount rate:
	Operating leases	5.2	%	3.9	%
	Finance leases	3.1	%	3.1	%

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Supplemental cash flow information related to leases for the ~~thirty-nine~~thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020 is~~were as follows:


			Thirty-Nine Weeks Ended						Thirteen Weeks Ended
			September 29 2021		September 23 2020				March 30 2022		March 31 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
		Operating cash flows from finance leases	$	158	$	161		Operating cash flows from operating leases	$	13,525	$	11,825
		Operating cash flows from operating leases	35,703		29,449			Operating cash flows from finance leases	52		54
		Financing cash flows from finance leases	1,982		1,670			Financing cash flows from finance leases	747		602
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:						Right-of-use assets obtained in exchange for lease obligations:
		Finance leases	2,922		1,411			Operating leases	5,541		11,095
		Operating leases	52,747		42,502			Finance leases	676		1,518

NOTE 8: NON-CONTROLLING INTERESTS

Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. The Company reports 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, the Company will receive a corresponding number of LLC Interests, increasing the total ownership interest in SSE Holdings. Changes in the ownership interest in SSE Holdings while the Company retains its 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 29, 2021~~March 30, 2022 and December ~~30, 2020.~~29, 2021.


		September 29, 2021			December 30, 2020				March 30, 2022			December 29, 2021
		LLC Interests	Ownership %		LLC Interests	Ownership %			LLC Interests	Ownership %		LLC Interests	Ownership %
Number of LLC Interests held by Shake Shack Inc.	Number of LLC Interests held by Shake Shack Inc.	39,139,379	93.1	%	38,717,790	92.9	%	Number of LLC Interests held by Shake Shack Inc.	39,218,290	93.1	%	39,142,397	93.1	%
Number of LLC Interests held by non-controlling interest holders	Number of LLC Interests held by non-controlling interest holders	2,921,587	6.9	%	2,951,188	7.1	%	Number of LLC Interests held by non-controlling interest holders	2,911,587	6.9	%	2,921,587	6.9	%
Total LLC Interests outstanding	Total LLC Interests outstanding	42,060,966	100.0	%	41,668,978	100.0	%	Total LLC Interests outstanding	42,129,877	100.0	%	42,063,984	100.0	%

The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) 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 29,~~March 30, 2022 and March 31, 2021 was 6.9% and 7.0%, respectively. ~~The non-controlling interest holders' weighted average ownership percentage for the thirteen and thirty-nine weeks ended September 23, 2020 was 7.5% and 7.9%, respectively.~~

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~~Table of Contents~~

The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020.~~March 31, 2021.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29
2021 September 23
2020 September 29
2021 September 23
2020
Net income (loss) attributable to Shake Shack Inc. $ (2,178) $ (5,559) $ 1,075 $ (22,730)
Other comprehensive income:
Increase in additional paid-in capital as a result of the redemption of LLC Interests — 44 33 239
Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effects (386) 367 2,186 627
Increase in additional paid-in capital as a result of the issuance of Class A common stock sold in equity offerings — — — 135,718
Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc. $ (2,564) $ (5,148) $ 3,294 $ 113,854

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		Thirteen Weeks Ended
		March 30 2022		March 31 2021
Net income (loss) attributable to Shake Shack Inc.		$	(10,162)	$	1,309
Other comprehensive income (loss):

	Unrealized loss on foreign currency translation adjustment	(1)		(1)
Transfers (to) from non-controlling interests:


	Increase in additional paid-in capital as a result of the redemption of LLC Interests	49		36



	Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effects	(2,276)		3,359

Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.		$	(12,390)	$	4,703

The following table summarizes redemptions of LLC Interests activity during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020.~~March 31, 2021.


			Thirteen Weeks Ended		Thirty-Nine Weeks Ended				Thirteen Weeks Ended
			September 29 2021	September 23 2020	September 29 2021	September 23 2020			March 30 2022	March 31 2021
Redemption and acquisition of LLC Interests	Redemption and acquisition of LLC Interests						Redemption and acquisition of LLC Interests
		Number of LLC Interests redeemed by non-controlling interest holders	—	5,000	29,601	33,195		Number of LLC Interests redeemed by non-controlling interest holders	10,000	29,600

		Number of LLC Interests received by Shake Shack Inc.	—	5,000	29,601	33,195		Number of LLC Interests received by Shake Shack Inc.	10,000	29,600
Issuance of Class A common stock	Issuance of Class A common stock						Issuance of Class A common stock
		Shares of Class A common stock issued in connection with redemptions of LLC Interests	—	5,000	29,601	33,195		Shares of Class A common stock issued in connection with redemptions of LLC Interests	10,000	29,600

Cancellation of Class B common stock	Cancellation of Class B common stock						Cancellation of Class B common stock
		Shares of Class B common stock surrendered and canceled	—	5,000	29,601	33,195		Shares of Class B common stock surrendered and canceled	10,000	29,600

During the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, the Company received an aggregate of ~~5,023~~65,893 and ~~391,988~~355,849 LLC Interests, respectively, in connection with the activity under its stock compensation ~~plan and 38,564 and 180,068 LLC Interests, respectively, during the thirteen and thirty-nine weeks ended September 23, 2020.~~plans.

NOTE 9: EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020 is~~was as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			March 30 2022		March 31 2021
Stock options	Stock options	$	—	$	14	$	3	$	301	Stock options	$	—	$	20
Performance stock units	Performance stock units	868		233		2,065		1,009		Performance stock units	1,424		414
Restricted stock units	Restricted stock units	1,456		1,092		3,895		2,748		Restricted stock units	1,764		1,247
Equity-based compensation expense	Equity-based compensation expense	$	2,324	$	1,339	$	5,963	$	4,058	Equity-based compensation expense	$	3,188	$	1,681

Total income tax benefit recognized related to equity-based compensation	Total income tax benefit recognized related to equity-based compensation	$	44	$	60	$	174	$	135	Total income tax benefit recognized related to equity-based compensation	$	56	$	67

2018 | Shake Shack Inc.

Form 10-Q

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Equity-based compensation expense ~~is included in General and administrative expenses and Labor and related expenses on the Condensed Consolidated Statements of Income (Loss)~~recorded during the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020~~was as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			March 30 2022		March 31 2021
General and administrative expenses	General and administrative expenses	$	2,094	$	1,199	$	5,358	$	3,681	General and administrative expenses	$	2,991	$	1,541
Labor and related expenses	Labor and related expenses	230		140		605		377		Labor and related expenses	197		140
Equity-based compensation expense	Equity-based compensation expense	$	2,324	$	1,339	$	5,963	$	4,058	Equity-based compensation expense	$	3,188	$	1,681

NOTE 10: INCOME TAXES

Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates 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 the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its 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. The Company is also subject to withholding taxes in foreign jurisdictions.

The effective income tax rates for the thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 were 27.6% and ~~September 23, 2020 were 19.3% and 11.5%~~105.5%, respectively. The ~~increase~~decrease was primarily driven by ~~higher tax credits and~~ a decrease in windfall benefits associated with equity-based compensation resulting in the accrual of a valuation allowance in our investment in the partnership as well as higher foreign tax expense, partly offset by an increase in pre-tax ~~loss.~~loss and higher tax credits. Additionally, an increase in the Company's ownership interest in SSE Holdings increases its share of the taxable income (loss) of SSE Holdings. The ~~weighted-average~~weighted average ownership interest in SSE Holdings was 93.1% and ~~92.5%~~93.0% for the thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~and September 23, 2020, respectively.~~

The effective income tax rates for the thirty-nine weeks ended September 29, 2021 and September 23, 2020 were 102.3% and 21.2%, respectively. The increase was primarily driven by a decrease in the pre-tax book loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on the tax rate, as well as a reduction of a valuation allowance. The Company's weighted-average ownership interest in SSE Holdings was 93.0% and 92.1% for the thirty-nine weeks ended September 29, 2021 and September 23, 2020, respectively.

Deferred Tax Assets and Liabilities

During the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021,~~March 30, 2022, the Company acquired an aggregate of ~~421,589~~75,893 LLC Interests in connection with the redemption of LLC Interests, and activity relating to its stock compensation plan. The Company recognized a deferred tax asset in the amount of ~~$10,190~~$631 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. As of ~~September 29, 2021,~~March 30, 2022, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was ~~$131,232.~~$111,548. However, a portion of the total basis difference will only reverse upon the eventual sale of its interest in SSE Holdings, which the Company expects would result in a capital loss. As of ~~September 29, 2021,~~March 30, 2022, the total valuation allowance established against the deferred tax asset to which this portion relates was ~~$980.~~$959.

During the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021,~~March 30, 2022, the Company also recognized ~~$300~~$62 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. Refer to "Tax Receivable Agreement," herein for additional information.

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes 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 29, 2021,~~March 30, 2022, the Company concluded, based on the weight of all available positive and negative evidence, that all of its 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 eventual sale of its interest in SSE Holdings, New York City UBT credits and certain foreign tax credits) are more likely than not to be realized. As such, no additional valuation allowance was recognized.

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 21

~~Table of Contents~~

Tax Receivable Agreement

Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its 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. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. The Company intends 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

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tax basis may reduce the amounts that would otherwise be paid 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, the Company 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 the Company of 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's 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"). The Company expects to benefit from the remaining 15% of any tax benefits that may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company. 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 29, 2021,~~March 30, 2022, the Company acquired an aggregate of ~~29,601~~10,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional liability in the amount of ~~$1,093~~$228 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits the Company expects 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 estimates of future taxable income. During the ~~thirty-nine~~thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~the Company made no payments to the parties to the Tax Receivable Agreement. During the thirty-nine weeks ended September 23, 2020, payments of $6,643,~~ inclusive of interest, no payments were made to the ~~parties~~members of SSE Holdings pursuant to the Tax Receivable Agreement. As of ~~September 29, 2021,~~March 30, 2022, the total amount of TRA Payments due under the Tax Receivable Agreement, was ~~$234,048.~~$234,273. Refer to Note 13, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement.

CARES Act

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees after December 31, 2020 through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic.

As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for the ERC by analogy to International Accounting Standard ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the ERC benefit of $500 within Labor and other related expenses in the Condensed Consolidated Statement of Income (Loss) for the thirteen weeks ended March 30, 2022 as an offset to Social Security tax expense. We recorded a corresponding accrual for the benefit expected to be received within Accrued wages and related liabilities on the Condensed Consolidated Balance Sheet as of March 30, 2022.

NOTE 11: EARNINGS (LOSS) PER SHARE

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts) for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020.~~March 31, 2021.

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				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
				September 29 2021		September 23 2020		September 29 2021		September 23 2020					March 30 2022		March 31 2021
Numerator:	Numerator:											Numerator:
		Net income (loss) attributable to Shake Shack Inc.—basic		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)		Net income (loss) attributable to Shake Shack Inc.—basic		$	(10,162)	$	1,309
		Reallocation of net income (loss) attributable to non-controlling interests from the assumed conversion of Class B shares		—		—		(837)		—			Reallocation of net loss attributable to non-controlling interests from the assumed conversion of Class B shares		(1,120)		(734)
		Net income (loss) attributable to Shake Shack Inc.—diluted		$	(2,178)	$	(5,559)	$	238	$	(22,730)		Net income (loss) attributable to Shake Shack Inc.—diluted		$	(11,282)	$	575
Denominator:	Denominator:											Denominator:
		Weighted-average shares of Class A common stock outstanding—basic		39,137		38,251		39,066		36,668			Weighted average shares of Class A common stock outstanding—basic		39,163		38,948
		Effect of dilutive securities:											Effect of dilutive securities:
			Stock options	—		—		162		—				Stock options	—		232
			Performance stock units	—		—		39		—				Performance stock units	—		53
			Restricted stock units	—		—		124		—				Restricted stock units	—		164
			Convertible Notes	—		—		1,129		—				Convertible Notes	—		451
			Shares of Class B common stock	—		—		2,928		—				Shares of Class B common stock	—		2,941

		Weighted-average shares of Class A common stock outstanding—diluted		39,137		38,251		43,448		36,668			Weighted average shares of Class A common stock outstanding—diluted		39,163		42,789

Earnings (loss) per share of Class A common stock—basic	Earnings (loss) per share of Class A common stock—basic			$	(0.06)	$	(0.15)	$	0.03	$	(0.62)	Earnings (loss) per share of Class A common stock—basic			$	(0.26)	$	0.03
Earnings (loss) per share of Class A common stock—diluted	Earnings (loss) per share of Class A common stock—diluted			$	(0.06)	$	(0.15)	$	0.01	$	(0.62)	Earnings (loss) per share of Class A common stock—diluted			$	(0.26)	$	0.01

The effect of potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. Refer to Note 6, Debt, for additional information.

Shares of 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 (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of Class B common stock outstanding for the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be ~~antidilutive.~~anti-dilutive.

The following table presents potentially dilutive securities ~~as of the end of the period,~~ excluded from the computations of diluted earnings (loss) per share of Class A common stock for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020.~~March 31, 2021.


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			March 30 2022		March 31 2021
Stock options	Stock options	—		764,902	(2)	—		764,902	(2)	Stock options	149,731	(1)	1,698	(2)
Performance stock units	Performance stock units	45,707	(1)	139,081	(2)	45,707	(1)	139,081	(2)	Performance stock units	165,108	(1)	51,974	(3)
Restricted stock units	Restricted stock units	—		262,232	(2)	—		262,232	(2)	Restricted stock units	401,716	(1)	—
Shares of Class B common stock	Shares of Class B common stock	—		3,112,002	(2)	—		3,112,002	(2)	Shares of Class B common stock	2,911,587	(1)	—
Convertible notes										Convertible notes	1,466,975	(1)	—

(1)Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive.

(2)Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) 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)Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) 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.

~~(2)~~Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive.

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NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020:~~March 31, 2021:


			Thirty-Nine Weeks Ended						Thirteen Weeks Ended
			September 29 2021		September 23 2020				March 30 2022		March 31 2021
Cash paid for:	Cash paid for:						Cash paid for:
		Income taxes, net of refunds	$	1,788	$	1,270		Income taxes, net of refunds	$	936	$	388
		Interest, net of amounts capitalized	198		584			Interest, net of amounts capitalized	57		70
Non-cash investing activities:	Non-cash investing activities:						Non-cash investing activities:
		Accrued purchases of property and equipment	15,661		9,544			Accrued purchases of property and equipment	20,080		12,949

		Capitalized equity-based compensation	47		29			Capitalized equity-based compensation	25		9

Non-cash financing activities:	Non-cash financing activities:						Non-cash financing activities:

		Revolving Credit Facility amendment-related accrual	46		—			Revolving Credit Facility amendment-related accrual	—		112
		Convertible Notes issuance-related accrual	107		—			Convertible Notes issuance-related accrual	—		312
		Establishment of liabilities under tax receivable agreement	1,093		414			Establishment of liabilities under tax receivable agreement	228		1,094

NOTE 13: COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company is obligated under various operating leases for Shacks and the home office space, expiring in various years through ~~2038.~~2044. Under certain of these leases, the Company is liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for its proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. Refer to Note 7, Leases, for additional information.

As security under the terms of one of the leases, the Company is obligated under a letter of credit totaling $130 as of ~~September 29, 2021,~~March 30, 2022, which expires in February 2026. Additionally, in September 2017, the Company entered into a letter of credit in conjunction with the new home office lease in the amount of $603, which expires in August 2022 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. The Company also enters into long-term, exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities.

Legal Contingencies

In March 2020, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act. At a mediation between the parties, the Company agreed to settle the matter with the plaintiff and other employees who elect to participate in the settlement for $619. The Company initially accrued for this matter duringDuring the thirteen weeks ended March ~~31, 2021~~30, 2022, an accrual in the amount of $6,000 was recorded in connection with ~~an additional accrual established during~~settling a private action relating to New York City’s predictive scheduling laws. We are also involved in a related regulatory matter, which, at this time, we are not able to reasonably estimate the ~~thirteen weeks ended June 30, 2021, and paid in full~~outcome of, including any potential financial liability. As a result, no amount has been accrued as of ~~September~~March 30, 2022 and December 29, ~~2021.~~2021 relating to this matter.

We are subject to various legal proceedings, claims and liabilities, involving employees and guests alike, which arise in the ordinary course of business and are generally covered by insurance. As of March 30, 2022, the amount of the ultimate liability with respect to these matters was not material.

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The Company is 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 29, 2021, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note 10, Income Taxes, the Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. The Company is 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 the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related TRA Payments. During the ~~thirty-nine~~thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~and September 23, 2020,~~ the Company recognized liabilities totaling ~~$1,093~~$228 and ~~$414,~~$1,094, respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ the total obligations under the Tax Receivable Agreement were ~~$234,048~~$234,273 and ~~$232,954,~~$234,045, respectively. There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax ~~benefits.~~benefits generated by all transactions that occurred during the thirteen weeks ended March 30, 2022.

NOTE 14: RELATED PARTY TRANSACTIONS

Union Square Hospitality Group

The Chairman of the 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.

Hudson Yards Sports and Entertainment

In fiscal 2011, Shake Shack 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 5 consecutive five-year renewal options at HYC's option. As consideration for these rights, HYC pays the Company a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Amounts received from HYC Licensing revenue $ 185 $ 26 $ 243 $ 60


		Thirteen Weeks Ended
	Classification	~~September 29~~March 30 2022		March 31 2021		December 30 2020

Amounts ~~due~~received from HYC	~~Accounts receivable, net~~Licensing revenue	$	104	$	—	$	8


	Classification	March 30 2022		December 29 2021

Amounts due from HYC	Accounts receivable, net	$	25	$	90

Madison Square Park Conservancy

The Chairman of the Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which Shake Shack has a license agreement and pays license fees to operate the Madison Square Park Shack. No amounts were due to MSP Conservancy as of both ~~September 29, 2021~~March 30, 2022 and December ~~30, 2020.~~29, 2021.


		Thirteen Weeks Ended
	Classification	March 30 2022		March 31 2021
Amounts paid to MSP Conservancy	Occupancy and related expenses	$	220	$	215

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Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Amounts paid to MSP Conservancy Occupancy and related expenses $ 215 $ 173 $ 646 $ 392

Olo, Inc.

The Chairman of the Board of Directors serves as a director of Olo, Inc. (formerly known as "Mobo Systems, Inc."), a platform the Company uses in connection with its mobile ordering application.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Amounts paid to Olo, Inc. Other operating expenses $ 130 $ 75 $ 340 $ 169


		Thirteen Weeks Ended
	Classification	March 30 2022		March 31 2021
Amounts paid to Olo, Inc.	Other operating expenses	$	134	$	147


	Classification	~~September 29~~March 30 ~~2021~~2022		December 3029 ~~2020~~2021
Amounts due to Olo, Inc.	Accounts payable	$	31—	$	—33

~~Square,~~Block, Inc.

The Company's Chief Executive Officer is a member of the board of directors of ~~Square,~~Block, Inc. ~~("Square"~~(formerly known as "Square, Inc."). ~~The Company~~We currently ~~uses~~use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with its kiosk technology, sales for certain off-site events and the processing of a limited amount of sales at certain ~~locations, sales for certain off-site events and in connection with its kiosk technology.~~locations.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Amounts paid to Square Other operating expenses $ 833 $ 419 $ 2,049 $ 1,208


		Thirteen Weeks Ended
	Classification	March 30 2022		March 31 2021
Amounts paid to Block, Inc.	Other operating expenses	$	825	$	462


	~~Classification~~	September 29 2021		December 30 2020
~~Amounts due to Square~~	~~Accounts payable~~	$	18	$	—


	Classification	March 30 2022		December 29 2021
Amounts due to Block, Inc.	Accounts payable	$	44	$	52

USHG Acquisition Corp.

The Company's Chief Executive Officer has been appointed to the board of directors of USHG Acquisition Corp. in which the Company's Chairman of the Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp. USHG Acquisition Corp. is a newly organized blank check company incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. No amounts were paid to USHG Acquisition Corp. during the thirteen weeks ended March 30, 2022 and March 31, 2021. No amounts were due to or due from USHG Acquisition ~~Corp~~Corp. as of both ~~September 29, 2021~~March 30, 2022 and December ~~30, 2020.~~29, 2021.

Tax Receivable Agreement

The Company entered into a Tax Receivable Agreement that provides for the payment by the Company of 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. Refer to Note 10, Income Taxes, for additional information. No amounts were paid to members during the thirteen weeks ended March 30, 2022 and March 31, 2021.

~~Thirteen Weeks Ended~~

~~Thirty-Nine Weeks Ended~~

~~Classification~~

September 29
2021

September 23
2020

September 29
2021

September 23
2020

~~Amounts paid to members (inclusive of interest)~~

~~Other current liabilities~~

—

~~6,643~~


	Classification	March 30 2022		December 29 2021
Amounts due under the Tax Receivable Agreement	Other current liabilities Liabilities under Tax Receivable Agreement, net of current portion	$	234,273	$	234,045

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Classification September 29
2021 December 30
2020
Amounts due under the Tax Receivable Agreement Other current liabilities
Liabilities under tax receivable agreement, net of current portion $ 234,048 $ 232,954

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. No tax distributions were payable to non-controlling interest holders as of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ respectively.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Amounts paid to non-controlling interest holders Non-controlling interests $ 172 $ 164 $ 878 $ 478


		Thirteen Weeks Ended
	Classification	March 30 2022		March 31 2021
Amounts paid to non-controlling interest holders	Non-controlling interests	$	302	$	467

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 from the statements made herein. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including, but not limited to, statements about our growth, strategic plan, and our liquidity. 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 any historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Some of the factors which could cause results to differ materially from the Company's expectations include the continuing impact of the COVID-19 pandemic, including the potential impact of any COVID-19 variants, the Company's ability to develop and open new Shacks on a timely basis, increased costs or shortages or interruptions in the supply or delivery of our products, increased labor costs or shortages, inflationary pressures, the Company's management of its digital capabilities and expansion into ~~delivery,~~new channels, including drive-thru, our ability to maintain and grow sales at our existing Shacks, and risks relating to the restaurant industry generally. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020~~29, 2021 ("~~2020~~2021 Form 10-K"). 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.

The following discussion should be read in conjunction with our ~~2020~~2021 Form 10-K and the ~~condensed consolidated financial statements~~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.

OVERVIEW

Shake Shack is a modern day "roadside" burger stand serving a classic American menu of premium burgers, chicken, ~~sandwiches,~~ hot dogs, ~~crinkle-cut~~crinkle cut fries, shakes, frozen custard, beer, wine and ~~wine.~~more. As of ~~September 29, 2021,~~March 30, 2022, there were ~~350~~382 Shacks in operation system-wide, of which ~~205~~225 were domestic Company-operated Shacks, 2427 were domestic licensed Shacks and ~~121~~130 were international licensed Shacks.

Recent Business Trends

In the first quarter of 2022 with a sharp rise in COVID case counts in January and February, we navigated through more than 160 days of closures and operated with reduced hours, relative to pre-COVID levels, in many Shacks. Fiscal March performance was

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~~Recent Developments~~materially better than the first two months of the quarter as COVID cases declined and ~~Trends~~

~~The third quarter of 2021 marked the highest sales~~mobility trends in ~~the Company's history. Despite achieving this sales milestone, increasing costs continued~~urban and suburban markets recovered. We continue to ~~challenge the~~face inflationary pressures in our business, mainly in labor and commodity inflation. We ~~also experienced certain supply chain disruptions during~~increased menu price in March to help address these pressures however we expect to see higher inflationary pressures in the quarter. Although these did not have a material impact on the financial performance for this period, we cannot be certain future supply chain disruptions will not materially impact our financial results.coming quarters.

Same-Shack sales for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 increased ~~24.8%~~10.3% compared to the same period last year, with urban Shacks increasing ~~34.0%~~19.5% and suburban Shacks increasing ~~17.1%~~3.5%. The increase in same-Shack sales for the ~~third~~first quarter ~~2021~~of 2022 was driven by ~~a 25.8%~~an 11.6% increase in guest traffic due to ~~the return of~~an increase in in-Shack dining. However, same-Shack sales decreased 10.5% when compared to the fourth quarter of 2021 driven by a decrease in traffic across urban and suburban Shacks in all regions primarily due to the impact of the Omicron variant and a decrease in price mix during the thirteen weeks ended March 30, 2022.

Same-Shack sales represents Shack sales for the ~~thirty-nine weeks ended September 29, 2021 increased 25.8% compared to~~comparable Shack base, which is defined as the ~~same~~number of domestic Company-operated Shacks open for 24 full fiscal months or longer. For consecutive days that Shacks were temporarily closed, the comparative period ~~last year, primarily driven by a 19.7% increase in guest traffic and an increase in price mix of 6.1%.~~was also adjusted. For the purpose of calculating same-Shack sales ~~growth~~ for the thirteen weeks ended ~~September 29, 2021,~~March 30, 2022, Shack sales for ~~143 Shacks were included in the comparable Shack base, and for the thirty-nine weeks ended September 29, 2021, Shack sales for 144~~164 Shacks were included in the comparable Shack base.

Average weekly sales ~~held steady at $72,000~~was $68,000 in the ~~third~~first quarter of ~~2021~~2022 compared to $64,000 in the ~~second~~first quarter of 2021 driven by an increase in guest traffic and higher menu prices. Average weekly sales decreased 8.1% compared to the ~~opening~~fourth quarter of ~~five new domestic Company-operated~~2021 driven by lower sales in both urban and suburban Shacks ~~and~~as a result of the ~~re-opening of two domestic Company-operated Shacks that had been closed due to COVID-19.~~ Omicron variant.

Shack system-wide sales in the ~~third~~first quarter of ~~2021~~2022 increased ~~53.1%~~35.6% to ~~$298.6~~$309.5 million versus the same period last year. Shack system-wide sales in the first quarter of 2022 decreased 1.5% compared to the fourth quarter of 2021 driven by COVID-19 related pressures.

Digital sales for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 increased 4.3% and 51.3% respectively,~~March 30, 2022 decreased 5.7% to $84.3 million compared to the same period last year. ~~During the third quarter of 2021, total digital~~Digital sales ~~including~~includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented ~~42.3%~~43.1% of Shack ~~sales.~~sales during the thirteen weeks ended March 30, 2022. Digital sales retention was ~~nearly~~approximately 80% in fiscal ~~September~~March 2022 when compared to fiscal January 2021 when digital sales peaked. ~~During the third quarter of 2021 our new purchasers in Company-owned app and web channels grew 14.3% versus the second quarter of 2021, to 3.2 million total new purchasers since mid-March of 2020.~~

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~~Table of Contents~~

Development Highlights

During the ~~third~~first quarter of ~~2021,~~2022, we opened ~~five~~seven new domestic Company-operated Shacks, ~~one~~two new domestic licensed ~~Shack~~Shacks and ~~seven~~four new international licensed Shacks. There were ~~two~~no permanent ~~international licensed~~ Shack closures in the ~~third~~first quarter of ~~2021.~~2022.

Location

Type

Opening Date

~~Somerville, MA – Assembly Row~~Dallas, TX — NorthPark Center

Domestic Company-operated

~~7/5/2021~~1/12/2022

Carlsbad, CA — Carlsbad

Domestic Company-operated

1/12/2022

Ridgefield, NJ — Vince Lombardi Service Area

Domestic Licensed

1/12/2022

Shanghai, China ~~– Qiantan Taikoo Li~~— iAPM

International Licensed

~~7/15/2021~~1/13/2022

~~Denver,~~Greenwood Village, CO ~~– Denver~~ — Greenwood Village

Domestic Company-operated

1/21/2022

Culver City, CA — Westfield Culver City

Domestic Company-operated

1/22/2022

Beijing, China — Indigo

International ~~Airport~~Licensed

1/25/2022

Livonia, MI — Livonia

Domestic Company-operated

2/10/2022

Alpharetta, GA — Alpharetta

Domestic Company-operated

2/16/2022

Dubai, UAE — Dubai Hills

International Licensed

2/17/2022

Nanjing, China — Deiji Plaza

International Licensed

2/22/2022

Orlando, FL — Vineland Pointe

Domestic Company-operated

3/24/2022

St. Louis, MO — Enterprise Center

Domestic Licensed

~~7/20/2021~~

~~Mexico City, MX – Colonia del Valle~~

~~International Licensed~~

~~7/21/2021~~

~~Burlington, MA – Burlington Mall~~

~~Domestic Company-operated~~

8/3/~~2021~~

~~Hwaseong, South Korea – Dongtanyeakro 160~~

~~International Licensed~~

~~8/20/2021~~

~~Singapore, Singapore – Gardens By The Bay~~

~~International Licensed~~

~~8/28/2021~~

~~Orlando, FL – Orlando Premium Outlets~~

~~Domestic Company-operated~~

8/30/~~2021~~

~~Monterrey, MX – Arboleda~~

~~International Licensed~~

~~9/2/2021~~

~~Everett, MA – Encore Boston Harbor~~

~~Domestic Company-operated~~

~~9/10/2021~~

~~Seoul, South Korea – Hongdae~~

~~International Licensed~~

~~9/17/2021~~

~~Hangzhou, China – The MixC~~

~~International Licensed~~

~~9/23/2021~~

~~Oak Lawn, IL – Oak Lawn~~

~~Domestic Company-operated~~

~~9/24/2021~~2022

26 | Shake Shack Inc.

Form 10-Q | 29

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RESULTS OF OPERATIONS

The following table summarizes our results of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021~~March 30, 2022 and ~~September 23, 2020:~~March 31, 2021:


			Thirteen Weeks Ended								Thirty-Nine Weeks Ended										Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021				September 23 2020				September 29 2021				September 23 2020				(dollar amounts in thousands)		March 30 2022				March 31 2021
Shack sales	Shack sales		$	186,972	96.4	%	$	126,288	96.8	%	$	519,110	96.7	%	$	353,855	96.9	%	Shack sales		$	196,791	96.8	%	$	150,668	97.0	%
Licensing revenue	Licensing revenue		6,923		3.6	%	4,113		3.2	%	17,527		3.3	%	11,502		3.1	%	Licensing revenue		6,600		3.2	%	4,614		3.0	%
TOTAL REVENUE	TOTAL REVENUE		193,895		100.0	%	130,401		100.0	%	536,637		100.0	%	365,357		100.0	%	TOTAL REVENUE		203,391		100.0	%	155,282		100.0	%
Shack-level operating expenses(1):	Shack-level operating expenses(1):																		Shack-level operating expenses(1):
		Food and paper costs	57,925		31.0	%	37,903		30.0	%	157,472		30.3	%	107,494		30.4	%		Food and paper costs	59,884		30.4	%	44,630		29.6	%
		Labor and related expenses	58,208		31.1	%	37,898		30.0	%	157,221		30.3	%	110,597		31.3	%		Labor and related expenses	60,465		30.7	%	46,382		30.8	%
		Other operating expenses	26,613		14.2	%	18,743		14.8	%	74,032		14.3	%	50,826		14.4	%		Other operating expenses	30,237		15.4	%	23,144		15.4	%
		Occupancy and related expenses	14,640		7.8	%	13,093		10.4	%	43,427		8.4	%	37,974		10.7	%		Occupancy and related expenses	16,276		8.3	%	13,911		9.2	%
General and administrative expenses	General and administrative expenses		20,504		10.6	%	14,962		11.5	%	60,435		11.3	%	45,170		12.4	%	General and administrative expenses		31,320		15.4	%	19,565		12.6	%
Depreciation and amortization expense	Depreciation and amortization expense		15,183		7.8	%	12,376		9.5	%	43,381		8.1	%	36,233		9.9	%	Depreciation and amortization expense		16,855		8.3	%	13,726		8.8	%
Pre-opening costs	Pre-opening costs		2,933		1.5	%	1,822		1.4	%	8,767		1.6	%	5,799		1.6	%	Pre-opening costs		2,712		1.3	%	3,576		2.3	%
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		535		0.3	%	402		0.3	%	1,262		0.2	%	2,924		0.8	%	Impairment and loss on disposal of assets		577		0.3	%	369		0.2	%
TOTAL EXPENSES	TOTAL EXPENSES		196,541		101.4	%	137,199		105.2	%	545,997		101.7	%	397,017		108.7	%	TOTAL EXPENSES		218,326		107.3	%	165,303		106.5	%
LOSS FROM OPERATIONS	LOSS FROM OPERATIONS		(2,646)		(1.4)	%	(6,798)		(5.2)	%	(9,360)		(1.7)	%	(31,660)		(8.7)	%	LOSS FROM OPERATIONS		(14,935)		(7.3)	%	(10,021)		(6.5)	%
Other income, net			18		—	%	34		—	%	157		—	%	335		0.1	%
Other income (expense), net																			Other income (expense), net		(289)		(0.1)	%	31		—	%
Interest expense	Interest expense		(350)		(0.2)	%	(143)		(0.1)	%	(1,224)		(0.2)	%	(697)		(0.2)	%	Interest expense		(355)		(0.2)	%	(515)		(0.3)	%
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(2,978)		(1.5)	%	(6,907)		(5.3)	%	(10,427)		(1.9)	%	(32,022)		(8.8)	%	LOSS BEFORE INCOME TAXES		(15,579)		(7.7)	%	(10,505)		(6.8)	%
Benefit from income taxes	Benefit from income taxes		(576)		(0.3)	%	(797)		(0.6)	%	(10,665)		(2.0)	%	(6,802)		(1.9)	%	Benefit from income taxes		(4,297)		(2.1)	%	(11,080)		(7.1)	%
NET INCOME (LOSS)	NET INCOME (LOSS)		(2,402)		(1.2)	%	(6,110)		(4.7)	%	238		—	%	(25,220)		(6.9)	%	NET INCOME (LOSS)		(11,282)		(5.5)	%	575		0.4	%
Less: Net loss attributable to non-controlling interests	Less: Net loss attributable to non-controlling interests		(224)		(0.1)	%	(551)		(0.4)	%	(837)		(0.2)	%	(2,490)		(0.7)	%	Less: Net loss attributable to non-controlling interests		(1,120)		(0.6)	%	(734)		(0.5)	%
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,178)	(1.1)	%	$	(5,559)	(4.3)	%	$	1,075	0.2	%	$	(22,730)	(6.2)	%	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(10,162)	(5.0)	%	$	1,309	0.8	%

(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.~~Shacks and gift card breakage income. 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 months or longer.Shacks.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Shack sales	Shack sales		$	186,972		$	126,288		$	519,110		$	353,855		Shack sales		$	196,791		$	150,668
		Percentage of Total revenue	96.4		%	96.8		%	96.7		%	96.9		%		Percentage of total revenue	96.8		%	97.0		%
		Dollar change compared to prior year	$	60,684					$	165,255						Dollar change compared to prior year	$	46,123
		Percentage change compared to prior year	48.1		%				46.7		%					Percentage change compared to prior year	30.6		%

~~The increases in~~ Shack sales for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 increased 30.6% to $196.8 million versus the same period last year. The increase in Shack sales was primarily due to the ~~continued recovery from the COVID-19 pandemic, in addition to the~~ opening of 3033 net new domestic Company-operated Shacks between ~~September 23, 2020~~March 31, 2021 and ~~September 29, 2021.~~March 30, 2022 which contributed $24.5 million as well as $22.9 million related to increased traffic at both urban and suburban Shacks.

~~30 |~~ Shake Shack Inc.

Form 10-Q | 27

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Licensing Revenue

Licensing revenue is comprised of license fees, opening fees for certain licensed Shacks and territory fees. License fees are calculated as a percentage of sales and territory fees are payments for the exclusive right to develop Shacks in a specific geographic area.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Licensing revenue	Licensing revenue		$	6,923		$	4,113		$	17,527		$	11,502		Licensing revenue		$	6,600		$	4,614
		Percentage of Total revenue	3.6		%	3.2		%	3.3		%	3.1		%		Percentage of total revenue	3.2		%	3.0		%
		Dollar change compared to prior year	$	2,810					$	6,025						Dollar change compared to prior year	$	1,986
		Percentage change compared to prior year	68.3		%				52.4		%					Percentage change compared to prior year	43.0		%

~~The increases in~~ Licensing revenue for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were primarily due~~March 30, 2022 increased 43.0% to ~~increased strength across regions where COVID-19 related restrictions have been eased as well as a net~~$6.6 million versus the same period last year. The increase ~~of 22 licensed Shacks that opened between September 23, 2020 and September 29, 2021. Although~~in Licensing revenue ~~continued to improve, COVID-19 related challenges remain in various regions where our licensed Shacks operate. As of the end of the third quarter 2021, seven licensed Shacks were temporarily closed~~was primarily due to the opening of 28 net new licensed Shacks between March 31, 2021 and March 30, 2022 which contributed $1.3 million. Although we continue to see improvement in Licensing revenue, COVID-19 ~~pandemic.~~related pressures continue to impact our Asian markets, predominately in China where lockdowns and closures still persist.

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~~Food and paper costs are variable by nature, ~~changing~~change with sales volume, ~~and~~ are impacted by menu mix and fluctuations in commodity costs, as well as geographic scale and proximity.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Food and paper costs	Food and paper costs		$	57,925		$	37,903		$	157,472		$	107,494		Food and paper costs		$	59,884		$	44,630
		Percentage of Shack sales	31.0		%	30.0		%	30.3		%	30.4		%		Percentage of Shack sales	30.4		%	29.6		%
		Dollar change compared to prior year	$	20,022					$	49,978						Dollar change compared to prior year	$	15,254
		Percentage change compared to prior year	52.8		%				46.5		%					Percentage change compared to prior year	34.2		%

Food and paper costs for the thirteen weeks ended March 30, 2022 increased 34.2% to $59.9 million versus the same period last year. The ~~increases~~increase in Food and paper costs for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 was primarily due to increased sales volume associated with ~~continued recovery from the COVID-19 pandemic and~~ the opening of 3033 net new domestic Company-operated Shacks between ~~September 23, 2020~~March 31, 2021 and ~~September 29, 2021.~~March 30, 2022.

As a percentage of Shack sales, the increase in Food and paper costs for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 was primarily driven by increases in chicken and beef prices, partially offset by decreases in paper and packaging costs compared to the same period last year. The decreases in paper and packaging costs were due to all orders being packaged as 'to go' orders in the third quarter last year. As a percentage of Shack sales, Food and paper costs for the thirty-nine weeks ended September 29, 2021 was relatively flat primarily due to elevatedincreased beef and chicken prices partially offset by ~~a decrease in paper and packaging costs compared to the same period last year.~~

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 31

~~Table of Contents~~

menu price increases.

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, labor costs ~~should~~are likely to grow as our Shack sales grow. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our domestic Company-operated Shacks.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Labor and related expenses $ 58,208 $ 37,898 $ 157,221 $ 110,597
Percentage of Shack sales 31.1 % 30.0 % 30.3 % 31.3 %
Dollar change compared to prior year $ 20,310 $ 46,624
Percentage change compared to prior year 53.6 % 42.2 %

28 | Shake Shack Inc.

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The increases in Labor and related expenses for the thirteen and thirty-nine weeks ended September 29, 2021 were primarily due to recent investments in wages and bonuses for the Shack teams, as well as the opening of 30 net new domestic Company-operated Shacks between September 23, 2020 and September 29, 2021.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Labor and related expenses		$	60,465		$	46,382
	Percentage of Shack sales	30.7		%	30.8		%
	Dollar change compared to prior year	$	14,083
	Percentage change compared to prior year	30.4		%

~~As a percentage of Shack sales, the increase in~~ Labor and related expenses for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 increased 30.4% to $60.5 million versus the same period last year. The increase in Labor and related expenses was primarily due to the opening of 33 net new domestic Company-operated Shacks between March 31, 2021 and March 30, 2022 as well higher investments in wages for the Shack ~~team investments as noted above, partially offset by greater sales leverage associated with the recovery from COVID-19.~~ teams.

As a percentage of Shack sales, the decrease in Labor and related expenses for the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021~~March 30, 2022 was primarily due to ~~greater sales leverage associated with~~lower payroll tax and benefit expense recognized during the ~~recovery from COVID-19, partially~~period, nearly offset by ~~increased~~an increase in headcount asand higher starting wages for our ~~Shacks aim to return to pre-pandemic operating levels.~~team members.

Other Operating Expenses

Other operating expenses consist of delivery commissions, 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 and property insurance.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Other operating expenses	Other operating expenses		$	26,613		$	18,743		$	74,032		$	50,826		Other operating expenses		$	30,237		$	23,144
		Percentage of Shack sales	14.2		%	14.8		%	14.3		%	14.4		%		Percentage of Shack sales	15.4		%	15.4		%
		Dollar change compared to prior year	$	7,870					$	23,206						Dollar change compared to prior year	$	7,093
		Percentage change compared to prior year	42.0		%				45.7		%					Percentage change compared to prior year	30.6		%

~~The increases in~~ Other operating expenses for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 increased 30.6% to $30.2 million versus the same period last year. The increase in Other operating expenses was primarily due to higher ~~delivery~~facilities costs associated with increased in-Shack dining, higher transaction and ~~transaction~~delivery costs associated with higher ~~digital~~ sales, ~~facilities costs associated with the re-opening of dining rooms,~~ and the opening of 3033 net new domestic Company-operated Shacks between ~~September 23, 2020~~March 31, 2021 and ~~September 29, 2021.~~March 30, 2022.

As a percentage of Shack sales, ~~the decreases in~~ Other operating expenses for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were primarily due to~~March 30, 2022 was flat as sales leverage associated with the recovery from COVID-19 ~~partially~~was offset by higher facilities costs as noted above.

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, which are recorded separately in ~~pre-opening~~Pre-opening costs.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Occupancy and related expenses		$	16,276		$	13,911
	Percentage of Shack sales	8.3		%	9.2		%
	Dollar change compared to prior year	$	2,365
	Percentage change compared to prior year	17.0		%

Occupancy and related expenses for the thirteen weeks ended March 30, 2022 increased 17.0% to $16.3 million versus the same period last year. The increase in Occupancy and related expenses was primarily due to the opening of 33 net new domestic Company-operated Shacks between March 31, 2021 and March 30, 2022.

~~32 |~~

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Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Occupancy and related expenses $ 14,640 $ 13,093 $ 43,427 $ 37,974
Percentage of Shack sales 7.8 % 10.4 % 8.4 % 10.7 %
Dollar change compared to prior year $ 1,547 $ 5,453
Percentage change compared to prior year 11.8 % 14.4 %

~~The increases~~As a percentage of Shack sales, the decrease in Occupancy and related expenses for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were primarily due to the opening of~~March 30, ~~net new domestic Company-operated Shacks between September 23, 2020 and September 29, 2021.~~

~~As a percentage of Shack sales, the decreases in Occupancy and related expenses for the thirteen and thirty-nine weeks ended September 29, 2021~~2022 were primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic.

General and Administrative Expenses

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
General and administrative expenses	General and administrative expenses		$	20,504		$	14,962		$	60,435		$	45,170		General and administrative expenses		$	31,320		$	19,565
		Percentage of Total revenue	10.6		%	11.5		%	11.3		%	12.4		%		Percentage of Total revenue	15.4		%	12.6		%
		Dollar change compared to prior year	$	5,542					$	15,265						Dollar change compared to prior year	$	11,755
		Percentage change compared to prior year	37.0		%				33.8		%					Percentage change compared to prior year	60.1		%

General and administrative expenses for the thirteen weeks ended March 30, 2022 increased 60.1% to $31.3 million versus the same period last year. The ~~increases~~increase in General and administrative expenses was primarily due to a $6.0 million settlement of a legal matter and $4.0 million related to wages and other team costs as part of our continued investments to support Shack development and digital programs.

As a percentage of Total revenue, the increase in General and administrative expenses for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 was primarily due to ~~continued investments in wages and other team costs to support~~ the ~~continued recovery from the COVID-19 pandemic,~~aforementioned items as well as ~~investments~~an increase in marketing expenses to support increased digital investments including digital products and ~~technology initiatives.~~performance marketing.

As a percentage of Total revenue, the decreases in General and administrative expenses for the thirteen and thirty-nine weeks ended September 29, 2021 were primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic.

Depreciation and Amortization Expense

Depreciation and amortization expense consists of the depreciation of fixed assets, including leasehold improvements and ~~equipment.~~equipment, as well as financing equipment lease assets.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Depreciation and amortization expense	Depreciation and amortization expense		$	15,183		$	12,376		$	43,381		$	36,233		Depreciation and amortization expense		$	16,855		$	13,726
		Percentage of Total revenue	7.8		%	9.5		%	8.1		%	9.9		%		Percentage of Total revenue	8.3		%	8.8		%
		Dollar change compared to prior year	$	2,807					$	7,148						Dollar change compared to prior year	$	3,129
		Percentage change compared to prior year	22.7		%				19.7		%					Percentage change compared to prior year	22.8		%

~~The increases in~~ Depreciation and amortization expense for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 increased 22.8% to $16.9 million versus the same period last year. The increase in Depreciation and amortization expense was predominantly due to incremental depreciation of capital expenditures related to the opening of 3033 net new domestic Company-operated Shacks between ~~September 23, 2020~~March 31, 2021 and ~~September 29, 2021.~~

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 33

~~Table of Contents~~

March 30, 2022.

As a percentage of Total revenue, the ~~decreases~~decrease in Depreciation and amortization expense for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 was primarily due to sales leverage associated with the recovery from the COVID-19 pandemic.

Pre-Opening Costs

Pre-opening costs consist primarily of legal fees, rent, managers' salaries, training costs, ~~employee~~team member payroll and related expenses, costs to relocate and compensate Shack management teams prior to an opening and wages, travel and lodging costs for our opening training team and other supporting team members. All such costs incurred prior to the opening of a domestic Company-operated Shack are expensed in the period in which the expense was 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 for each domestic Company-operated Shack. Additionally, domestic Company-operated Shack openings in new geographic market areas may initially experience higher pre-opening costs than our established

30 | Shake Shack Inc.

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geographic market areas, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Pre-opening costs	Pre-opening costs		$	2,933		$	1,822		$	8,767		$	5,799		Pre-opening costs		$	2,712		$	3,576
		Percentage of Total revenue	1.5		%	1.4		%	1.6		%	1.6		%		Percentage of Total revenue	1.3		%	2.3		%
		Dollar change compared to prior year	$	1,111					$	2,968						Dollar change compared to prior year	$	(864)
		Percentage change compared to prior year	61.0		%				51.2		%					Percentage change compared to prior year	(24.2)		%

~~The increases in~~ Pre-opening costs for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29, 2021 were~~March 30, 2022 decreased 24.2% to $2.7 million versus the same period last year. The decrease in Pre-opening costs was due to the ~~higher~~lower number of new domestic Company-operated Shacks opened during the current period compared to the prior-year ~~period, as well as those expected to open.~~period.

Impairment and Loss on Disposal of Assets

Impairment and loss on disposal of assets include impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets. Additionally, ~~impairment~~Impairment and loss on disposal of assets includes 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						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		$	535		$	402		$	1,262		$	2,924		Impairment and loss on disposal of assets		$	577		$	369
		Percentage of Total revenue	0.3		%	0.3		%	0.2		%	0.8		%		Percentage of Total revenue	0.3		%	0.2		%
		Dollar change compared to prior year	$	133					$	(1,662)						Dollar change compared to prior year	$	208
		Percentage change compared to prior year	33.1		%				(56.8)		%					Percentage change compared to prior year	56.4		%

~~The increase in~~ Impairment and loss on disposal of assets for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 increased 56.4% to $0.6 million versus the same period last year. The increase in Impairment and loss on disposal of assets was primarily due to the number of Shacks maturing in our base. ~~For the thirty-nine weeks ended September 29, 2021, the decrease was primarily due to an impairment charge of $1.1 million recorded in the first quarter of fiscal 2020.~~

Other Income (Expense), Net

Other income (expense), net consists of ~~interest~~adjustments to liabilities under our Tax Receivable Agreement, dividend income, ~~dividend~~interest income and net unrealized and realized gains and losses from the sale of marketable securities.

~~34 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Other income (expense), net		$	(289)		$	31
	Percentage of Total revenue	(0.1)		%	—		%
	Dollar change compared to prior year	$	(320)
	Percentage change compared to prior year	(1,032.3)		%

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Other income, net $ 18 $ 34 $ 157 $ 335
Percentage of Total revenue — % — % — % 0.1 %
Dollar change compared to prior year $ (16) $ (178)
Percentage change compared to prior year (47.1) % (53.1) %

~~The decrease in~~ Other income (expense), net for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 decreased to $(0.3) million versus the same period last year. The decrease in Other income (expense), net was primarily due to unrealized losses related to our investments in marketable securities more than offsetting the increase in dividend income for the period. The decrease in Other income, net for the thirty-nine weeks ended September 29, 2021 was primarily due to an increase in unrealized losses and a decrease in dividend income related to our investments in marketable securities.

Interest Expense

Interest expense ~~generally~~primarily consists of interest and fees on ~~the current portion of~~ our ~~liabilities under the Tax Receivable Agreement,~~Revolving Credit Facility, imputed interest related to our financing equipment leases, amortization of deferred financing costs, and interest ~~and fees~~ on the current portion of our ~~Revolving Credit Facility and amortization~~liabilities under the Tax Receivable Agreement.

Shake Shack Inc.

Form 10-Q | 31

Table of ~~debt issuance costs.~~Contents


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Interest expense	Interest expense		$	(350)		$	(143)		$	(1,224)		$	(697)		Interest expense		$	(355)		$	(515)
		Percentage of Total revenue	(0.2)		%	(0.1)		%	(0.2)		%	(0.2)		%		Percentage of Total revenue	(0.2)		%	(0.3)		%
		Dollar change compared to prior year	$	(207)					$	(527)						Dollar change compared to prior year	$	160
		Percentage change compared to prior year	144.8		%				75.6		%					Percentage change compared to prior year	(31.1)		%

~~The increase in~~ Interest expense for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 decreased 31.1% to $0.4 million versus the same period last year. The decrease in Interest expense was primarily due to ~~amortization expense related to the issuance of Convertible Notes in March 2021.~~

~~The increase in Interest expense for the thirty-nine weeks ended September 29, 2021 was primarily due to amortization expense related to the issuance of Convertible Notes in March 2021 as well as~~ the write-off of previously capitalized costs of $0.3 million associated with the amendment of our Revolving Credit Facility during the thirteen weeks ended March 31, 2021, partially offset by an increase in amortization expense related to the discount and debt issuance costs on our Convertible Notes during the thirteen weeks ended March ~~2021. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.~~30, 2022.

Benefit from Income Taxes

We are the sole managing member of SSE Holdings, and as a result, ~~consolidates~~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 ~~us.~~Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Benefit from income taxes	Benefit from income taxes		$	(576)		$	(797)		$	(10,665)		$	(6,802)		Benefit from income taxes		$	(4,297)		$	(11,080)
		Percentage of Total revenue	(0.3)		%	(0.6)		%	(2.0)		%	(1.9)		%		Percentage of Total revenue	(2.1)		%	(7.1)		%
		Dollar change compared to prior year	$	221					$	(3,863)						Dollar change compared to prior year	$	6,783
		Percentage change compared to prior year	(27.7)		%				56.8		%					Percentage change compared to prior year	(61.2)		%

Our effective income tax rates for the thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021 were 27.6% and ~~September 23, 2020 were 19.3% and 11.5%~~105.5%, respectively. The ~~increase~~decrease was primarily driven by ~~higher tax credits and~~ a decrease in windfall benefits associated with equity-based compensation resulting in the accrual of a valuation allowance in our investment in the partnership as well as higher foreign tax expense, partly offset by an increase in pre-tax ~~loss.~~loss and higher tax credits. Additionally, an increase in our ownership interest in SSE Holdings increases our share of the taxable income (loss) of SSE Holdings. Our

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 35

~~Table of Contents~~

~~weighted-average~~ weighted average ownership interest in SSE Holdings was 93.1% and ~~92.5%~~93.0% for the thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~and September 23, 2020,~~ respectively.

Our effective income tax rates for the thirty-nine weeks ended September 29, 2021 and September 23, 2020 were 102.3% and 21.2%, respectively. The increase was primarily driven by a decrease in the pre-tax book loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on the tax rate, as well as a reduction of a valuation allowance. Our weighted-average ownership interest in SSE Holdings was 93.0% and 92.1% for the thirty-nine weeks ended September 29, 2021 and September 23, 2020, respectively.

Net ~~Income (Loss)~~Loss 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 (Loss), representing the portion of ~~net loss~~Net income (loss) 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. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income ~~(loss)~~ to Shake Shack Inc. and the non-controlling interest holders.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Net loss attributable to non-controlling interests $ (224) $ (551) $ (837) $ (2,490)
Percentage of Total revenue (0.1) % (0.4) % (0.2) % (0.7) %
Dollar change compared to prior year $ 327 $ 1,653
Percentage change compared to prior year (59.3) % (66.4) %

32 | Shake Shack Inc.

Form 10-Q

Table of Contents


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Net loss attributable to non-controlling interests		$	(1,120)		$	(734)
	Percentage of Total revenue	(0.6)		%	(0.5)		%

Net loss attributable to non-controlling interests for the thirteen weeks ended March 30, 2022 increased to $1.1 million from $0.7 million in the same period last year. The ~~improvement~~increase in Net loss attributable to non-controlling interests for the thirteen weeks ended ~~September 29, 2021~~March 30, 2022 was primarily due to ~~an improvement~~a decrease in net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.9% and ~~7.5%~~7.0% for the thirteen weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~and September 23, 2020, respectively.~~

The improvement in Net loss attributable to non-controlling interests for the thirty-nine weeks ended September 29, 2021 was primarily due to an improvement in net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 7.9% for the thirty-nine weeks ended September 29, 2021 and September 23, 2020, respectively.

NON-GAAP FINANCIAL MEASURES

To supplement the ~~condensed consolidated financial statements,~~Condensed Consolidated Financial Statements, which are prepared and presented in accordance with ~~accounting principles generally accepted in the United States of America ("GAAP"),~~U.S. 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 ~~(loss)~~ and adjusted pro forma earnings ~~(loss)~~ per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

~~36 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

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 to develop our 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 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 the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates ~~our~~the business, as well as the 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 the Company's Shacks. Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with the Company's GAAP financial results. ~~A reconciliation of Shack-level operating profit to Operating loss, the most directly comparable GAAP financial measure, is set forth below.~~

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Loss from Operations $ (2,646) $ (6,798) $ (9,360) $ (31,660)
Less:
Licensing revenue 6,923 4,113 17,527 11,502
Add:
General and administrative expenses 20,504 14,962 60,435 45,170
Depreciation and amortization expense 15,183 12,376 43,381 36,233
Pre-opening costs 2,933 1,822 8,767 5,799
Impairment and loss on disposal of assets(1)
535 402 1,262 2,924
Shack-level operating profit $ 29,586 $ 18,651 $ 86,958 $ 46,964
Total revenue $ 193,895 $ 130,401 $ 536,637 $ 365,357
Less: Licensing revenue 6,923 4,113 17,527 11,502
Shack sales $ 186,972 $ 126,288 $ 519,110 $ 353,855
Shack-level operating profit margin(2)
15.8 % 14.8 % 16.8 % 13.3 %

~~(1)For the thirty-nine weeks ended September 23, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.~~

~~(2)As a percentage of Shack sales.~~

Shake Shack Inc.

Form 10-Q | 3733

Table of Contents

A reconciliation of Shack-level operating profit to Loss from operations, the most directly comparable GAAP financial measure, is set forth below.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022		March 31 2021
Loss from operations		$	(14,935)	$	(10,021)
Less:
	Licensing revenue	6,600		4,614
Add:
	General and administrative expenses	31,320		19,565
	Depreciation and amortization expense	16,855		13,726
	Pre-opening costs	2,712		3,576
	Impairment and loss on disposal of assets	577		369
Shack-level operating profit		$	29,929	$	22,601

Total revenue		$	203,391	$	155,282
Less: Licensing revenue		6,600		4,614
Shack sales		$	196,791	$	150,668

Shack-level operating profit margin(1,2)		15.2 %		15.0 %

(1)As a percentage of Shack sales.

(2)For the thirteen weeks ended March 30, 2022, Shack-level operating profit margin includes the $1,281 cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales. The benefit from the cumulative catch-up resulted in a 0.5% increase to Shack-level operating profit margin.

EBITDA and Adjusted EBITDA

EBITDA is defined as Net income (loss) before interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease ~~costs,~~cost, Impairment and loss on the disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that we do not believe directly reflect the core operations and may not be indicative of the Company's 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 to develop internal budgets and forecasts and also serves as a metric in our performance-based equity incentive programs and certain 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 its ongoing business operations because they exclude items that may not be indicative of ~~the Company's~~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 the GAAP financial measures.

34 | Shake Shack Inc.

Form 10-Q

Table of Contents

A reconciliation of EBITDA and adjusted EBITDA to Net income (loss), the most directly comparable GAAP measure, ~~is as follows.~~are set forth below.

~~38 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)	September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)	March 30 2022		March 31 2021
Net income (loss)	Net income (loss)	$	(2,402)		$	(6,110)		$	238		$	(25,220)		Net income (loss)	$	(11,282)	$	575
Depreciation and amortization expense	Depreciation and amortization expense	15,183			12,376			43,381			36,233			Depreciation and amortization expense	16,855		13,726
Interest expense, net	Interest expense, net	350			143			1,224			697			Interest expense, net	355		515
Benefit from income taxes	Benefit from income taxes	(576)			(797)			(10,665)			(6,802)			Benefit from income taxes	(4,297)		(11,080)
EBITDA	EBITDA	12,555			5,612			34,178			4,908			EBITDA	$	1,631	$	3,736

Equity-based compensation	Equity-based compensation	2,324			1,339			5,963			4,058			Equity-based compensation	3,188		1,681
Amortization of cloud-based software implementation costs~~(1)~~	Amortization of cloud-based software implementation costs~~(1)~~	308			458			935			1,086			Amortization of cloud-based software implementation costs~~(1)~~	332		313
Deferred lease costs~~(2)~~(1)	Deferred lease costs~~(2)~~(1)	108			258			237			407			Deferred lease costs~~(2)~~(1)	(877)		204
Impairment and loss on disposal of assets~~(3)~~	Impairment and loss on disposal of assets~~(3)~~	535			402			1,262			2,924			Impairment and loss on disposal of assets~~(3)~~	577		369
Debt offering related costs~~(4)~~(2)	Debt offering related costs~~(4)~~(2)	—			—			236			—			Debt offering related costs~~(4)~~(2)	—		236
Legal settlement~~(5)~~	Legal settlement~~(5)~~	—			—			619			—			Legal settlement~~(5)~~	6,000		595

Executive transition costs(6)		—			82			179			150
Project Concrete(7)		—			8			—			(229)
Gift card breakage cumulative catch-up adjustment														Gift card breakage cumulative catch-up adjustment	(1,281)		—

Other(8)		—			—			—			285

Adjusted EBITDA		$	15,830		$	8,159		$	43,609		$	13,589

Adjusted EBITDA margin(9)		8.2		%	6.3		%	8.1		%	3.7		%
ADJUSTED EBITDA														ADJUSTED EBITDA	$	9,570	$	7,134

Adjusted EBITDA margin(3)														Adjusted EBITDA margin(3)	4.7 %		4.6 %

(1)~~Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are included within General and administrative expenses.~~

~~(2)~~Reflects the extent to which lease expense is greater than or less than contractual fixed base rent.

~~(3)~~Includes losses on disposals of property and equipment in the normal course of business. For the thirty-nine weeks ended September 23, 2020, this amount includes a non-cash impairment charge of $1.1 million related to one Shack.

~~(4)~~(2)Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees. Refer to Note 6, Debt, ~~in the accompanying Condensed Consolidated Financial Statements~~, for additional information.

~~(5)Expense incurred to establish an accrual related to the settlement of a legal matter. Refer to Note 13, Commitments and Contingencies, in the accompanying Condensed Consolidated Financial Statements~~, ~~for additional information.~~

~~(6)Represents fees paid in connection with the search and hiring of certain executive and key management positions.~~

~~(7)Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.~~

~~(8)Represents incremental expenses incurred related to an inventory adjustment and certain employee-related expenses.~~

~~(9)~~(3)Calculated as a percentage of Total revenue, which was ~~$193,895~~$203.4 million and ~~$536,637~~$155.3 million for the thirteen ~~and thirty-nine~~ weeks ended ~~September 29,~~March 30, 2022 and March 31, 2021, ~~respectively, and $130,401 and $365,357 for the thirteen and thirty-nine weeks ended September 23, 2020,~~ respectively.

Adjusted Pro Forma Net Income ~~(Loss)~~ and Adjusted Pro Forma Earnings ~~(Loss)~~ Per Fully Exchanged and Diluted Share

Adjusted pro forma net income ~~(loss)~~ represents Net income (loss) 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 ~~(loss)~~ per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income (loss) 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 ~~(loss)~~ and adjusted pro forma earnings ~~(loss)~~ 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~~net income (loss) attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 39

~~Table of Contents~~

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 ~~(loss)~~ and adjusted pro forma earnings ~~(loss)~~ 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

Shake Shack Inc.

Form 10-Q | 35

Table of Contents

adjusted pro forma net income ~~(loss)~~ and adjusted pro forma earnings ~~(loss)~~ per fully exchanged and diluted share should not be considered alternatives to Net income (loss) and earnings (loss) 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 (loss) attributable to Shake Shack Inc. Adjusted pro forma net income ~~(loss)~~ and adjusted pro forma earnings ~~(loss)~~ per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results. A reconciliation of adjusted pro forma net income ~~(loss)~~ to Net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings ~~(loss)~~ per fully exchanged and diluted share are set forth below.

~~40 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~


				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
(in thousands, except per share amounts)	(in thousands, except per share amounts)			September 29 2021		September 23 2020		September 29 2021		September 23 2020		(in thousands, except per share amounts)			March 30 2022		March 31 2021
Numerator:	Numerator:											Numerator:
		Net income (loss) attributable to Shake Shack Inc.		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)		Net income (loss) attributable to Shake Shack Inc		$	(10,162)	$	1,309
		Adjustments:											Adjustments:
			Reallocation of Net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(224)		(551)		(837)		(2,490)				Reallocation of net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(1,120)		(734)
			Executive transition costs(2)	—		82		179		150
			Project Concrete(3)	—		8		—		(229)

			Legal settlement(4)	—		—		619		—				Legal settlement	6,000		595
			Debt offering related costs(5)	—		—		236		—				Debt offering related costs(2)	—		236
			Revolving Credit Facility amendments related costs(6)	—		—		323		—				Revolving Credit Facility amendments related costs(3)	—		323

			Other(7)	—		—		—		285
			Impact to income tax benefit(8)	392		1,608		528		3,141				Gift card breakage cumulative catch-up adjustment	(1,281)		—
		Adjusted pro forma net income (loss)		$	(2,010)	$	(4,412)	$	2,123	$	(21,873)			Impact to income tax benefit(4)	(1,595)		24
Adjusted pro forma net income (loss)												Adjusted pro forma net income (loss)			$	(8,158)	$	1,753

Denominator:	Denominator:											Denominator:
		Weighted-average shares of Class A common stock outstanding—diluted		39,137		38,251		43,448		36,668			Weighted-average shares of Class A common stock outstanding—diluted		39,163		42,789
		Adjustments:											Adjustments:
			Assumed exchange of LLC Interests for shares of Class A common stock(1)	2,922		3,114		—		3,125				Assumed exchange of LLC Interests for shares of Class A common stock(1)	2,920		—
		Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		42,059		41,365		43,448		39,793			Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		42,083		42,789

Adjusted pro forma earnings (loss) per fully exchanged share—diluted	Adjusted pro forma earnings (loss) per fully exchanged share—diluted			$	(0.05)	$	(0.11)	$	0.05	$	(0.55)	Adjusted pro forma earnings (loss) per fully exchanged share—diluted			$	(0.19)	$	0.04


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended						Thirteen Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020				March 30 2022		March 31 2021
Earnings (loss) per share of Class A common stock—diluted	Earnings (loss) per share of Class A common stock—diluted		$	(0.06)	$	(0.15)	$	0.01	$	(0.62)	Earnings (loss) per share of Class A common stock—diluted		$	(0.26)	$	0.01
		Assumed exchange of LLC Interests for shares of Class A common stock(1)	—		—		—		(0.01)			Assumed exchange of LLC Interests for shares of Class A common stock(1)	(0.01)		—
		Non-GAAP adjustments(9)	0.01		0.04		0.04		0.08			Non-GAAP adjustments(5)	0.08		0.03
Adjusted pro forma earnings (loss) per fully exchanged share—diluted	Adjusted pro forma earnings (loss) per fully exchanged share—diluted		$	(0.05)	$	(0.11)	$	0.05	$	(0.55)	Adjusted pro forma earnings (loss) per fully exchanged share—diluted		$	(0.19)	$	0.04

(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 (loss) attributable to non-controlling interests. ~~Refer to Note 11, Earnings (Loss) per Share, in the accompanying Condensed Consolidated Financial Statements~~, ~~for additional information.~~

(2)~~Represents costs incurred in connection with our executive search, including fees paid to an executive recruiting firm.~~

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

~~(4)Expense incurred to establish an accrual related to the settlement of a legal matter. Refer to Note 13, Commitments and Contingencies, in the accompanying Condensed Consolidated Financial Statements~~, ~~for additional information.~~

~~(5)~~Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees. Refer to Note 6, Debt, ~~in the accompanying Condensed Consolidated Financial Statements~~, for additional information.

~~(6)~~(3)Expense incurred in connection with the Company's amendments on the Revolving Credit Facility, including the write-off of previously capitalized costs on the Revolving Credit Facility. Refer to Note 6, Debt, ~~in the accompanying Condensed Consolidated Financial Statements~~, for additional information.

~~(7)Represents incremental expenses incurred related to an inventory adjustment and certain employee-related expenses.~~

~~(8)~~(4)Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of ~~32.5%~~24.9% and ~~123.4%~~118.8% for the thirteen ~~and thirty-nine weeks endedSeptember 29, 2021, respectively, and 35.3% and 31.3% for the thirteen and thirty-nine~~ weeks ended ~~September 23, 2020,~~March 30, 2022 and March 31, 2021, respectively. Amounts include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportioned to each applicable state, local and foreign jurisdiction.

~~(9)~~(5)Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted Pro Forma Net Income (Loss) above for ~~additional information.~~further details.

36 | Shake Shack Inc.

Form 10-Q | 41

Table of Contents

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. In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.

As of ~~September 29, 2021,~~March 30, 2022, we maintained a Cash and cash equivalents balance of ~~$321.4~~$279.3 million and a short-term investments balance of ~~$80.1~~$79.7 million within Marketable securities.

On June 7, 2021, we filed a Registration Statement on Form S-3 with the SEC which permits us to issue a combination of securities described in the prospectus in one or more offerings from time to time. To date, we have not experienced difficulty accessing the capital markets; however, future volatility in the capital markets may affect our ability to access those markets or increase the costs associated with issuing debt or equity instruments.

Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally 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 technology infrastructure to support our home office, Shake Shack locations, and digital ~~infrastructure.~~strategy.

In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of ~~September 29, 2021,~~March 30, 2022, such obligations totaled ~~$234.0~~$234.3 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.

~~In response to the uncertain market conditions resulting from the onset of the COVID-19 pandemic, we took the following actions in fiscal 2020.~~

•On April 17, 2020, we announced an "at-the-market" equity offering program (the "ATM Program"), under which we may offer and sell shares of our Class A common stock having an aggregate price of up to $75.0 million from time to time. On April 21, 2020, we completed the sale of 233,467 shares of our Class A common stock pursuant to the ATM Program and received $9.8 million of proceeds, net of commissions. The proceeds were used to purchase newly-issued LLC Interests.

•On April 21, 2020, we completed an underwritten offering of 3,416,070 shares of our Class A common stock, resulting in $135.9 million of proceeds, net of underwriting discounts and commissions. The proceeds were used to purchase newly-issued LLC Interests.

•In May 2020, we entered into an amendment to our Revolving Credit Facility that provided for a number of enhanced modifications to reflect the current and ongoing impact from COVID-19. Our Revolving Credit Facility was further amended in March 2021, resulting in a modification of the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes, including obligations and transactions in connection therewith. Refer to Note 6, Debt, in the accompanying condensed consolidated financial statements, for additional information.

~~42 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

•In March 2020, we drew down the full $50.0 million available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020. As of March 31, 2021, we were in compliance with all covenants.

We believe our existing cash and marketable securities balances will be sufficient to fund our operating and finance lease obligations, capital expenditures, Tax Receivable Agreement 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)	(in thousands)	September 29 2021		September 23 2020		(in thousands)	March 30 2022		March 31 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	43,740	$	28,498	Net cash provided by operating activities	$	7,969	$	9,951
Net cash used in investing activities	Net cash used in investing activities	(112,169)		(27,316)		Net cash used in investing activities	(28,051)		(27,228)
Net cash provided by financing activities		242,977		136,602
Increase in Cash and cash equivalents		174,548		137,784
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(3,073)		245,403
Net increase (decrease) in Cash and cash equivalents						Net increase (decrease) in Cash and cash equivalents	(23,155)		228,126
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	146,873		37,099		Cash and cash equivalents at beginning of period	302,406		146,873
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	321,421	$	174,883	Cash and cash equivalents at end of period	$	279,251	$	374,999

Shake Shack Inc.

Form 10-Q | 37

Table of Contents

Operating Activities

For the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021~~March 30, 2022, net cash provided by operating activities was ~~$43.7~~$8.0 million compared to ~~$28.5~~$10.0 million for the ~~thirty-nine~~thirteen weeks ended ~~September 23, 2020,~~March 31, 2021, a decrease of $2.0 million. The decrease was primarily due to a net loss of $11.3 million and changes in working capital partially offset by the impact of non-cash charges of $13.7 million. The changes in working capital were primarily driven by an increase in liabilities related to the settlement of a legal matter partially offset by the settlement of payables.

Investing Activities

For the thirteen weeks ended March 30, 2022, net cash used in investing activities was $28.1 million compared to $27.2 million for the thirteen weeks ended March 31, 2021, an increase of ~~$15.2~~$0.9 million. ~~The~~This increase was primarily due to an increase ~~in net income~~ of $25.4 million and the impact of non-cash charges of $11.9 million partially offset by a change in operating assets and liabilities of $(22.1) million. The $(22.1) million change in our operating asset and liability balances was primarily driven by an increase in settlement of payables and an increase in and timing of rent payments, partially offset by higher accrued wages.

~~Investing Activities~~

For the thirty-nine weeks ended September 29, 2021 net cash used in investing activities was $112.2 million compared to $27.3 million for the thirty-nine weeks ended September 23, 2020, an increase of $84.9 million. This increase was primarily due to increased purchases of marketable securities of $47.0 million and an increase of $21.9$4.8 million in capital expenditures to support our real estate development and digital ~~initiatives.~~initiatives partially offset by a decrease in purchases of marketable securities of $4.0 million.

Financing Activities

For the ~~thirty-nine~~thirteen weeks ended ~~September 29, 2021~~March 30, 2022, net cash used in financing activities was $3.1 million compared to net cash provided by financing activities ~~was $243.0 million compared to $136.6~~of $245.4 million for the ~~thirty-nine~~thirteen weeks ended ~~September 23, 2020, an increase~~March 31, 2021, a decrease of ~~$106.4~~$248.5 million. This ~~increase~~decrease was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, net of discount ~~decreased payments made under the Tax Receivable Agreement,~~ and ~~increased proceeds from stock option exercises, partially offset by $145.7~~$6.4 million in net cash proceeds from the issuance of Class A common stock during the ~~thirty-nine~~thirteen weeks ended ~~September 23, 2020.~~

~~Revolving Credit Facility~~

In August 2019, we entered into a Revolving Credit Facility, which permits borrowings up to $50.0 million, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100.0 million, to be made available subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.

In March 2020, we drew down the full $50.0 million available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020.

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 43

~~Table of Contents~~

In May 2020, we entered into a First Amendment, which, among other things, provided for modified financial covenant compliance requirements for a period of time. The First Amendment required us to maintain minimum liquidity of $25.0 million through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bore interest at either: (i) LIBOR plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

In March 2021, we entered into a Second Amendment. The Second Amendment modified the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith. In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment; (ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iii) added mechanics relating to the transition from the use of LIBOR to SOFR upon the discontinuance or unavailability of LIBOR.

Subsequently, and also in March 2021, we entered into a Third Amendment with JPMorgan Chase Bank, N.A. (as successor agent to Wells Fargo Bank, National Association), as administrative agent, and the lenders party thereto. In addition, in March 2021, Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A. The Third Amendment appoints JPMorgan Bank, N.A. as administrative agent under the Revolving Credit Facility. In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026. As of September 29, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios. We are not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above. In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit our ability to incur debt; incur liens; make investments; engage in mergers, consolidations, liquidations or acquisitions; dispose of assets; make distributions on or repurchase equity securities; engage in transactions with affiliates; and prohibits us, with certain exceptions, from engaging in any line of business not related to our current line of business. As of September 29, 2021, we were in compliance with all covenants.

As of September 29, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $0.1 million, and was included in Other assets on the Condensed Consolidated Balance Sheets. During the thirteen and thirty-nine weeks ended September 29, 2021, total interest expense related to the Revolving Credit Facility was approximately nil and $0.4 million, respectively and $0.1 million and $0.7 million, respectively, during thirteen and thirty-nine weeks ended September 23, 2020. Total interest expense for the thirty-nine weeks ended September 29, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.31, 2021.

Convertible Notes

In March 2021, we issued ~~$225.0~~$250.0 million aggregate principal amount of 0% Convertible Senior Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. We granted an option to the initial purchasers to purchase up to an additional $25.0 million aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250.0 million aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at our election. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.

Revolving Credit Facility

In August 2019, we entered into a Revolving Credit Facility, which matures in March 2026 and permits borrowings up to $50.0 million, with the ability to increase available borrowings up to an additional $100.0 million, subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.

Under the Revolving Credit Facility, we are required to maintain minimum liquidity of $25.0 million beginning in July 2022, and outstanding borrowings bear interest at either: (i) LIBOR, or the Secured Overnight Financing Rate upon the discontinuance or unavailability of LIBOR, plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

The ~~Convertible Notes~~obligations under the Revolving Credit Facility are ~~convertible at the option~~secured by a first-priority security interest in substantially all of the ~~holders at any time prior to~~assets of SSE Holdings and the ~~close of business on the business day immediately preceding December 1, 2027, only~~guarantors. The obligations under the ~~following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June~~Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries, with certain exceptions.

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of March 30, 2021 (and only during such fiscal quarter), if the last reported sale price of our Class A common stock, par value $0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business2022, we were in compliance with all covenants.

4438 | Shake Shack Inc.

Form 10-Q

~~Table of Contents~~

day period after any ten consecutive trading day period in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if we call such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

We may not redeem the Convertible Notes prior to March 6, 2025. We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after March 6, 2025 if the last reported sale price of Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

In addition, if we undergo a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if we deliver a notice of redemption in respect of some or all of the Convertible Notes, we will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert our Convertible Notes in connection with such a corporate event or convert our Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc. entered into an Intercompany Note with SSE Holdings, LLC. SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028. Shake Shack Inc. will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, by Shake Shack Inc and the aggregate number of outstanding shares of common stock.

As of September 29, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $243.3 million, net of unamortized discount and debt issuance costs of $6.7 million. As of September 29, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method. Total amortization expense was $0.3 million and $0.6 million respectively, for thirteen and thirty-nine weeks ended September 29, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the Convertible Notes, the Company also incurred consulting and advisory fees of $0.2 million for the thirty-nine weeks ended September 29, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At September 29, 2021, the fair value of the Convertible Notes was approximately $215.9 million, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~There have been no material changes to our off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020.~~

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 45

Table of Contents

~~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 30, 2020, other than those made in the ordinary course of business.

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~~Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the ~~condensed consolidated financial statements~~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 ~~30, 2020.~~29, 2021.

Recently Issued Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies 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 ~~30, 2020.~~29, 2021.

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 29, 2021~~March 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~46 |~~ Shake Shack Inc.

Form 10-Q | 39

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information required by this Item is incorporated by reference to Part I, Item 1, Note 13, Commitments and Contingencies.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020.~~29, 2021.

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.

40 | Shake Shack Inc.

Form 10-Q | 47

Table of Contents

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

Second Amended and Restated Bylaws of Shack Shake Inc., dated October 1, 2019

8-K

3.1

10/4/2019

4.1

Form of Class A Common Stock Certificate

S-1/A

4.1

1/28/2015

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

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

104

Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

# Furnished herewith.

~~48 |~~ Shake Shack Inc.

Form 10-Q | 41

Table of Contents

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, 2021~~May 6, 2022	By:	/s/ Randy Garutti
		Randy Garutti
		Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: ~~November 5, 2021~~May 6, 2022	By:	/s/ Katherine I. Fogertey
		Katherine I. Fogertey
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

42 | Shake Shack Inc.

Form 10-Q | 49


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	2725
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4639
	Item 4.	Controls and Procedures	4639

Part II			4740
	Item 1.	Legal Proceedings	4740
	Item 1A.	Risk Factors	4740
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4740
	Item 3.	Defaults Upon Senior Securities	4740
	Item 4.	Mine Safety Disclosures	4740
	Item 5.	Other Information	4740
	Item 6.	Exhibits	4841

SIGNATURES			4942


		Page
Note 1	Nature of Operations	109
Note 2	Summary of Significant Accounting Policies	109
Note 3	Revenue	1110
Note 4	Fair Value Measurements	1211


Note 5	Supplemental Balance Sheet Information	1412
Note 6	Debt	1413

Note 7	Leases	1614
Note 8	Non-Controlling Interests	1917
Note 9	Equity-Based Compensation	2018
Note 10	Income Taxes	2119
Note 11	Earnings (Loss) Per Share	2220
Note 12	Supplemental Cash Flow Information	2422
Note 13	Commitments and Contingencies	2422
Note 14	Related Party Transactions	2523


		September 29 2021		December 30 2020
Weighted-average remaining lease term (years):
	Finance leases	5.3		5.2
	Operating leases	9.5		9.7
Weighted-average discount rate:
	Finance leases	3.1	%	3.6	%
	Operating leases	3.5	%	4.2	%