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 March ~~31, 2021~~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 April ~~28, 2021,~~27, 2022, there were ~~39,103,614~~39,223,790 shares of Class A common stock outstanding and ~~2,921,588~~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.~~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 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. ~~We undertake~~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

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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			7
Notes to Condensed Consolidated Financial Statements			8

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


			March 31 2021		December 30 2020				March 30 2022		December 29 2021
ASSETS	ASSETS						ASSETS
Current assets:	Current assets:						Current assets:
		Cash and cash equivalents	$	374,999	$	146,873		Cash and cash equivalents	$	279,251	$	302,406
		Marketable securities	40,914		36,887			Marketable securities	79,676		80,000
		Accounts receivable, net	8,838		9,464			Accounts receivable, net	11,755		13,657
		Inventories	2,734		2,888			Inventories	3,780		3,850
		Prepaid expenses and other current assets	7,805		7,074			Prepaid expenses and other current assets	12,155		9,763
		Total current assets	435,290		203,186			Total current assets	386,617		409,676
Property and equipment, net of accumulated depreciation of $179,226 and $166,156, respectively			348,580		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		312,087		306,317		Operating lease assets		346,128		347,277
Deferred income taxes, net	Deferred income taxes, net		299,838		287,007		Deferred income taxes, net		304,166		298,668

Other assets	Other assets		11,794		12,297		Other assets		13,846		12,563
TOTAL ASSETS	TOTAL ASSETS		$	1,407,589	$	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	$	24,307	$	23,487		Accounts payable	$	13,395	$	19,947
		Accrued expenses	28,774		25,920			Accrued expenses	38,997		36,892
		Accrued wages and related liabilities	13,306		10,441			Accrued wages and related liabilities	16,032		14,638
		Operating lease liabilities, current	37,275		35,657			Operating lease liabilities, current	36,951		35,519
		Other current liabilities	15,087		14,200			Other current liabilities	20,586		14,501
		Total current liabilities	118,749		109,705			Total current liabilities	125,961		121,497

Long-term debt	Long-term debt		242,875		0		Long-term debt		243,804		243,542

Long-term operating lease liabilities	Long-term operating lease liabilities		349,670		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		22,297		24,460		Other long-term liabilities		20,944		22,773
Total liabilities	Total liabilities		967,639		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 March 31, 2021 and December 30, 2020.	0		0			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; 39,103,239 and 38,717,790 shares issued and outstanding as of March 31, 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; 2,921,588 and 2,951,188 shares issued and outstanding as of March 31, 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	400,371		395,067			Additional paid-in capital	406,981		405,940
		Retained earnings	13,518		12,209			Retained earnings (accumulated deficit)	(6,608)		3,554
		Accumulated other comprehensive income	2		3			Accumulated other comprehensive income (loss)	—		1
		Total stockholders' equity attributable to Shake Shack Inc.	413,933		407,321			Total stockholders' equity attributable to Shake Shack Inc.	400,415		409,537
Non-controlling interests	Non-controlling interests		26,017		27,172		Non-controlling interests		24,844		26,063
Total equity	Total equity		439,950		434,493		Total equity		425,259		435,600
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,407,589	$	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

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share amounts)


			Thirteen Weeks Ended					Thirteen Weeks Ended
			March 31 2021		March 25 2020				March 30 2022		March 31 2021
Shack sales	Shack sales		$	150,668	$	138,048	Shack sales		$	196,791	$	150,668
Licensing revenue	Licensing revenue		4,614		5,122		Licensing revenue		6,600		4,614
TOTAL REVENUE	TOTAL REVENUE		155,282		143,170		TOTAL REVENUE		203,391		155,282
Shack-level operating expenses:	Shack-level operating expenses:						Shack-level operating expenses:
		Food and paper costs	44,630		39,564			Food and paper costs	59,884		44,630
		Labor and related expenses	46,382		41,766			Labor and related expenses	60,465		46,382
		Other operating expenses	23,144		17,779			Other operating expenses	30,237		23,144
		Occupancy and related expenses	13,911		12,558			Occupancy and related expenses	16,276		13,911
General and administrative expenses	General and administrative expenses		19,565		16,191		General and administrative expenses		31,320		19,565
Depreciation and amortization expense	Depreciation and amortization expense		13,726		11,768		Depreciation and amortization expense		16,855		13,726
Pre-opening costs	Pre-opening costs		3,576		2,243		Pre-opening costs		2,712		3,576
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		369		2,088		Impairment and loss on disposal of assets		577		369
TOTAL EXPENSES	TOTAL EXPENSES		165,303		143,957		TOTAL EXPENSES		218,326		165,303
OPERATING LOSS			(10,021)		(787)
LOSS FROM OPERATIONS							LOSS FROM OPERATIONS		(14,935)		(10,021)
Other income (expense), net	Other income (expense), net		31		(93)		Other income (expense), net		(289)		31
Interest expense	Interest expense		(515)		(112)		Interest expense		(355)		(515)
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(10,505)		(992)		LOSS BEFORE INCOME TAXES		(15,579)		(10,505)
Income tax expense (benefit)			(11,080)		87
Benefit from income taxes							Benefit from income taxes		(4,297)		(11,080)
NET INCOME (LOSS)	NET INCOME (LOSS)		575		(1,079)		NET INCOME (LOSS)		(11,282)		575
Less: net loss attributable to non-controlling interests			(734)		(119)
Less: Net loss attributable to non-controlling interests							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.		$	1,309	$	(960)	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	$	0.03	$	(0.03)		Basic	$	(0.26)	$	0.03
		Diluted	$	0.01	$	(0.03)		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	38,948		34,444			Basic	39,163		38,948
		Diluted	42,789		34,444			Diluted	39,163		42,789

`See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


				Thirteen Weeks Ended					Thirteen Weeks Ended
				March 31 2021		March 25 2020					March 30 2022		March 31 2021
Net income (loss)	Net income (loss)			$	575	$	(1,079)	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)		1			Change in foreign currency translation adjustment		(1)		(1)

			Net change	(1)		1				Net change	(1)		(1)
OTHER COMPREHENSIVE INCOME (LOSS)				(1)		1
OTHER COMPREHENSIVE LOSS								OTHER COMPREHENSIVE LOSS			(1)		(1)
COMPREHENSIVE INCOME (LOSS)	COMPREHENSIVE INCOME (LOSS)			574		(1,078)		COMPREHENSIVE INCOME (LOSS)			(11,283)		574
Less: comprehensive loss attributable to non-controlling interest				(734)		(119)
Less: Comprehensive loss attributable to non-controlling interests								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.			$	1,308	$	(959)	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	(10,163)	$	1,308

(1)Net of tax expense of $0 for the thirteen weeks ended March 30, 2022 and March 31, ~~2021~~ ~~and~~ ~~March 25, 2020.~~2021.

See accompanying Notes to Condensed Consolidated Financial Statements.

Shake Shack Inc.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share amounts)

For the Thirteen Weeks Ended March 31, 2021 and March 25, 2020
Class A
Common Stock Class B
Common Stock Additional
Paid-In
Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-
Controlling
Interest Total
Equity
Shares Amount Shares Amount
BALANCE, DECEMBER 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) 0
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
BALANCE, DECEMBER 25, 2019 34,417,302 $ 35 3,145,197 $ 3 $ 244,410 $ 54,367 $ 2 $ 23,168 $ 321,985
Net loss (960) (119) (1,079)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment 1 1
Equity-based compensation 1,313 1,313
Activity under stock compensation plans 77,903 — 424 (361) 63
Redemption of LLC Interests 28,195 0 (28,195) 0 195 (195) 0
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 628 628
Distributions paid to non-controlling interest holders (305) (305)
BALANCE, MARCH 25, 2020 34,523,400 $ 35 3,117,002 $ 3 $ 246,970 $ 53,407 $ 3 $ 22,188 $ 322,606


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.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


				Thirteen Weeks Ended							Thirteen Weeks Ended
				March 31 2021		March 25 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)			$	575	$	(1,079)	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		13,726		11,768			Depreciation and amortization expense		16,855		13,726
		Amortization of debt issuance costs		86		0			Amortization of debt issuance costs		262		86
		Amortization of cloud computing asset		313		260			Amortization of cloud computing asset		332		313
		Non-cash operating lease cost		12,330		10,742			Non-cash operating lease cost		13,681		12,330
		Equity-based compensation		1,681		1,300			Equity-based compensation		3,188		1,681
		Deferred income taxes		(1,523)		3,775			Deferred income taxes		5,719		(1,523)
		Non-cash interest expense		337		69			Non-cash interest expense		5		337

		Gain on sale of marketable securities		0		(79)
		Impairment and loss on disposal of assets		369		2,088			Impairment and loss on disposal of assets		577		369
		Unrealized loss on available-for-sale securities		46		356			Unrealized loss on equity securities		400		46
		Other non-cash (income) expense		(1)		183			Other non-cash income		(1)		(1)

		Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
			Accounts receivable	626		3,150				Accounts receivable	1,902		626
			Inventories	154		306				Inventories	70		154
			Prepaid expenses and other current assets	(731)		(439)				Prepaid expenses and other current assets	(2,392)		(731)
			Other assets	(216)		(1,039)				Other assets	(2,111)		(216)
			Accounts payable	1,474		(4,449)				Accounts payable	(2,862)		1,474
			Accrued expenses	(9,420)		(6,330)				Accrued expenses	(10,369)		(9,420)
			Accrued wages and related liabilities	2,865		(5,113)				Accrued wages and related liabilities	1,394		2,865
			Other current liabilities	(158)		273				Other current liabilities	5,312		(158)

			Long-term operating lease liabilities	(10,754)		(8,755)				Long-term operating lease liabilities	(11,726)		(10,754)
			Other long-term liabilities	(1,828)		497				Other long-term liabilities	(985)		(1,828)
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES			9,951		7,484		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			(23,155)		(19,159)		Purchases of property and equipment			(27,974)		(23,155)
Purchases of marketable securities	Purchases of marketable securities			(4,073)		(192)		Purchases of marketable securities			(77)		(4,073)
Sales of marketable securities				0		20,000
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES				(27,228)		649

NET CASH USED IN INVESTING ACTIVITIES								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		0		Proceeds from issuance of convertible notes, net of discount			—		243,750
Proceeds from revolving credit facility				0		50,000

Deferred financing costs	Deferred financing costs			(70)		0		Deferred financing costs			—		(70)

Payments on principal of finance leases	Payments on principal of finance leases			(602)		(615)		Payments on principal of finance leases			(747)		(602)
Distributions paid to non-controlling interest holders	Distributions paid to non-controlling interest holders			(467)		(305)		Distributions paid to non-controlling interest holders			(302)		(467)

Payments under tax receivable agreement				0		(6,569)

Debt issuance costs	Debt issuance costs			(649)		0		Debt issuance costs			—		(649)
Proceeds from stock option exercises	Proceeds from stock option exercises			6,451		1,032		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			(3,010)		(969)		Employee withholding taxes related to net settled equity awards			(2,108)		(3,010)

NET CASH PROVIDED BY FINANCING ACTIVITIES				245,403		42,574
NET INCREASE IN CASH AND CASH EQUIVALENTS				228,126		50,707
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			$	374,999	$	87,806	CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	279,251	$	374,999

See accompanying Notes to Condensed Consolidated Financial Statements.

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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"). ~~We are~~Shake Shack is the sole managing member of SSE Holdings and, as sole managing member, ~~we operate~~the Company operates and ~~control~~controls all of the business and affairs of SSE Holdings. As a result, ~~we consolidate~~the Company consolidates the financial results of SSE Holdings and ~~report~~reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of March ~~31, 2021 we~~30, 2022 the Company owned ~~93.0%~~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.

~~We operate~~The Company operates and ~~license~~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 March ~~31, 2021,~~30, 2022, there were ~~321~~382 Shacks in operation, system-wide, of which ~~192~~225 were domestic Company-operated Shacks, 2227 were domestic licensed Shacks and ~~107~~130 were international licensed Shacks. ~~As of March 31, 2021, four domestic Company-operated Shacks and 16 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 ~~our~~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 ~~our 2020~~its 2021 Form 10-K. In ~~our~~the Company's opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of ~~our~~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 ~~we have~~the Company has the majority economic interest in SSE Holdings and, as the sole managing member, ~~have~~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, ~~we consolidate~~the Company consolidates SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of ~~our~~the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of March ~~31, 2021~~30, 2022 and December ~~30, 2020,~~29, 2021, the net assets of SSE Holdings were ~~$380,713~~$363,632 and ~~$383,669,~~$376,857, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. ~~See~~Refer to Note 6, Debt, for ~~more~~additional information.

Fiscal Year

~~We operate~~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.

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

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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

WeThe 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 ~~to our condensed consolidated~~on the 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. ~~We elected to early adopt this standard, beginning December 31, 2020.~~ The guidance of this ASU is applicable to our 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, for further details of the convertible notes issued.	~~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 ~~we expect~~the Company expects to be entitled to in exchange for those goods or services. Revenue from Shack ~~revenues are~~sales 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 ~~our~~ 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 ~~revenues include~~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 our contracts,~~ and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the ~~licenses~~license and considered as one performance obligation per Shack. ~~We determine~~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 ~~we expect~~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 ~~we expect~~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 license granted to the Shack. ~~Because we are transferring licenses to access our 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 ~~are~~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.

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

Revenue recognized during the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020,~~31, 2021, disaggregated by type iswas as follows:


		Thirteen Weeks Ended				Thirteen Weeks Ended
		March 31 2021		March 25 2020				March 30 2022		March 31 2021
Shack sales	Shack sales	$	150,668	$	138,048		Shack sales	$	196,791	$	150,668
Licensing revenue:	Licensing revenue:						Licensing revenue:
Sales-based royalties	Sales-based royalties	4,425		4,944			Sales-based royalties	6,400		4,425
Initial territory and opening fees	Initial territory and opening fees	189		178			Initial territory and opening fees	200		189
Total revenue	Total revenue	$	155,282	$	143,170		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 March ~~31, 2021~~30, 2022 was ~~$16,748. We expect~~$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:


		March 31 2021		December 31 2020			March 30 2022		December 29 2021
Shack sales receivables	Shack sales receivables	$	5,641	$	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	2,420		2,647		Licensing receivables, net of allowance for doubtful accounts	3,262		4,005
Gift card liability	Gift card liability	2,600		2,637		Gift card liability	1,847		3,297
Deferred revenue, current	Deferred revenue, current	612		608		Deferred revenue, current	837		763
Deferred revenue, long-term	Deferred revenue, long-term	11,965		12,151		Deferred revenue, long-term	13,277		12,669

Revenue recognized during the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020~~31, 2021 that was included in ~~their~~the respective liability balances at the beginning of the period iswas as follows:


		Thirteen Weeks Ended				Thirteen Weeks Ended
		March 31 2021		March 25 2020				March 30 2022		March 31 2021
Gift card liability(1)	Gift card liability(1)	$	219	$	300		Gift card liability(1)	$	1,506	$	219
Deferred revenue	Deferred revenue	181		175			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 ~~our~~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.

As of March 31, 2021 and December 30, 2020, we held certain assets that are required to be measured at fair value on a recurring basis including our Marketable securities, which consist of investments in equity securities. Fair value of these investments is measured using Level 1 inputs (unadjusted quoted prices in active markets for identical assets). The carrying value of these investments in equity securities approximates fair value.

~~Our assets measured at fair value on a recurring basis as of March 31, 2021 and December 30, 2020 were as follows:~~

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Fair Value Measurements
March 31
2021 December 30
2020
Level 1 Level 1
Equity securities:
Mutual funds $ 40,914 $ 36,887
Total Marketable securities $ 40,914 $ 36,887
As of March 30, 2022 and December 29, 2021, 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. The fair value of these investments is measured using Level 1 inputs. The carrying value of these investments in equity securities approximates fair value.

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


		Fair Value Measurements
		March 30 2022		December 29 2021
		Level 1		Level 1
Equity securities:
	Mutual funds	$	79,676	$	80,000
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 (expense) from equity securities recognized during the thirteen weeks ended March 30, 2022 and March 31, 2021 ~~and March 25, 2020 is~~was as follows:


			Thirteen Weeks Ended				Thirteen Weeks Ended
			March 31 2021		March 25 2020					March 30 2022		March 31 2021
Equity securities:	Equity securities:							Equity securities:
		Dividend income	$	74	$	184			Dividend income	$	77	$	74

		Realized gain (loss) on sale of investments	0		79
		Unrealized gain (loss) on equity securities	(46)		(356)				Unrealized loss on equity securities	(400)		(46)
Total	Total		$	28	$	(93)		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 ~~our~~ long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. During the thirteen weeks ended March 25, 2020, we 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 asset impairment charge was included in Impairment and loss on disposal of assets on the Condensed Consolidated Statement 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 March 30, 2022 and March 31, 2021.

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NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities as of March ~~31, 2021~~30, 2022 and December ~~30, 2020 are~~29, 2021 were as follows:


		March 31 2021		December 30 2020			March 30 2022		December 29 2021
Sales tax payable	Sales tax payable	$	4,045	$	4,285	Sales tax payable	$	4,931	$	4,575

Gift card liability	Gift card liability	2,600		2,637		Gift card liability	1,847		3,297

Current portion of financing equipment lease liabilities	Current portion of financing equipment lease liabilities	2,445		1,998		Current portion of financing equipment lease liabilities	2,697		2,711
Legal reserve						Legal reserve	6,275		533
Other	Other	5,997		5,280		Other	4,836		3,385
Other current liabilities	Other current liabilities	$	15,087	$	14,200	Other current liabilities	$	20,586	$	14,501

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The components of Other long-term liabilities as of March ~~31, 2021~~30, 2022 and December ~~30, 2020 are~~29, 2021 were as follows:

March 31
2021 December 30
2020
Deferred licensing revenue $ 11,965 $ 12,151
Long-term portion of financing equipment lease liabilities 4,056 3,586
Other(1)
6,276 8,723
Other long-term liabilities $ 22,297 $ 24,460

(1) As of March 31, 2021, Other included $3,359 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.


	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, we 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 our request of up to $15,000.

In March 2020, we 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. We repaid this amount in full, plus interest, in June 2020.

In May 2020, we 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 us 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 our net lease adjusted leverage ratio.

In March 2021, we entered into a second amendment to the Revolving Credit Facility (“Second Amendment”). The Second Amendment modified the applicable covenants and restrictions in the Credit Agreement 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) added mechanics relating to the transition from the use of LIBOR to the Secured Overnight Financing Rate ("SOFR") upon the discontinuance or unavailability of LIBOR.following components:

Subsequently, and also in March 2021, we entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) with JPMorgan Chase Bank, N.A. (as successor agent to Wells Fargo Bank, National Association), as administrative agent, and

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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 March 31, 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 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 March 31, 2021, we were in compliance with all covenants.

As of March 31, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $110, and was included in Other assets on the Condensed Consolidated Balance Sheet. Total interest expense related to the Revolving Credit Facility were $368 and $52 for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Total interest expense for the thirteen weeks ended March 31, 2021 primarily included 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, wethe Company issued ~~$225,000~~$250,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 ~~(the “Convertible~~(“Convertible Notes”) 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 $25,000 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, ~~we pay~~the Company pays or ~~deliver,~~delivers, as the case may be, cash, shares of ~~Shake Shack’s~~ Class A common stock or a combination of cash and shares of ~~Shake Shack’s~~ Class A common stock, at ~~our~~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 ~~our~~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 ~~$1,000~~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~~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.

The Convertible Notes had an initial conversion rate of 5.8679 shares of ~~Shake Shack’s~~ Class A common stock per ~~$1,000~~one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $170.42 per share of ~~Shake Shack’s~~ Class A common stock.

WeShake Shack may not redeem the Convertible Notes prior to March 6, 2025. WeThe Company may redeem for cash all or any portion of the Convertible Notes, at ~~our~~the Company's option, on or after March 6, 2025 if the last reported sale price of ~~Shake Shack’s~~ 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

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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~~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 ~~we undergo~~Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require usit 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~~the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, wethe Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert ~~our~~the Convertible Notes in connection with such a corporate event or convert ~~our~~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 ~~LLC~~ (“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~~Inc. and the aggregate number of outstanding shares of common stock.

As of March ~~31, 2021,~~30, 2022, the Convertible Notes had a gross principal balance of $250,000 and a balance of ~~$242,875,~~$243,804, net of unamortized discount and debt issuance costs of $7,125. As of March 31, 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 $86 for the thirteen weeks ended 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, wethe Company also incurred ~~costs of $236, including~~ consulting and advisory fees inof $236 for the thirteen weeks ended March 31, 2021 and was included in General and administrative ~~expense~~expenses in the Condensed Consolidated Statements of Income (Loss).

At March ~~31, 2021,~~30, 2022, the fair value of the Convertible Notes was approximately ~~$248,125,~~$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

WeShake Shack currently ~~lease~~leases all of ~~our~~its domestic Company-operated Shacks, ~~our~~the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through ~~2037. We evaluate~~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. ~~We evaluate~~The Company evaluates whether ~~we control~~it controls the use of the asset, which is determined by assessing whether ~~we obtain~~ substantially all economic benefits from the use of the asset is obtained, and whether ~~we have~~the Company has the right to direct the use of the asset. If these criteria are met and ~~we have~~the Company has identified a lease, ~~we account for~~ the contract is accounted for under the requirements of Accounting Standards Codification Topic ~~842 ("ASC 842").~~842.

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Upon ~~the~~ possession of a leased asset, ~~we determine its classification as~~the Company determines whether the lease is an operating or finance lease. ~~Our real~~Real estate leases are classified as operating leases and most of ~~our~~the equipment leases are classified as finance leases. Generally, ~~our~~ 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 wethe Company would exercise the ~~options to extend the lease. Our 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 ~~we take~~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, ~~we record~~ the straight-line lease

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 15

~~Table of Contents~~

expense and ~~any~~ contingent rent, if applicable, is recorded in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of ~~our~~the leases also require usthe 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 our leases, we use our~~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 ~~discount rate~~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 ~~incremental borrowing rate~~IBR is ~~our~~the Company's credit rating and is subject to judgment. ~~We determined our~~The credit rating ~~based on a comparison~~used to develop the IBR is determined by utilizing the credit ratings of ~~the financial information of SSE Holdings to~~ other public companies ~~and then used their respective credit ratings to develop our own.~~with similar financial information as SSE Holdings.

~~We expend~~

The Company expends cash for leasehold improvements to build out and equip ~~our~~ leased ~~premises.~~properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by ~~our~~the landlords asthrough landlord incentives pursuant to agreed-upon terms in ~~our~~the lease agreements. ~~If obtained, landlord~~Landlord incentives usually take the form of cash, full or partial credits against ~~our~~ future minimum or contingent rents otherwise payable by ~~us,~~the Company, or a combination thereof. In most cases, landlord incentives are received after ~~we take~~the Company takes possession of the property and as ~~we meet required~~ milestones are met during the construction of the property. ~~We include~~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 March ~~31, 2021~~30, 2022 and December ~~30, 2020 is~~29, 2021 were as follows:


		Classification	March 31 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	$	6,315	$	5,409	Finance leases	Property and equipment, net	6,733		6,810
Operating leases		Operating lease assets	312,087		306,317
Total right-of-use assets	Total right-of-use assets		$	318,402	$	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	$	2,445	$	1,998		Other current liabilities	2,697		2,711
		Other long-term liabilities	4,056		3,586			Other long-term liabilities	4,246		4,303
Operating leases:
		Operating lease liabilities, current	37,275		35,657
		Long-term operating lease liabilities	349,670		343,736
Total lease liabilities	Total lease liabilities		$	393,446	$	384,977	Total lease liabilities		$	443,381	$	442,646

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The components of lease expense for the thirteen weeks ended March 30, 2022 and March 31, 2021 ~~and March 25, 2020 was~~were as follows:


				Thirteen Weeks Ended					Thirteen Weeks Ended
			Classification	March 31 2021		March 25 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 expense	$	613	$	577		Amortization of right-of-use assets	Depreciation and amortization expense	753		613
		Interest on lease liabilities	Interest expense	54		55			Interest on lease liabilities	Interest expense	52		54
Operating lease cost			Occupancy and related expenses Pre-opening costs General and administrative expenses	12,330		10,742
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	82		124		Short-term lease cost		Occupancy and related expenses	98		82
Variable lease cost			Occupancy and related expenses Pre-opening costs General and administrative expenses	2,851		3,730
Total lease cost	Total lease cost			$	15,930	$	15,228	Total lease cost			$	18,088	$	15,930

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~~Form 10-Q~~ | 16

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As of March ~~31, 2021,~~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		$	2,023	$	35,013
2022		2,183		53,111
2022(1)						2022(1)	$	34,003	$	2,252
2023	2023	1,326		56,121		2023	64,088		2,205
2024	2024	689		55,896		2024	64,127		1,450
2025	2025	438		54,853		2025	62,986		718
2026						2026	59,230		425
Thereafter	Thereafter	289		246,023		Thereafter	255,488		273
Total minimum payments	Total minimum payments	6,948		501,017		Total minimum payments	539,922		7,323
Less: imputed interest	Less: imputed interest	447		114,072		Less: imputed interest	111,396		392
Total lease liabilities	Total lease liabilities	$	6,501	$	386,945	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 March ~~31, 2021 we~~30, 2022 the Company had additional operating lease commitments of ~~$55,964~~$129,255 for non-cancelable leases without a possession date, which ~~will~~ begin to commence in ~~2021.~~2022. These lease commitments are consistent with the leases that we have been executed thus far.

A summary of lease terms and discount rates for ~~finance~~operating and ~~operating~~finance leases as of March ~~31, 2021~~30, 2022 and December ~~30, 2020 is~~29, 2021 were as follows:

March 31
2021 December 30
2020
Weighted-average remaining lease term (years):
Finance leases 5.5 5.2
Operating leases 9.6 9.7
Weighted-average discount rate:
Finance leases 3.5 % 3.6 %
Operating leases 3.9 % 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 thirteen weeks ended March 30, 2022 and March 31, 2021 ~~and March 25, 2020 is~~were as follows:


			Thirteen Weeks Ended					Thirteen Weeks Ended
			March 31 2021	March 25 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	54	$	55		Operating cash flows from operating leases	$	13,525	$	11,825
		Operating cash flows from operating leases	11,825	11,329			Operating cash flows from finance leases	52		54
		Financing cash flows from finance leases	602	559			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	1,518	716			Operating leases	5,541		11,095
		Operating leases	11,095	28,035			Finance leases	676		1,518

NOTE 8: NON-CONTROLLING INTERESTS

~~We are~~Shake Shack is the sole managing member of SSE Holdings and, as a result, ~~consolidate~~consolidates the financial results of SSE Holdings. ~~We report~~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

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exchange, wethe Company will receive a corresponding number of LLC Interests, increasing ~~our~~the total ownership interest in SSE Holdings. Changes in ~~our~~the ownership interest in SSE Holdings while ~~we retain our~~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 March ~~31, 2021~~30, 2022 and December ~~30, 2020.~~29, 2021.


		March 31, 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.	39,103,239	93.0	%	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	2,921,588	7.0	%	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	42,024,827	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 weeks ended March 30, 2022 and March 31, 2021 was 6.9% and ~~March 25, 2020 was~~ 7.0% ~~and 8.4%~~, respectively.

The following table summarizes the effects of changes in ownership of SSE Holdings on ~~our~~the Company's equity during the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020.~~31, 2021.

Thirteen Weeks Ended
March 31
2021 March 25
2020
Net income (loss) attributable to Shake Shack Inc. $ 1,309 $ (960)
Transfers (to) from non-controlling interests:
Increase in additional paid-in capital as a result of the redemption of LLC Interests 36 195
Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effect 3,359 424
Total effect of changes in ownership interest on equity attributable to Shake Shack Inc. $ 4,704 $ (341)

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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 weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020.~~31, 2021.


			Thirteen Weeks Ended		Thirteen Weeks Ended
			March 31 2021	March 25 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	29,600	28,195			Number of LLC Interests redeemed by non-controlling interest holders	10,000	29,600

		Number of LLC Interests received by Shake Shack Inc.	29,600	28,195			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	29,600	28,195			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	29,600	28,195			Shares of Class B common stock surrendered and canceled	10,000	29,600

During the thirteen weeks ended March 30, 2022 and March 31, 2021, ~~and March 25, 2020, we~~the Company received an aggregate of ~~355,849~~65,893 and ~~77,903~~355,849 LLC Interests, respectively, in connection with the activity under ~~our~~its stock compensation ~~plan.~~

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plans.

~~Table of Contents~~

NOTE 9: EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the thirteen weeks ended March 30, 2022 and March 31, 2021 ~~and March 25, 2020 is~~was as follows:


		Thirteen Weeks Ended				Thirteen Weeks Ended
		March 31 2021		March 25 2020				March 30 2022		March 31 2021
Stock options	Stock options	$	20	$	261		Stock options	$	—	$	20
Performance stock units	Performance stock units	414		413			Performance stock units	1,424		414
Restricted stock units	Restricted stock units	1,247		626			Restricted stock units	1,764		1,247
Equity-based compensation expense	Equity-based compensation expense	$	1,681	$	1,300		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	$	67	$	36		Total income tax benefit recognized related to equity-based compensation	$	56	$	67

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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 weeks ended March 30, 2022 and March 31, 2021 ~~and March 25, 2020~~was as follows:


		Thirteen Weeks Ended				Thirteen Weeks Ended
		March 31 2021		March 25 2020				March 30 2022		March 31 2021
General and administrative expenses	General and administrative expenses	$	1,541	$	1,214		General and administrative expenses	$	2,991	$	1,541
Labor and related expenses	Labor and related expenses	140		86			Labor and related expenses	197		140
Equity-based compensation expense	Equity-based compensation expense	$	1,681	$	1,300		Equity-based compensation expense	$	3,188	$	1,681

NOTE 10: INCOME TAXES

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

~~Our~~The effective income tax rates for the thirteen weeks ended March 30, 2022 and March 31, 2021 were 27.6% and ~~March 25, 2020 were~~ 105.5% ~~and (8.8)%~~, respectively. The ~~increase~~decrease was primarily driven by ~~lower pre-tax book income~~a decrease in windfall benefits associated with equity-based compensation resulting in the accrual of a ~~loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on~~valuation allowance in our investment in the ~~tax rate,~~partnership as well as ~~a reduction of a valuation allowance.~~higher foreign tax expense, partly offset by an increase in pre-tax loss and higher tax credits. Additionally, an increase in ~~our~~the Company's ownership interest in SSE Holdings increases ~~our~~its share of the taxable income (loss) of SSE Holdings. ~~Our weighted-average~~The weighted average ownership interest in SSE Holdings was ~~93.0%~~93.1% and ~~91.6%~~93.0% for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020,~~31, 2021, respectively.

Deferred Tax Assets and Liabilities

During the thirteen weeks ended March ~~31, 2021, we~~30, 2022, the Company acquired an aggregate of ~~385,449~~75,893 LLC Interests in connection with the redemption of LLC Interests, and activity relating to ~~our~~its stock compensation plan. WeThe Company recognized a deferred tax asset in the amount of ~~$10,204~~$631 associated with the basis difference in ~~our~~its investment in SSE Holdings upon acquisition of these LLC Interests. As of March ~~31, 2021,~~30, 2022, the total deferred tax asset related to the basis difference in ~~our~~the Company's investment in SSE Holdings was ~~$142,867.~~$111,548. However, a portion of the total basis difference will only reverse upon the eventual sale of ~~our~~its interest in SSE Holdings, which ~~we expect~~the Company expects would result in a capital loss. As of March ~~31, 2021,~~30, 2022, the total valuation allowance established against the deferred tax asset to which this portion relates was ~~$1,260.~~

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$959.

During the thirteen weeks ended March ~~31, 2021, we~~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. ~~See~~Refer to "Tax Receivable Agreement," herein for ~~more~~additional information.

~~We evaluate~~The Company evaluates the realizability of ~~our~~its deferred tax assets on a quarterly basis and ~~establish~~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 March ~~31, 2021, we~~30, 2022, the Company concluded, based on the weight of all available positive and negative evidence, that all of ~~our~~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 ~~our~~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, 0no additional valuation allowance was recognized.

Tax Receivable Agreement

Pursuant to ~~our~~the Company's election under Section 754 of the Internal Revenue Code (the "Code"), ~~we expect~~the Company expects to obtain an increase in ~~our~~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. ~~We plan~~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. ~~We intend~~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 we would otherwise ~~pay~~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, wethe 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 usthe Company of 85% of the amount of any tax benefits that weare actually ~~realize,~~realized, or in some cases are deemed to realize, as a result of (i) increases in ~~our~~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"). ~~We expect~~The Company expects to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or ~~us.~~the 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 thirteen weeks ended March ~~31, 2021, we~~30, 2022, the Company acquired an aggregate of ~~29,600~~10,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of ~~our~~its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. WeThe Company recognized an additional liability in the amount of ~~$1,094~~$228 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits ~~we expect~~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 ~~our~~ estimates of future taxable income. During the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020, payments of $0 and $6,569,~~31, 2021, inclusive of interest, no payments were made to the ~~parties~~members of SSE Holdings pursuant to the Tax Receivable ~~Agreement, respectively.~~Agreement. As of March ~~31, 2021,~~30, 2022, the total amount of TRA Payments due under the Tax Receivable Agreement, was ~~$234,048. See~~$234,273. Refer to Note 13, Commitments and Contingencies, for ~~more~~additional information relating to ~~our~~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 weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020.~~31, 2021.

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				Thirteen Weeks Ended					Thirteen Weeks Ended
				March 31 2021		March 25 2020					March 30 2022		March 31 2021
Numerator:	Numerator:							Numerator:
		Net income (loss) attributable to Shake Shack Inc.—basic		$	1,309	$	(960)		Net income (loss) attributable to Shake Shack Inc.—basic		$	(10,162)	$	1,309
		Reallocation of net loss attributable to non-controlling interests from the assumed conversion of Class B shares		(734)		0			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		$	575	$	(960)		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		38,948		34,444			Weighted average shares of Class A common stock outstanding—basic		39,163		38,948
		Effect of dilutive securities:							Effect of dilutive securities:
			Stock options	232		0				Stock options	—		232
			Performance stock units	53		0				Performance stock units	—		53
			Restricted stock units	164		0				Restricted stock units	—		164
			Convertible Notes	451		0				Convertible Notes	—		451
			Shares of Class B common stock	2,941		0				Shares of Class B common stock	—		2,941
		Weighted-average shares of Class A common stock outstanding—diluted		42,789		34,444
									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			$	0.03	$	(0.03)	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			$	0.01	$	(0.03)	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 ~~our~~ Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of ~~our~~ 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 weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020.~~31, 2021.


		Thirteen Weeks Ended				Thirteen Weeks Ended
		March 31 2021		March 25 2020				March 30 2022		March 31 2021
Stock options	Stock options	1,698	(1)	847,207	(3)		Stock options	149,731	(1)	1,698	(2)
Performance stock units	Performance stock units	51,974	(2)	179,253	(3)		Performance stock units	165,108	(1)	51,974	(3)
Restricted stock units	Restricted stock units	0		264,431	(3)		Restricted stock units	401,716	(1)	—
Shares of Class B common stock	Shares of Class B common stock	0		3,117,002	(3)		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").

~~(2)~~ (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.

(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 effect would have been anti-dilutive.

Shake Shack Inc.

Form 10-Q | 21

Table of Contents

NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020:~~31, 2021:


			Thirteen Weeks Ended						Thirteen Weeks Ended
			March 31 2021		March 25 2020				March 30 2022		March 31 2021
Cash paid for:	Cash paid for:						Cash paid for:
		Income taxes, net of refunds	$	388	$	801		Income taxes, net of refunds	$	936	$	388
		Interest, net of amounts capitalized	70		61			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	20,080		12,949

		Accrued purchases of property and equipment	12,949		13,715

								Capitalized equity-based compensation	25		9
		Capitalized equity-based compensation	9		13

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

		Revolving Credit Facility amendment-related accrual	112		0			Revolving Credit Facility amendment-related accrual	—		112
		Convertible Notes issuance-related accrual	312		0			Convertible Notes issuance-related accrual	—		312
		Establishment of liabilities under tax receivable agreement	1,094		310			Establishment of liabilities under tax receivable agreement	228		1,094

NOTE 13: COMMITMENTS AND CONTINGENCIES

Lease Commitments

~~We are~~The Company is obligated under various operating leases for Shacks and ~~our~~the home office space, expiring in various years through ~~2037.~~2044. Under certain of these leases, ~~we are~~the Company is liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for ~~our~~its proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. ~~See~~Refer to Note 7, ~~Leases.~~Leases, for additional information.

As security under the terms of one of ~~our~~the leases, ~~we are~~the Company is obligated under a letter of credit totaling $130 as of March ~~31, 2021,~~30, 2022, which expires in February 2026. Additionally, in September 2017, wethe Company entered into a letter of credit in conjunction with ~~our~~the new home office lease in the amount of $603, which expires in August ~~2021~~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. WeThe Company also ~~enter~~enters into long-term, exclusive contracts with certain vendors to supply ~~us with~~ food, beverages and paper goods, obligating usthe Company to purchase specified quantities.

Legal Contingencies

InDuring the thirteen weeks ended March 2020, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act. At a mediation between the parties, we agreed to settle the matter with the plaintiff and other employees who elect to participate in the settlement for $595. As of March 31, 2021,30, 2022, an accrual in the amount of ~~$595~~$6,000 was recorded ~~for~~in connection with 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 ~~matter~~time, we are not able to reasonably estimate the outcome of, including any potential financial liability. As a result, no amount has been accrued as of March 30, 2022 and ~~related expenses.~~December 29, 2021 relating to this matter.

~~In February 2018, a claim was filed against Shake Shack in California state court alleging certain violations of the California Labor Code. At a mediation between the parties, we agreed~~We are subject to ~~settle the matter with the plaintiff~~various legal proceedings, claims and ~~all other California~~liabilities, involving employees ~~who elect to participate~~and guests alike, which arise in the ~~settlement for $1,200.~~ordinary course of business and are generally covered by insurance. As of March ~~31, 2021, an accrual in~~30, 2022, the amount of ~~$1,180~~the ultimate liability with respect to these matters was ~~recorded for this matter and related expenses.~~

not material.

22 | Shake Shack Inc.

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We are subject to various legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. As of March 31, 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, ~~we are~~the Company is a party to the Tax Receivable Agreement under which ~~we are~~it is contractually committed to pay certain of the members of SSE Holdings 85% of the amount of any tax benefits that weare actually ~~realize,~~realized, or in some cases are deemed to realize, as a result of certain transactions. ~~We are~~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 ~~we do~~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 weit would not be required to make the related TRA Payments. During the thirteen weeks ended March 30, 2022 and March 31, 2021, ~~and March 25, 2020, we~~the Company recognized liabilities totaling ~~$1,094~~$228 and ~~$310,~~$1,094, respectively, relating to ~~our~~the obligations under the Tax Receivable Agreement, after concluding that it was probable that weit would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of March ~~31, 2021~~30, 2022 and December ~~30, 2020, our~~29, 2021, 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 wethe Company did not recognize the related liability, as wethe Company concluded that weit 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 ~~our~~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, weShake 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 usthe Company a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays us a percentage of profits on sales of branded beverages, as defined in the MLA.

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts received from HYC Licensing revenue $ 0 $ 22

Classification March 31
2021 December 30
2020
Amounts due from HYC Accounts Receivable $ 0 $ 8

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 23

~~Table of Contents~~

~~Madison Square Park Conservancy~~

The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack. NaN amounts were due to MSP Conservancy as of both March 31, 2021 and December 30, 2020.

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts paid to MSP Conservancy Occupancy and related expenses $ 215 $ 219

~~Olo, Inc.~~

The Chairman of our Board of Directors serves as a director of Olo, Inc. (formerly known as "Mobo Systems, Inc."), a platform we use in connection with our mobile ordering application. NaN amounts were due to Olo as of both March 31, 2021 and December 30, 2020.

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts paid to Olo Other operating expenses $ 147 $ 52

~~Square, Inc.~~

Our Chief Executive Officer is a member of the Board of Directors of Square, Inc. ("Square"). We currently use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with the processing of a limited amount of sales at certain of our locations, sales for certain off-site events and in connection with our kiosk technology.

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts paid to Square Other operating expenses $ 462 $ 571


		Thirteen Weeks Ended
	Classification	March 3130 ~~2021~~2022		March 2531 ~~2020~~2021
~~Amounts due to Square~~	~~Accounts Payable~~	$	9	$	—

Amounts received from HYC	Licensing revenue	$	104	$	—


	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 March 30, 2022 and December 29, 2021.


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

Shake Shack Inc.

Form 10-Q | 23

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


	Classification	March 30 2022		December 29 2021
Amounts due to Olo, Inc.	Accounts payable	$	—	$	33

Block, Inc.

The Company's Chief Executive Officer is a member of the board of directors of Block, Inc. (formerly known as "Square, Inc."). We currently 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.


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


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

USHG Acquisition Corp.

~~Our~~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 ~~our~~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 March ~~31, 2021~~30, 2022 and December ~~30, 2020.~~29, 2021.

Tax Receivable Agreement

~~As described in Note 10, Income Taxes, we~~The Company entered into a Tax Receivable Agreement ~~with certain members of SSE Holdings~~ that provides for the payment by usthe Company of 85% of the amount of any tax benefits ~~if any,~~ that ~~Shake Shack~~are actually ~~realizes~~realized, or in some cases isare 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.


	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

24 | Shake Shack Inc.

Form 10-Q | 24

Table of Contents

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts paid to members (inclusive of interest) Other current liabilities $ 0 $ 6,569

Classification March 31
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. ~~NaN~~No tax distributions were payable to non-controlling interest holders as of March ~~31, 2021~~30, 2022 and December ~~30, 2020,~~29, 2021, respectively.

Thirteen Weeks Ended
Classification March 31
2021 March 25
2020
Amounts paid to non-controlling interest holders Non-controlling interests $ 467 $ 305


		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.~~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 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 fries, shakes, frozen custard, beer, wine and ~~wine.~~more. As of March ~~31, 2021,~~30, 2022, there were ~~321~~382 Shacks in operation system-wide, of which ~~192~~225 were domestic Company-operated Shacks, 2227 were domestic licensed Shacks and ~~107~~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

Shake Shack Inc.

Form 10-Q | 25

Table of Contents

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

mobility trends in urban and suburban markets recovered. We ~~have experienced continued positive momentum~~continue to face inflationary pressures in our business, mainly in labor and commodity inflation. We increased menu price in March to help address these pressures however we expect to see higher inflationary pressures in the ~~business~~coming quarters.

Same-Shack sales for the thirteen weeks ended March 30, 2022 increased 10.3% compared to the same period last year, with urban Shacks increasing 19.5% and suburban Shacks increasing 3.5%. The increase in same-Shack sales for the first quarter of 2022 was driven by an 11.6% increase in guest traffic due to 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 comparable Shack base, which is defined as the 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 was also adjusted. For the purpose of calculating same-Shack sales for the thirteen weeks ended March 30, 2022, Shack sales for 164 Shacks were included in the comparable Shack base.

Average weekly sales was $68,000 in the first quarter of 2022 compared to $64,000 in the first quarter of 2021 driven by an increase in guest traffic and through April 28 ("fiscal April"), all while continuing to support our Shack teams, our guests and the communities in which we operate during the COVID-19 pandemic. With COVID cases stabilizing and more regions steadily loosening restrictions, we are optimistic that improving trends can continue for our industry. With a continued prioritization on health and safety, we have steadily re-opened dining rooms under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

~~Same-Shack~~higher menu prices. Average weekly sales ~~continued to improve across all regions, up 5.7% in the first quarter 2021, when~~decreased 8.1% compared to ~~down 17.4% in~~ the fourth quarter ~~2020, with performance~~of 2021 driven by ~~increases in in-Shack dining~~lower sales in both urban and suburban Shacks ~~combined with high levels~~as a result of ~~digital sales retention. Same-Shack~~the Omicron variant.

Shack system-wide sales in ~~fiscal April were up 86%~~the first quarter of 2022 increased 35.6% to $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 weeks ended March 30, 2022 decreased 5.7% to $84.3 million compared to the same period last year. As of the end of fiscal April 2021, the vast majority of Shacks were operating with open dining rooms, the majority of which continue to remain under varying levels of capacity restrictions, especially in urban Shacks. The Company continues to experience recovery across urban and suburban markets, however many major urban markets, such as Manhattan, remain materially below pre-COVID levels, while office, events and tourism traffic return.

~~Average weekly~~Digital sales were $64,000 in the first quarter of 2021. Fiscal February was heavily impacted by severe winter weather, resulting in average weekly sales of $60,000, followed by a significant improvement to $68,000 in fiscal March, and continuing through fiscal April with $69,000. This continued improvement was driven by a substantial increase in in-Shack sales, as well as a high retention of digital sales.

~~During the first quarter of 2021, total digital sales, including~~includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented ~~60% of Shack sales. Fiscal January and February digital mix was 64% and 62%~~43.1% of Shack sales ~~respectively, driven largely by increased delivery due to bad weather across large portions of~~during the ~~United States.~~thirteen weeks ended March 30, 2022. Digital sales ~~mix decreased to 54% of Shack sales~~retention was approximately 80% in fiscal March and 51% of Shack sales in fiscal April, driven by an increase in in-Shack dining as the weather improved and parts of the country continued to re-open. Encouragingly, while in-Shack dining continues to increase, there continues to be a high level of digital sales retention with 90% of fiscal January's digital sales retained in fiscal April. Company-owned app and web channels continued to perform well in the first quarter 2021, with 2.4 million first-time purchasers between mid-March of 2020 and the end of fiscal March 2021, and over 230% year-over-year sales growth,2022 when compared to ~~the first quarter 2020.~~

~~Licensing revenue for the first quarter of~~fiscal January 2021 ~~was $4.6 million, reflecting a decrease of 9.9% versus the same period last year. We did, however, see improvement in total weekly~~when digital sales performance throughout the quarter, with sales recovery led by improvements in both our international and domestic licensed Shacks, particularly in airports which are experiencing increases in Transportation Security Administration ("TSA") flight traffic.

peaked.

Development Highlights

During the first quarter ~~2021,~~of 2022, we opened ~~ten~~seven new domestic Company-operated Shacks, two new domestic licensed Shacks and ~~two~~four new international licensed Shacks. ~~These openings~~There were ~~partially offset by~~no permanent Shack closures in the ~~closure~~first quarter of ~~one domestic Company-operated Shack and one international licensed Shack.~~2022.

~~26 |~~
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~~Table of Contents~~

Location

Type

Opening Date

~~Kuwait City, Kuwait~~Dallas, TX — ~~Waterfront~~NorthPark Center

Domestic Company-operated

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 — iAPM

International Licensed

1/~~28/2021~~13/2022

~~Plymouth Meeting, PA~~Greenwood Village, CO — ~~Plymouth Meeting~~Greenwood Village

Domestic ~~Company-Operated~~Company-operated

~~2/4/2021~~1/21/2022

~~Nanuet, NY~~Culver City, CA — ~~Nanuet~~Westfield Culver City

Domestic ~~Company-Operated~~Company-operated

1/22/2022

Beijing, China — Indigo

International Licensed

1/25/2022

Livonia, MI — Livonia

Domestic Company-operated

2/~~8/2021~~10/2022

Alpharetta, GA — Alpharetta

Domestic Company-operated

2/16/2022

Dubai, UAE — ~~First Avenue Mall, Motor City~~Dubai Hills

International Licensed

2/~~11/2021~~17/2022

~~Ardmore, PA~~Nanjing, China — ~~Suburban Square~~Deiji Plaza

International Licensed

2/22/2022

Orlando, FL — Vineland Pointe

Domestic ~~Company-Operated~~Company-operated

~~2/19/2021~~3/24/2022

~~Towson, MD~~St. Louis, MO — ~~Towson~~Enterprise Center

Domestic ~~Company-Operated~~

~~2/20/2021~~

~~Woburn, MA — Woburn~~

~~Domestic Company-Operated~~Licensed

3/~~1/2021~~30/2022

~~Huntersville, NC — Huntersville~~

~~Domestic Company-Operated~~

~~3/2/2021~~

~~Nashville, TN — Downtown Nashville~~

~~Domestic Company-Operated~~

~~3/4/2021~~

~~New York, NY — Bryant Park~~

~~Domestic Company-Operated~~

~~3/22/2021~~

~~Boulder, CO — Boulder~~

~~Domestic Company-Operated~~

~~3/26/2021~~

~~Hoboken, NJ — Hoboken~~

~~Domestic Company-Operated~~

~~3/29/2021~~

As of May 6, 2021, we have opened another five domestic Company-operated Shacks, and expect a total of 16 to 18 openings by the mid-year point. Though our rate of recovery and development plans continue to be impacted by the ongoing uncertainty due to COVID, we are aiming to open a total of between 35 and 40 new domestic Company-operated Shacks, and 15 to 20 new licensed Shacks, in fiscal 2021.

~~Liquidity Update~~

In March 2021, we issued $225 million aggregate principal amount of 0% Convertible Senior Notes due 2028 (the “Convertible Notes”) 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 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 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 Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election.

~~Financial Highlights for the First Quarter 2021~~

▪26 | ~~Total revenue~~ ~~in the first quarter 2021 increased 8.5% to $155.3 million versus the same period last year.~~

▪~~Shack sales~~ in the first quarter 2021 increased 9.1% to $150.7 million versus the same period last year. Total Shack sales improved further in fiscal April with an increase of 171% versus the same period last year.

▪~~Same-Shack sales~~1 ~~improved to up 5.7% in the first quarter 2021 versus the same period last year. In fiscal April, Same-Shack sales continued to recover, with an increase of 86% versus the same period last year.~~

▪~~Licensed revenue~~ ~~in the first quarter 2021 decreased 9.9% to $4.6 million versus the same period last year.~~

��~~Shack system-wide sales~~ ~~in the first quarter 2021 increased 3.0% to $228.3 million, versus the same period last year.~~

▪~~Operating loss~~ ~~in the first quarter 2021 was $10.0 million compared to an operating loss of $0.8 million in the same period last year.~~

▪~~Shack-level operating profit~~2 ~~decreased 14.3% to $22.6 million, or 15.0% of Shack sales in the first quarter 2021, versus the same period last year.~~

▪~~Net income~~ ~~was $0.6 million and~~ ~~adjusted EBITDA~~2 ~~was $7.1 million in the first quarter 2021, compared to a net loss of $1.1 million and adjusted EBITDA of $14.3 million in the same period last year.~~

▪~~Net income attributable to Shake Shack Inc.~~ ~~was $1.3 million and~~ ~~adjusted pro forma net income~~2 was $1.8 million, or $0.04 per fully exchanged and diluted share in the first quarter 2021, compared to net loss attributable to Shake Shack Inc. of $1.0 million and adjusted pro forma net income of $0.8 million, or $0.02 per fully exchanged and diluted share, in the same period last year.

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▪~~Net system-wide Shack openings, comprised of nine net domestic Company-operated Shacks and one net licensed Shack.~~

▪~~Cash and marketable securities on hand~~ ~~was $415.9 million as of March 31, 2021.~~

1In order to compare like-for-like periods for fiscal 2021, same-Shack sales will compare the 52 weeks from December 31, 2020 through December 29, 2021 to the 52 weeks from January 2, 2020 through December 30, 2020. For Q1 2021, same-Shack sales compares the thirteen weeks from December 31, 2020 through March 31, 2021 to the thirteen weeks from January 2, 2021 through April 1, 2021.

2This represents a non-GAAP measure. Reconciliations to the most directly comparable financial measures presented in accordance with GAAP are set forth in the schedules within “Non-GAAP Financial Measures,” herein.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020:~~31, 2021:


			Thirteen Weeks Ended										Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021				March 25 2020				(dollar amounts in thousands)		March 30 2022				March 31 2021
Shack sales	Shack sales		$	150,668	97.0	%	$	138,048	96.4	%	Shack sales		$	196,791	96.8	%	$	150,668	97.0	%
Licensing revenue	Licensing revenue		4,614		3.0	%	5,122		3.6	%	Licensing revenue		6,600		3.2	%	4,614		3.0	%
TOTAL REVENUE	TOTAL REVENUE		155,282		100.0	%	143,170		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	44,630		29.6	%	39,564		28.7	%		Food and paper costs	59,884		30.4	%	44,630		29.6	%
		Labor and related expenses	46,382		30.8	%	41,766		30.3	%		Labor and related expenses	60,465		30.7	%	46,382		30.8	%
		Other operating expenses	23,144		15.4	%	17,779		12.9	%		Other operating expenses	30,237		15.4	%	23,144		15.4	%
		Occupancy and related expenses	13,911		9.2	%	12,558		9.1	%		Occupancy and related expenses	16,276		8.3	%	13,911		9.2	%
General and administrative expenses	General and administrative expenses		19,565		12.6	%	16,191		11.3	%	General and administrative expenses		31,320		15.4	%	19,565		12.6	%
Depreciation and amortization expense	Depreciation and amortization expense		13,726		8.8	%	11,768		8.2	%	Depreciation and amortization expense		16,855		8.3	%	13,726		8.8	%
Pre-opening costs	Pre-opening costs		3,576		2.3	%	2,243		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		369		0.2	%	2,088		1.5	%	Impairment and loss on disposal of assets		577		0.3	%	369		0.2	%
TOTAL EXPENSES	TOTAL EXPENSES		165,303		106.5	%	143,957		100.5	%	TOTAL EXPENSES		218,326		107.3	%	165,303		106.5	%
OPERATING LOSS			(10,021)		(6.5)	%	(787)		(0.5)	%
LOSS FROM OPERATIONS											LOSS FROM OPERATIONS		(14,935)		(7.3)	%	(10,021)		(6.5)	%
Other income (expense), net	Other income (expense), net		31		—	%	(93)		(0.1)	%	Other income (expense), net		(289)		(0.1)	%	31		—	%
Interest expense	Interest expense		(515)		(0.3)	%	(112)		(0.1)	%	Interest expense		(355)		(0.2)	%	(515)		(0.3)	%
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(10,505)		(6.8)	%	(992)		(0.7)	%	LOSS BEFORE INCOME TAXES		(15,579)		(7.7)	%	(10,505)		(6.8)	%
Income tax expense (benefit)			(11,080)		(7.1)	%	87		0.1	%
Benefit from income taxes											Benefit from income taxes		(4,297)		(2.1)	%	(11,080)		(7.1)	%
NET INCOME (LOSS)	NET INCOME (LOSS)		575		0.4	%	(1,079)		(0.8)	%	NET INCOME (LOSS)		(11,282)		(5.5)	%	575		0.4	%
Less: net loss attributable to non-controlling interests			(734)		(0.5)	%	(119)		(0.1)	%
Less: Net loss attributable to non-controlling interests											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.		$	1,309	0.8	%	$	(960)	(0.7)	%	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.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Shack sales		$	196,791		$	150,668
	Percentage of total revenue	96.8		%	97.0		%
	Dollar change compared to prior year	$	46,123
	Percentage change compared to prior year	30.6		%

Shack sales for the thirteen weeks ended 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 opening of 33 net new domestic Company-operated Shacks between March 31, 2021 and ~~same-Shack sales. Same-Shack sales means, for any reporting period, sales performance~~March 30, 2022 which contributed $24.5 million as well as $22.9 million related to increased traffic at ~~our Company-operated domestic Shacks that have been open for at least 24 months.~~both urban and suburban Shacks.

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Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Shack sales $ 150,668 $ 138,048
Percentage of total revenue 97.0 % 96.4 %
Dollar change compared to prior year $ 12,620
Percentage change compared to prior year 9.1 %

Shack sales during the thirteen weeks ended March 31, 2021 increased 9.1% from the same prior-year period, primarily driven by the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021, and to a lesser extent, an increase in same-Shack sales.

Same-Shack sales continued to improve across all regions, and increased 5.7% for the first quarter of 2021, compared to down 17.4% in the fourth quarter of 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales retention. The increase in first quarter 2021 same-Shack sales was due to a price and sales mix increase of 18.0% — a combination of our end-of-year price increase in December, increased pricing on third-party delivery channels which rolled out over the early part of this fiscal year, and a higher number of items per check, particularly in our digital channels — partially offset by a 12.3% decrease in guest traffic. For the purpose of calculating same-Shack sales growth, Shack sales for 123 Shacks were included in the comparable Shack base as of the end of the first quarter of 2021 versus 90 Shacks for the first quarter of 2020.

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								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Licensing revenue	Licensing revenue		$	4,614		$	5,122		Licensing revenue		$	6,600		$	4,614
		Percentage of total revenue	3.0		%	3.6		%		Percentage of total revenue	3.2		%	3.0		%
		Dollar change compared to prior year	$	(508)						Dollar change compared to prior year	$	1,986
		Percentage change compared to prior year	(9.9)		%					Percentage change compared to prior year	43.0		%

~~Licensed~~Licensing revenue for the thirteen weeks ended March ~~31, 2021 decreased 9.9%~~30, 2022 increased 43.0% to ~~$4.6~~$6.6 million versus the same ~~prior-year~~ period last year. The increase in Licensing revenue was primarily due to ~~reduced sales related to~~ the ~~COVID-19 pandemic, partially offset by a~~opening of 28 net ~~increase of 9~~new licensed Shacks ~~opened~~ between March ~~25, 2020~~31, 2021 and March ~~31, 2021. As of the end of the first quarter 2021, 16 licensed Shacks remained temporarily closed due~~30, 2022 which contributed $1.3 million. Although we continue to ~~COVID. Through the first quarter of 2021, we did, however,~~ see improvement in ~~total weekly sales performance throughout the quarter, with sales recovery led by improvements~~Licensing revenue, COVID-19 related pressures continue to impact our Asian markets, predominately in ~~both our international~~China where lockdowns and ~~domestic licensed Shacks, particularly in airports which are experiencing increases in TSA flight traffic.~~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 and paper costs are variable by nature, change with sales volume, are impacted by menu mix and fluctuations in commodity costs, as well as geographic scale and proximity.

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 29

~~Table of Contents~~


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Food and paper costs		$	59,884		$	44,630
	Percentage of Shack sales	30.4		%	29.6		%
	Dollar change compared to prior year	$	15,254
	Percentage change compared to prior year	34.2		%

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Food and paper costs $ 44,630 $ 39,564
Percentage of Shack sales 29.6 % 28.7 %
Dollar change compared to prior year $ 5,066
Percentage change compared to prior year 12.8 %

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 increase in Food and paper costs for the thirteen weeks ended March ~~31, 2021~~30, 2022 was primarily due to increased sales volume associated with the opening of 2533 net new domestic Company-operated Shacks between March ~~25, 2020~~31, 2021 and March ~~31, 2021, as well as~~30, 2022.

As a percentage of Shack sales, the increase in Food and paper costs for the thirteen weeks ended March 30, 2022 was primarily driven by increased ~~paper~~beef and ~~packaging costs and beef costs.~~chicken prices partially offset by 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’ compensation expense and medical benefits. As we expect with other variable expense items, ~~we expect~~ labor costs 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
(dollar amounts in thousands) March 31
2021 March 25
2020
Labor and related expenses $ 46,382 $ 41,766
Percentage of Shack sales 30.8 % 30.3 %
Dollar change compared to prior year $ 4,616
Percentage change compared to prior year 11.1 %

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		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		%

Labor and related expenses for the thirteen weeks ended 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 teams.

As a percentage of Shack sales, the decrease in Labor and related expenses for the thirteen weeks ended March ~~31, 2021~~30, 2022 was primarily due to ~~our annual wage rate increase, higher~~lower payroll ~~taxes at~~tax and benefit expense recognized during the ~~state level, and a more normalized level of performance related bonuses, including the impact of the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.~~

As a percentage of Shack sales, the increase in Labor and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to our annual wage increase, a more normalized level of performance related bonuses and new Shack openings at higher levels of labor, partiallyperiod, nearly offset by an increase in ~~labor productivity at existing Shacks.~~headcount and higher starting wages for our 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 ~~delivery commissions,~~non-perishable supplies, credit card fees ~~non-perishable supplies,~~ and ~~business~~property insurance.


			Thirteen Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Other operating expenses	Other operating expenses		$	23,144		$	17,779		Other operating expenses		$	30,237		$	23,144
		Percentage of Shack sales	15.4		%	12.9		%		Percentage of Shack sales	15.4		%	15.4		%
		Dollar change compared to prior year	$	5,365						Dollar change compared to prior year	$	7,093
		Percentage change compared to prior year	30.2		%					Percentage change compared to prior year	30.6		%

~~The increase in~~ Other operating expenses for the thirteen weeks ended March ~~31, 2021~~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 facilities costs associated with increased in-Shack dining, higher transaction and delivery costs associated with higher sales, and the opening of 2533 net new domestic Company-operated Shacks between March ~~25, 2020 and March~~ 31, 2021 and ~~higher delivery commission as a result of digital growth.~~

March 30, | ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

2022.

As a percentage of Shack sales, ~~the increase in~~ Other operating expenses for the thirteen weeks ended March ~~31, 2021~~30, 2022 was ~~primarily due to~~flat as sales leverage associated with the recovery from COVID-19 was offset by higher ~~delivery commissions~~facilities costs as ~~a result of digital growth.~~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 costs.


			Thirteen Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Occupancy and related expenses	Occupancy and related expenses		$	13,911		$	12,558		Occupancy and related expenses		$	16,276		$	13,911
		Percentage of Shack sales	9.2		%	9.1		%		Percentage of Shack sales	8.3		%	9.2		%
		Dollar change compared to prior year	$	1,353						Dollar change compared to prior year	$	2,365
		Percentage change compared to prior year	10.8		%					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.

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As a percentage of Shack sales, the decrease in Occupancy and related expenses for the thirteen weeks ended March ~~31, 2021 was~~30, 2022 were primarily due to ~~the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.~~

~~As a percentage of Shack~~ sales ~~Occupancy and related expenses for the thirteen weeks ended March 31, 2021 was relatively consistent~~leverage associated with the ~~same-prior year period, and continues to be impacted by sales deleverage, particularly in our high-volume urban Shacks.~~continued recovery from the COVID-19 pandemic.

General and Administrative Expenses

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


			Thirteen Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
General and administrative expenses	General and administrative expenses		$	19,565		$	16,191		General and administrative expenses		$	31,320		$	19,565
		Percentage of total revenue	12.6		%	11.3		%		Percentage of Total revenue	15.4		%	12.6		%
		Dollar change compared to prior year	$	3,374						Dollar change compared to prior year	$	11,755
		Percentage change compared to prior year	20.8		%					Percentage change compared to prior year	60.1		%

~~The increase in~~ General and administrative expenses for the thirteen weeks ended March ~~31, 2021~~30, 2022 increased 60.1% to $31.3 million versus the same period last year. The 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 ~~investment across the business, including an increase in headcount~~investments to support ~~the strategic growth plan,~~Shack development and ~~increased investments in marketing and our~~ digital ~~initiatives.~~programs.

As a percentage of ~~total~~Total revenue, the increase in General and administrative expenses for the thirteen weeks ended March ~~31, 2021~~30, 2022 was primarily due ~~primarily~~ to ~~drivers described above.~~the aforementioned items as well as an increase in marketing expenses to support increased digital investments including digital products and performance marketing.

Depreciation and Amortization Expense

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

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Depreciation and amortization expense		$	16,855		$	13,726
	Percentage of Total revenue	8.3		%	8.8		%
	Dollar change compared to prior year	$	3,129
	Percentage change compared to prior year	22.8		%

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Depreciation and amortization expense $ 13,726 $ 11,768
Percentage of total revenue 8.8 % 8.2 %
Dollar change compared to prior year $ 1,958
Percentage change compared to prior year 16.6 %

~~The increase in~~ Depreciation and amortization expense for the thirteen weeks ended March ~~31, 2021~~30, 2022 increased 22.8% to $16.9 million versus the same period last year. The increase in Depreciation and amortization expense was ~~primarily~~predominantly due to incremental depreciation of capital expenditures related to the opening of 2533 net new domestic Company-operated Shacks between March ~~25, 2020 and March~~ 31, 2021 and ~~increased technology investments to support our digital initiatives.~~March 30, 2022.

As a percentage of ~~total~~Total revenue, the ~~increase~~decrease in Depreciation and amortization expense for the thirteen weeks ended March ~~31, 2021~~30, 2022 was primarily due to sales leverage associated with the ~~aforementioned items.~~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								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Pre-opening costs	Pre-opening costs		$	3,576		$	2,243		Pre-opening costs		$	2,712		$	3,576
		Percentage of total revenue	2.3		%	1.6		%		Percentage of Total revenue	1.3		%	2.3		%
		Dollar change compared to prior year	$	1,333						Dollar change compared to prior year	$	(864)
		Percentage change compared to prior year	59.4		%					Percentage change compared to prior year	(24.2)		%

~~The increase in~~ Pre-opening costs for the thirteen weeks ended March ~~31, 2021~~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 ~~increased fiscal 2021 development pipeline for~~lower number of new domestic Company-operated Shacks ~~including those expected~~opened during the current period compared to ~~open in~~ the ~~first half of the fiscal year.~~prior-year 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 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.

~~32 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Impairment and loss on disposal of assets		$	577		$	369
	Percentage of Total revenue	0.3		%	0.2		%
	Dollar change compared to prior year	$	208
	Percentage change compared to prior year	56.4		%

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Impairment and loss on disposal of assets $ 369 $ 2,088
Percentage of total revenue 0.2 % 1.5 %
Dollar change compared to prior year $ (1,719)
Percentage change compared to prior year (82.3) %

~~The decrease in~~ Impairment and loss on disposal of assets for the thirteen weeks ended March ~~31, 2021 was primarily due~~30, 2022 increased 56.4% to ~~asset impairment charges of $1.1~~$0.6 million versus the same period last year. The increase in ~~the first quarter of 2020 related to the impairment of one Shack. In addition,~~Impairment and loss on disposal of assets ~~decreased~~was primarily due to ~~several Shack renovations~~the number of Shacks maturing in ~~fiscal 2020.~~our base.

Other Income (Expense), Net

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


			Thirteen Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Other income (expense), net	Other income (expense), net		$	31		$	(93)		Other income (expense), net		$	(289)		$	31
		Percentage of total revenue	—		%	(0.1)		%		Percentage of Total revenue	(0.1)		%	—		%
		Dollar change compared to prior year	$	124						Dollar change compared to prior year	$	(320)
		Percentage change compared to prior year	(133.3)		%					Percentage change compared to prior year	(1,032.3)		%

~~The increase in~~ Other income (expense), net for the thirteen weeks ended March ~~31, 2021~~30, 2022 decreased to $(0.3) million versus the same period last year. The decrease in Other income (expense), net was primarily due to ~~a decline in~~ unrealized losses related to our investments in marketable securities ~~partially offset by a decrease~~more than offsetting the increase in dividend ~~income.~~income for the period.

Interest Expense

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

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Interest expense $ (515) $ (112)
Percentage of total revenue (0.3) % (0.1) %
Dollar change compared to prior year $ (403)
Percentage change compared to prior year 359.8 %

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Form 10-Q | 31

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 30 2022			March 31 2021
Interest expense		$	(355)		$	(515)
	Percentage of Total revenue	(0.2)		%	(0.3)		%
	Dollar change compared to prior year	$	160
	Percentage change compared to prior year	(31.1)		%

Interest expense for the thirteen weeks ended March 30, 2022 decreased 31.1% to $0.4 million versus the same period last year. The ~~increase~~decrease in Interest expense was primarily due to 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, for further details.~~30, 2022.

Benefit from Income ~~Tax Expense (Benefit)~~Taxes

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

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

~~Table of Contents~~


			Thirteen Weeks Ended								Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		March 31 2021			March 25 2020			(dollar amounts in thousands)		March 30 2022			March 31 2021
Income tax expense (benefit)			$	(11,080)		$	87
Benefit from income taxes									Benefit from income taxes		$	(4,297)		$	(11,080)
		Percentage of total revenue	(7.1)		%	0.1		%		Percentage of Total revenue	(2.1)		%	(7.1)		%
		Dollar change compared to prior year	$	(11,167)						Dollar change compared to prior year	$	6,783
		Percentage change compared to prior year	(12,835.6)		%					Percentage change compared to prior year	(61.2)		%

Our effective income tax rates for the thirteen weeks ended March 30, 2022 and March 31, 2021 were 27.6% and ~~March 25, 2020 were~~ 105.5% ~~and (8.8)%~~, respectively. The ~~increase~~decrease was primarily driven by ~~lower pre-tax book income~~a decrease in windfall benefits associated with equity-based compensation resulting in the accrual of a ~~loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on~~valuation allowance in our investment in the ~~tax rate,~~partnership as well as ~~a reduction of a valuation allowance.~~higher foreign tax expense, partly offset by an increase in pre-tax 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 ~~weighted-average~~weighted average ownership interest in SSE Holdings was ~~93.0%~~93.1% and ~~91.6%~~93.0% for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020,~~31, 2021, respectively.

Net 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 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 to Shake Shack Inc. and the non-controlling interest holders.

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Net loss attributable to non-controlling interests $ (734) $ (119)
Percentage of total revenue (0.5) % (0.1) %
Dollar change compared to prior year $ (615)
Percentage change compared to prior year 516.8 %

32 | Shake Shack Inc.

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		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 increase in Net loss attributable to non-controlling interests for the thirteen weeks ended March ~~31, 2021~~30, 2022 was primarily due to ~~an increase~~a decrease in net ~~loss for SSE Holdings for~~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%~~6.9% and ~~8.4%~~7.0% for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020,~~31, 2021, respectively.

NON-GAAP FINANCIAL MEASURES

To supplement the ~~condensed consolidated financial statements,~~Condensed Consolidated Financial Statements, which are prepared and presented in accordance with 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 and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

~~34 |~~ ~~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 ~~the Company believes~~we believe are useful measures to evaluate the performance and profitability of ~~its~~our Shacks. Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally ~~by management~~ to develop our internal budgets and forecasts, as well as assess the performance of ~~its~~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. ~~The Company believes~~We believe presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of ~~its~~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 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.

Shake Shack Inc.

Form 10-Q | 33

Table of Contents

A reconciliation of Shack-level operating profit to ~~Operating loss,~~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.

Thirteen Weeks Ended
(dollar amounts in thousands) March 31
2021 March 25
2020
Operating loss $ (10,021) $ (787)
Less:
Licensing revenue 4,614 5,122
Add:
General and administrative expenses 19,565 16,191
Depreciation and amortization expense 13,726 11,768
Pre-opening costs 3,576 2,243
Impairment and loss on disposal of assets(1)
369 2,088
Shack-level operating profit $ 22,601 $ 26,381
Total revenue $ 155,282 $ 143,170
Less: licensing revenue 4,614 5,122
Shack sales $ 150,668 $ 138,048
Shack-level operating profit margin(2)
15.0 % 19.1 %

~~(1)~~ (2)For the thirteen weeks ended March ~~25, 2020, amount~~30, 2022, Shack-level operating profit margin includes ~~a non-cash impairment charge of $1.1 million related to one Shack.~~

~~(2) As a percentage of~~the $1,281 cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales.

~~Shake Shack Inc.~~ The benefit from the cumulative catch-up resulted in a 0.5% increase to Shack-level operating profit margin.~~Form 10-Q~~ | 35

~~Table of Contents~~

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 cost, Impairment and loss on the disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that ~~the Company does~~we do not believe directly reflect ~~its~~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 ~~the Company believes~~we believe are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally ~~by management~~ to develop internal budgets and forecasts and also serves as a metric in ~~its~~our performance-based equity incentive programs and certain bonus arrangements. ~~The Company believes~~We believe presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of ~~the Company's~~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 ~~the Company's~~our performance and should be reviewed in conjunction with the GAAP financial measures.

34 | Shake Shack Inc.

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


		Thirteen Weeks Ended							Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)	March 31 2021			March 25 2020			(dollar amounts in thousands)	March 30 2022		March 31 2021
Net income (loss)	Net income (loss)	$	575		$	(1,079)		Net income (loss)	$	(11,282)	$	575
Depreciation and amortization expense	Depreciation and amortization expense	13,726			11,768			Depreciation and amortization expense	16,855		13,726
Interest expense, net	Interest expense, net	515			112			Interest expense, net	355		515
Income tax expense (benefit)		(11,080)			87
Benefit from income taxes								Benefit from income taxes	(4,297)		(11,080)
EBITDA	EBITDA	$	3,736		$	10,888		EBITDA	$	1,631	$	3,736

Equity-based compensation	Equity-based compensation	1,681			1,300			Equity-based compensation	3,188		1,681
Amortization of cloud-based software implementation costs~~(1)~~	Amortization of cloud-based software implementation costs~~(1)~~	313			260			Amortization of cloud-based software implementation costs~~(1)~~	332		313
Deferred lease costs~~(2)~~(1)	Deferred lease costs~~(2)~~(1)	204			(330)			Deferred lease costs~~(2)~~(1)	(877)		204
Impairment and loss on disposal of assets~~(3)~~	Impairment and loss on disposal of assets~~(3)~~	369			2,088			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)~~	595			—			Legal settlement~~(5)~~	6,000		595
Gift card breakage cumulative catch-up adjustment								Gift card breakage cumulative catch-up adjustment	(1,281)		—

Executive transition costs(6)		—			34
Project Concrete(7)		—			(261)
Other(8)		—			285

ADJUSTED EBITDA	ADJUSTED EBITDA	$	7,134		$	14,264		ADJUSTED EBITDA	$	9,570	$	7,134

Adjusted EBITDA margin(9)		4.6		%	10.0		%
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 thirteen weeks ended March 25, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

~~36 |~~ (2)~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

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

~~(5) Expense incurred to establish an accrual related to the settlement of a legal matter. See Note 13, Commitments and Contingencies, for further details.~~

~~(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~~Total revenue, which was ~~$155.3~~$203.4 million and ~~$143.2~~$155.3 million for the thirteen weeks ended March 30, 2022 and March 31, 2021, ~~and March 25, 2020,~~ respectively.

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

Adjusted pro forma net income represents ~~net~~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 don't believe directly reflect our core operations and may not be indicative of our recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income (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 any dilutive securities such as outstanding equity-based awards.

How These Measures Are Useful

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

Limitations of the Usefulness of These Measures

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


			Thirteen Weeks Ended
(in thousands, except per share amounts)			March 30 2022		March 31 2021
Numerator:
	Net income (loss) attributable to Shake Shack Inc		$	(10,162)	$	1,309
	Adjustments:
		Reallocation of net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(1,120)		(734)




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





		Gift card breakage cumulative catch-up adjustment	(1,281)		—
		Impact to income tax benefit(4)	(1,595)		24
Adjusted pro forma net income (loss)			$	(8,158)	$	1,753

Denominator:
	Weighted-average shares of Class A common stock outstanding—diluted		39,163		42,789
	Adjustments:
		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		42,083		42,789

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

~~Shake Shack Inc.~~


		Thirteen Weeks Ended
		March 30 2022		March 31 2021
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)		—
	Non-GAAP adjustments(5)	0.08		0.03
Adjusted pro forma earnings (loss) per fully exchanged share—diluted		$	(0.19)	$	0.04

~~Form 10-Q~~(1) | 37

~~Table of Contents~~

Thirteen Weeks Ended
(in thousands, except per share amounts) March 31
2021 March 25
2020
Numerator:
Net income (loss) attributable to Shake Shack Inc. $ 1,309 $ (960)
Adjustments:
Reallocation of net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)
(734) (119)
Executive transition costs(2)
— 34
Project Concrete(3)
— (261)
Legal settlement(4)
595 —
Debt offering related costs(5)
236 —
Revolving Credit Facility amendment-related costs(6)
323 —
Income tax benefit (7)
24 1,819
Other(8)
— 285
Adjusted pro forma net income $ 1,753 $ 798
Denominator:
Weighted-average shares of Class A common stock outstanding—diluted 42,789 34,444
Adjustments:
Assumed exchange of LLC Interests for shares of Class A common stock(1)
— 3,144
Dilutive effect of stock options — 704
Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted 42,789 38,292
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.04 $ 0.02

Thirteen Weeks Ended
March 31
2021 March 25
2020
Earnings (loss) per share of Class A common stock - diluted $ 0.01 $ (0.03)
Assumed exchange of LLC Interests for shares of Class A common stock(1)
— —
Non-GAAP adjustments(9)
0.03 0.05
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.04 $ 0.02

~~(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 ~~loss~~income (loss) attributable to non-controlling interests.

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

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

~~(4) Expense incurred to establish an accrual related to the settlement of a legal matter. See Note 13, Commitments and Contingencies, for further details.~~

~~(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, for ~~further details.~~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, for ~~further details.~~additional information.

~~(7)~~ (4)Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of ~~118.8%~~24.9% and ~~185.4%~~118.8% for the thirteen weeks ended March ~~31, 2021~~30, 2022 and March ~~25, 2020,~~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.

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

~~(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 further details.

36 | Shake Shack Inc.

Form 10-Q

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

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

~~Table of Contents~~

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 of (“Convertible ~~Debt,~~Notes”), and received $243.8 million of proceeds, net of discounts. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for ~~further discussion.~~additional information.

As of March ~~31, 2021,~~30, 2022, we maintained a ~~cash~~Cash and cash equivalents balance of ~~$375.0~~$279.3 million and a short-term investments balance of ~~$40.9~~$79.7 million within Marketable securities.

On June ~~8, 2018,~~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 March ~~31, 2021,~~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, for further information.

•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.

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

~~Table of Contents~~

Summary of Cash Flows

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


		Thirteen Weeks Ended					Thirteen Weeks Ended
(in thousands)	(in thousands)	March 31 2021		March 25 2020		(in thousands)	March 30 2022		March 31 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	9,951	$	7,484	Net cash provided by operating activities	$	7,969	$	9,951
Net cash provided by (used in) investing activities		(27,228)		649
Net cash provided by financing activities		245,403		42,574
Increase in cash and cash equivalents		228,126		50,707
Net cash used in investing activities						Net cash used in investing activities	(28,051)		(27,228)
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	$	374,999	$	87,806	Cash and cash equivalents at end of period	$	279,251	$	374,999

Shake Shack Inc.

Form 10-Q | 37

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Operating Activities

For the thirteen weeks ended March ~~31, 2021~~30, 2022, net cash provided by operating activities was ~~$10.0~~$8.0 million compared to ~~$7.5~~$10.0 million for the thirteen weeks ended March ~~25, 2020, an increase~~31, 2021, a decrease of ~~$2.5~~$2.0 million. The ~~increase~~decrease was primarily due to ~~change in operating assets and liabilities~~a net loss of ~~$3.9~~$11.3 million and ~~an increase~~changes in ~~net income of $1.7 million,~~working capital partially offset by the impact of non-cash charges of ~~$3.1~~$13.7 million.

The ~~$3.9 million change~~changes in ~~our operating asset and liability balances was~~working capital were primarily driven by ~~Accrued wages and~~an increase in liabilities related ~~liabilities being~~to the settlement of a source of cash of $2.9 million in the first quarter of 2021, primarily driven by higher accruals associated with payroll costs, compared to a use of cash of $5.1 million in the first quarter of 2020; Accounts payable being a source of cash of $1.5 million in the first quarter of 2021, driven by timing of payments, compared to a use of cash of $4.4 million in the first quarter of 2020;legal matter partially offset by ~~Accrued expenses being a use~~the settlement of cash of $9.4 million in the first quarter of 2021, due to the timing of accruals associated with tax payments, compared to a use of cash of $6.3 million in the first quarter of 2020; Other long-term liabilities being a use of cash of $1.8 million in the first quarter of 2021, due to the timing of tax payments, compared to a source of cash of $0.5 million in the first quarter of 2020; and Accounts Receivable being a source of cash of $0.6 million in the first quarter of 2021, primarily driven by timing of cash receipts of open receivables, compared to a source of cash of $3.2 million in the first quarter of 2020.payables.

Investing Activities

For the thirteen weeks ended March ~~31, 2021~~30, 2022, net cash used in investing activities was ~~$27.2~~$28.1 million compared to ~~net cash provided by investing activities of $0.6~~$27.2 million for the thirteen weeks ended March ~~25, 2020, a decrease~~31, 2021, an increase of ~~$27.8~~$0.9 million. This ~~decrease~~increase was primarily due to ~~a decrease of $20.0 million of proceeds from sales of marketable securities,~~ an increase of ~~$4.0~~$4.8 million in capital expenditures to support our real estate development and digital initiatives ~~and increased~~partially offset by a decrease in purchases of marketable securities of ~~$3.9~~$4.0 million.

Financing Activities

For the thirteen weeks ended March ~~31, 2021~~30, 2022, net cash used in financing activities was $3.1 million compared to net cash provided by financing activities ~~was~~of $245.4 ~~million compared to $42.6~~ million for the thirteen weeks ended March ~~25, 2020, an increase~~31, 2021, a decrease of ~~$202.8~~$248.5 million. This ~~increase~~decrease was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, ~~decreased payments made under the Tax Receivable Agreement,~~net of discount and ~~increased proceeds from stock option exercises, partially offset by $50.0~~$6.4 million in ~~gross~~net cash proceeds from the ~~drawdown~~issuance of ~~funds from~~Class A common stock during the thirteen weeks ended March 31, 2021.

Convertible Notes

In March 2021, we issued $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. 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 ~~Revolving Credit Facility~~election. Refer to Note 6, Debt, in the ~~first quarter of 2020 — which was repaid in full, plus interest, in the second quarter of 2020.~~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, ~~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.

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~~In March 2020, we drew down the full $50.0 million available under~~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.~~

~~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~~are required us to maintain minimum liquidity of $25.0 million ~~through~~beginning in July ~~1, 2021~~2022, and outstanding borrowings ~~during the applicable period covered by the First Amendment bore~~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.

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 March 31, 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~~as well as 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.covenants. As of March ~~31, 2021,~~30, 2022, we were in compliance with all covenants.

As of March 31, 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 Sheet. Total interest expense related to the Revolving Credit Facility were $0.4 million and $0.1 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Total interest expense for the thirteen weeks ended March 31, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.

~~Convertible Notes~~

In March 2021, we issued $225.0 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 Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election.

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 41

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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 in which the trading price (as defined in the Indenture) per $1,000 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.

The Convertible Notes had an initial conversion rate of 5.8679 shares of Shake Shack’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $170.42 per share of Shake Shack’s Class A common stock.

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 Shake Shack’s 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 March 31, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $242.9 million, net of unamortized discount and debt issuance costs of $7.1 million. As of March 31, 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 $0.1 million for the thirteen weeks ended March 31, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the Convertible Notes, we also incurred costs of $0.2 million, including consulting and advisory fees, in the thirteen weeks ended March 31, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At March 31, 2021, the fair value of the Convertible Notes was approximately $248.1 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.

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~~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.

~~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.~~

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

~~See "Note 2:~~Refer to Note 2, Summary of Significant Accounting ~~Policies—Recently Issued Accounting Pronouncements”~~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.

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

~~Table of Contents~~

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the quarter ended March ~~31, 2021~~30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~44 |~~ Shake Shack Inc.

Form 10-Q | 39

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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:~~13, Commitments and ~~Contingencies—Legal~~ 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.

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Form 10-Q | 45

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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
10.1
Second Amendment to Credit Agreement, dated as of March 1, 2021, by and among SSE Holdings, LLC, the Guarantors party thereto, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent
*
10.2
Third Amendment to Credit Agreement, dated as of March 5, 2021, by and among SSE Holdings, LLC, the Guarantors party thereto, the Lenders party thereto, and JPMorgan Chase Bank, National Association, as Administrative Agent
*
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
32
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
#
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101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
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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

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XBRL Taxonomy Extension Label Linkbase Document

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XBRL Taxonomy Extension Presentation Linkbase Document

104

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# Furnished herewith.

~~46 |~~ Shake Shack Inc.

Form 10-Q | 41

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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: May ~~7, 2021~~6, 2022	By:	/s/ Randy Garutti
		Randy Garutti
		Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: May ~~7, 2021~~6, 2022	By:	/s/ ~~Tara Comonte~~Katherine I. Fogertey
		~~Tara Comonte~~Katherine I. Fogertey
		~~President and~~ Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

42 | Shake Shack Inc.

Form 10-Q | 47


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	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4339
	Item 4.	Controls and Procedures	4339

Part II			4540
	Item 1.	Legal Proceedings	4540
	Item 1A.	Risk Factors	4540
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4540
	Item 3.	Defaults Upon Senior Securities	4540
	Item 4.	Mine Safety Disclosures	4540
	Item 5.	Other Information	4540
	Item 6.	Exhibits	4641

SIGNATURES			4742


		Page
Note 1	Nature of Operations	9
Note 2	Summary of Significant Accounting Policies	9
Note 3	Revenue	10
Note 4	Fair Value Measurements	11


Note 5	Supplemental Balance Sheet Information	1312
Note 6	Debt	13

Note 7	Leases	1514
Note 8	Non-Controlling Interests	17
Note 9	Equity-Based Compensation	1918
Note 10	Income Taxes	19
Note 11	Earnings (Loss) Per Share	20
Note 12	Supplemental Cash Flow Information	22
Note 13	Commitments and Contingencies	22
Note 14	Related Party Transactions	23


		March 31 2021		December 30 2020
Weighted-average remaining lease term (years):
	Finance leases	5.5		5.2
	Operating leases	9.6		9.7
Weighted-average discount rate:
	Finance leases	3.5	%	3.6	%
	Operating leases	3.9	%	4.2	%