UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September ~~29, 2021~~28, 2022


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

For the transition period from _______ to ______

Commission file number: 001-36823

SHAKE SHACK INC.

(Exact name of registrant as specified in its charter)


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

(646) 747-7200

(Registrant's telephone number, including area code)

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule-405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No

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

Large Accelerated Filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of October ~~27, 2021,~~26, 2022, there were ~~39,140,045~~39,279,939 shares of Class A common stock outstanding and ~~2,921,587~~2,869,513 shares of Class B common stock outstanding.

SHAKE SHACK INC.

TABLE OF CONTENTS

Table of Contents

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including, but not limited to, statements about our growth, strategic plan, and our liquidity. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

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

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

Shake Shack Inc.

Form 10-Q | 1

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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			8
Notes to Condensed Consolidated Financial Statements			9

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


			September 29 2021		December 30 2020				September 28 2022		December 29 2021
ASSETS	ASSETS						ASSETS
Current assets:	Current assets:						Current assets:
		Cash and cash equivalents	$	321,421	$	146,873		Cash and cash equivalents	$	256,998	$	302,406
		Marketable securities	80,082		36,887			Marketable securities	80,015		80,000
		Accounts receivable, net	11,311		9,464			Accounts receivable, net	11,800		13,657
		Inventories	3,525		2,888			Inventories	3,996		3,850
		Prepaid expenses and other current assets	2,841		7,074			Prepaid expenses and other current assets	14,246		9,763
		Total current assets	419,180		203,186			Total current assets	367,055		409,676
Property and equipment, net of accumulated depreciation of $207,763 and $166,156, respectively			370,016		336,541
Property and equipment, net of accumulated depreciation of $271,938 and $222,768, respectively							Property and equipment, net of accumulated depreciation of $271,938 and $222,768, respectively		441,870		389,386
Operating lease assets	Operating lease assets		338,886		306,317		Operating lease assets		370,536		347,277
Deferred income taxes, net	Deferred income taxes, net		300,818		287,007		Deferred income taxes, net		306,976		298,668

Other assets	Other assets		11,402		12,297		Other assets		15,330		12,563
TOTAL ASSETS	TOTAL ASSETS		$	1,440,302	$	1,145,348	TOTAL ASSETS		$	1,501,767	$	1,457,570
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:						Current liabilities:

		Accounts payable	$	17,841	$	23,487		Accounts payable	$	17,210	$	19,947
		Accrued expenses	34,165		25,920			Accrued expenses	49,387		36,892
		Accrued wages and related liabilities	14,169		10,441			Accrued wages and related liabilities	17,758		14,638
		Operating lease liabilities, current	38,811		35,657			Operating lease liabilities, current	40,690		35,519
		Other current liabilities	13,273		14,200			Other current liabilities	19,497		14,501
		Total current liabilities	118,259		109,705			Total current liabilities	144,542		121,497

Long-term debt	Long-term debt		243,280		—		Long-term debt		244,328		243,542

Long-term operating lease liabilities	Long-term operating lease liabilities		378,686		343,736		Long-term operating lease liabilities		429,165		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		234,892		234,045
Other long-term liabilities	Other long-term liabilities		22,750		24,460		Other long-term liabilities		20,588		22,773
Total liabilities	Total liabilities		997,023		710,855		Total liabilities		1,073,515		1,021,970
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)		0		0		Commitments and contingencies (Note 13)
Stockholders' equity:	Stockholders' equity:						Stockholders' equity:

		Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of September 29, 2021 and December 30, 2020.	—		—			Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of September 28, 2022 and December 29, 2021.	—		—
		Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,139,379 and 38,717,790 shares issued and outstanding as of September 29, 2021 and December 30, 2020, respectively.	39		39			Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,279,699 and 39,142,397 shares issued and outstanding as of September 28, 2022 and December 29, 2021, respectively.	39		39
		Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,921,587 and 2,951,188 shares issued and outstanding as of September 29, 2021 and December 30, 2020, respectively.	3		3			Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,869,513 and 2,921,587 shares issued and outstanding as of September 28, 2022 and December 29, 2021, respectively.	3		3
		Additional paid-in capital	403,535		395,067			Additional paid-in capital	413,274		405,940
		Retained earnings	13,284		12,209			Retained earnings (accumulated deficit)	(9,820)		3,554
		Accumulated other comprehensive income	1		3			Accumulated other comprehensive income (loss)	(1)		1
		Total stockholders' equity attributable to Shake Shack Inc.	416,862		407,321			Total stockholders' equity attributable to Shake Shack Inc.	403,495		409,537
Non-controlling interests	Non-controlling interests		26,417		27,172		Non-controlling interests		24,757		26,063
Total equity	Total equity		443,279		434,493		Total equity		428,252		435,600
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,440,302	$	1,145,348	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,501,767	$	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				Thirty-Nine Weeks Ended						Thirteen Weeks Ended				Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020				September 28 2022		September 29 2021		September 28 2022		September 29 2021
Shack sales	Shack sales		$	186,972	$	126,288	$	519,110	$	353,855	Shack sales		$	219,501	$	186,972	$	639,346	$	519,110
Licensing revenue	Licensing revenue		6,923		4,113		17,527		11,502		Licensing revenue		8,313		6,923		22,611		17,527
TOTAL REVENUE	TOTAL REVENUE		193,895		130,401		536,637		365,357		TOTAL REVENUE		227,814		193,895		661,957		536,637
Shack-level operating expenses:	Shack-level operating expenses:										Shack-level operating expenses:
		Food and paper costs	57,925		37,903		157,472		107,494			Food and paper costs	67,774		57,925		193,645		157,472
		Labor and related expenses	58,208		37,898		157,221		110,597			Labor and related expenses	64,638		58,208		190,954		157,221
		Other operating expenses	26,613		18,743		74,032		50,826			Other operating expenses	33,966		26,613		96,766		74,032
		Occupancy and related expenses	14,640		13,093		43,427		37,974			Occupancy and related expenses	17,337		14,640		50,270		43,427
General and administrative expenses	General and administrative expenses		20,504		14,962		60,435		45,170		General and administrative expenses		26,645		20,504		87,040		60,435
Depreciation and amortization expense	Depreciation and amortization expense		15,183		12,376		43,381		36,233		Depreciation and amortization expense		18,647		15,183		53,589		43,381
Pre-opening costs	Pre-opening costs		2,933		1,822		8,767		5,799		Pre-opening costs		3,041		2,933		8,576		8,767
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		535		402		1,262		2,924		Impairment and loss on disposal of assets		592		535		1,697		1,262
TOTAL EXPENSES	TOTAL EXPENSES		196,541		137,199		545,997		397,017		TOTAL EXPENSES		232,640		196,541		682,537		545,997
LOSS FROM OPERATIONS	LOSS FROM OPERATIONS		(2,646)		(6,798)		(9,360)		(31,660)		LOSS FROM OPERATIONS		(4,826)		(2,646)		(20,580)		(9,360)
Other income, net	Other income, net		18		34		157		335		Other income, net		1,482		18		1,731		157
Interest expense	Interest expense		(350)		(143)		(1,224)		(697)		Interest expense		(475)		(350)		(1,145)		(1,224)
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(2,978)		(6,907)		(10,427)		(32,022)		LOSS BEFORE INCOME TAXES		(3,819)		(2,978)		(19,994)		(10,427)
Benefit from income taxes	Benefit from income taxes		(576)		(797)		(10,665)		(6,802)		Benefit from income taxes		(1,508)		(576)		(5,098)		(10,665)
NET INCOME (LOSS)	NET INCOME (LOSS)		(2,402)		(6,110)		238		(25,220)		NET INCOME (LOSS)		(2,311)		(2,402)		(14,896)		238
Less: Net loss attributable to non-controlling interests	Less: Net loss attributable to non-controlling interests		(224)		(551)		(837)		(2,490)		Less: Net loss attributable to non-controlling interests		(287)		(224)		(1,522)		(837)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,024)	$	(2,178)	$	(13,374)	$	1,075
Earnings (loss) per share of Class A common stock:	Earnings (loss) per share of Class A common stock:										Earnings (loss) per share of Class A common stock:
		Basic	$	(0.06)	$	(0.15)	$	0.03	$	(0.62)		Basic	$	(0.05)	$	(0.06)	$	(0.34)	$	0.03
		Diluted	$	(0.06)	$	(0.15)	$	0.01	$	(0.62)		Diluted	$	(0.05)	$	(0.06)	$	(0.34)	$	0.01
Weighted-average shares of Class A common stock outstanding:
Weighted average shares of Class A common stock outstanding:											Weighted average shares of Class A common stock outstanding:
		Basic	39,137		38,251		39,066		36,668			Basic	39,274		39,137		39,221		39,066
		Diluted	39,137		38,251		43,448		36,668			Diluted	39,274		39,137		39,221		43,448

See accompanying Notes to Condensed Consolidated Financial Statements.

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Form 10-Q

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended				Thirty-Nine Weeks Ended
				September 29 2021		September 23 2020		September 29 2021		September 23 2020					September 28 2022		September 29 2021		September 28 2022		September 29 2021
Net income (loss)	Net income (loss)			$	(2,402)	$	(6,110)	$	238	$	(25,220)	Net income (loss)			$	(2,311)	$	(2,402)	$	(14,896)	$	238
Other comprehensive income (loss), net of tax(1):	Other comprehensive income (loss), net of tax(1):											Other comprehensive income (loss), net of tax(1):
		Change in foreign currency translation adjustment		(1)		—		(2)		1			Change in foreign currency translation adjustment		—		(1)		(2)		(2)

			Net change	(1)		—		(2)		1				Net change	—		(1)		(2)		(2)
OTHER COMPREHENSIVE INCOME (LOSS)	OTHER COMPREHENSIVE INCOME (LOSS)			(1)		—		(2)		1		OTHER COMPREHENSIVE INCOME (LOSS)			—		(1)		(2)		(2)
COMPREHENSIVE INCOME (LOSS)	COMPREHENSIVE INCOME (LOSS)			(2,403)		(6,110)		236		(25,219)		COMPREHENSIVE INCOME (LOSS)			(2,311)		(2,403)		(14,898)		236
Less: Comprehensive loss attributable to non-controlling interests	Less: Comprehensive loss attributable to non-controlling interests			(224)		(551)		(837)		(2,490)		Less: Comprehensive loss attributable to non-controlling interests			(287)		(224)		(1,522)		(837)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	(2,179)	$	(5,559)	$	1,073	$	(22,729)	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	(2,024)	$	(2,179)	$	(13,376)	$	1,073

(1)Net of tax expense of $0 for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020.~~29, 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 September 29, 2021 and September 23, 2020
Class A
Common Stock Class B
Common Stock Additional
Paid-In
Capital Retained Earnings Accumulated Other Comprehensive Income Non-
Controlling
Interest Total
Equity
Shares Amount Shares Amount
BALANCE, JUNE 30, 2021 39,134,356 $ 39 2,921,587 $ 3 $ 401,567 $ 15,462 $ 2 $ 26,459 $ 443,532
Net income (loss) (2,178) (224) (2,402)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment (1) (1)
Equity-based compensation 2,354 2,354
Activity under stock compensation plans 5,023 (386) 354 (32)
Redemption of LLC Interests — — — — —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — —
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs — — — — —
Distributions paid to non-controlling interest holders (172) (172)
BALANCE, SEPTEMBER 29, 2021 39,139,379 $ 39 2,921,587 $ 3 $ 403,535 $ 13,284 $ 1 $ 26,417 $ 443,279
BALANCE, JUNE 24, 2020 38,236,538 $ 38 3,117,002 $ 3 $ 384,338 $ 37,196 $ 3 $ 29,707 $ 451,285
Net income (loss) (5,559) (551) (6,110)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment — —
Equity-based compensation 1,346 1,346
Activity under stock compensation plans 38,564 367 122 489
Redemption of LLC Interests 5,000 (5,000) 44 (44) —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis (84) — (84)
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs — — — — —
Distributions paid to non-controlling interest holders (164) (164)
BALANCE, SEPTEMBER 23, 2020 38,280,102 $ 38 3,112,002 $ 3 $ 386,011 $ 31,637 $ 3 $ 29,070 $ 446,762


For the Thirteen Weeks Ended September 28, 2022 and September 29, 2021
		Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest		Total Equity
		Shares	Amount		Shares	Amount
BALANCE, JUNE 29, 2022		39,266,670	$	39	2,871,513	$	3	$	410,520	$	(7,796)	$	(1)	$	24,871	$	427,636

	Net income (loss)									(2,024)				(287)		(2,311)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											—				—
	Equity-based compensation							3,570								3,570
	Activity under stock compensation plans	11,029						(182)						245		63

	Redemption of LLC Interests	2,000			(2,000)			7						(7)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							(641)								(641)

	Distributions paid to non-controlling interest holders													(65)		(65)
BALANCE, SEPTEMBER 28, 2022		39,279,699	$	39	2,869,513	$	3	$	413,274	$	(9,820)	$	(1)	$	24,757	$	428,252

BALANCE, JUNE 30, 2021		39,134,356	$	39	2,921,587	$	3	$	401,567	$	15,462	$	2	$	26,459	$	443,532

	Net income (loss)									(2,178)				(224)		(2,402)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											(1)				(1)
	Equity-based compensation							2,354								2,354
	Activity under stock compensation plans	5,023						(386)						354		(32)

	Redemption of LLC Interests	—			—			—						—		—

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

	Distributions paid to non-controlling interest holders													(172)		(172)
BALANCE, SEPTEMBER 29, 2021		39,139,379	$	39	2,921,587	$	3	$	403,535	$	13,284	$	1	$	26,417	$	443,279

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


For the Thirty-Nine Weeks Ended September 28, 2022 and September 29, 2021
		Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		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)									(13,374)				(1,522)		(14,896)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											(2)				(2)
	Equity-based compensation							10,295								10,295
	Activity under stock compensation plans	85,228						(2,790)						918		(1,872)

	Redemption of LLC Interests	52,074			(52,074)			313						(313)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							(484)								(484)

	Distributions paid to non-controlling interest holders													(389)		(389)
BALANCE, SEPTEMBER 28, 2022		39,279,699	$	39	2,869,513	$	3	$	413,274	$	(9,820)	$	(1)	$	24,757	$	428,252

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

	Net income (loss)									1,075				(837)		238
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											(2)				(2)
	Equity-based compensation							6,037								6,037
	Activity under stock compensation plans	391,988						2,185						993		3,178

	Redemption of LLC Interests	29,601			(29,601)			33						(33)		—

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

	Distributions paid to non-controlling interest holders													(878)		(878)
BALANCE, SEPTEMBER 29, 2021		39,139,379	$	39	2,921,587	$	3	$	403,535	$	13,284	$	1	$	26,417	$	443,279

See accompanying Notes to Condensed Consolidated Financial Statements.

Shake Shack Inc.

Form 10-Q | 7

Table of Contents

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


					Thirty-Nine Weeks Ended								Thirty-Nine Weeks Ended
					September 29 2021		September 23 2020						September 28 2022		September 29 2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES								OPERATING ACTIVITIES
Net income (loss) (including amounts attributable to non-controlling interests)	Net income (loss) (including amounts attributable to non-controlling interests)				$	238	$	(25,220)	Net income (loss) (including amounts attributable to non-controlling interests)				$	(14,896)	$	238
Adjustments to reconcile net income (loss) to net cash provided by operating activities	Adjustments to reconcile net income (loss) to net cash provided by operating activities								Adjustments to reconcile net income (loss) to net cash provided by operating activities
		Depreciation and amortization expense			43,381		36,233			Depreciation and amortization expense			53,589		43,381
		Amortization of debt issuance costs			605		—			Amortization of debt issuance costs			786		605
		Amortization of cloud computing asset			935		1,086			Amortization of cloud computing asset			1,080		935
		Non-cash operating lease cost			37,213		33,726			Non-cash operating lease cost			43,159		37,213
		Equity-based compensation			5,963		4,058			Equity-based compensation			10,155		5,963
		Deferred income taxes			9,708		8,680			Deferred income taxes			12,215		9,708
		Non-cash interest expense			348		48			Loss on sale of marketable securities			—		5
				Non-cash interest expense							181	348
		Loss (gain) on sale of marketable securities			5		(79)
		Impairment and loss on disposal of assets			1,262		2,924			Impairment and loss on disposal of assets			1,697		1,262
		Unrealized loss on equity securities			117		22			Unrealized loss on equity securities			400		117
		Other non-cash (income) expense			(2)		906			Other non-cash income			(2)		(2)

		Changes in operating assets and liabilities:								Changes in operating assets and liabilities:
			Accounts receivable		(1,847)		2,241				Accounts receivable		1,840		(1,847)
			Inventories		(637)		(162)				Inventories		(146)		(637)
			Prepaid expenses and other current assets		4,233		(759)				Prepaid expenses and other current assets		(4,767)		4,233
			Other assets		(767)		(2,111)				Other assets		(5,966)		(767)
			Accounts payable		(6,780)		4,349				Accounts payable		(2,069)		(6,780)
			Accrued expenses		(18,682)		(13,361)				Accrued expenses		(17,783)		(18,682)
			Accrued wages and related liabilities		3,709		(2,214)				Accrued wages and related liabilities		3,052		3,709
			Other current liabilities		(2,202)		437				Other current liabilities		4,376		(2,202)

			Long-term operating lease liabilities		(31,886)		(25,298)				Long-term operating lease liabilities		(32,558)		(31,886)
			Other long-term liabilities		(1,174)		2,992				Other long-term liabilities		(10)		(1,174)
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES				43,740		28,498		NET CASH PROVIDED BY OPERATING ACTIVITIES				54,333		43,740
INVESTING ACTIVITIES	INVESTING ACTIVITIES								INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment				(68,852)		(47,002)		Purchases of property and equipment				(94,797)		(68,852)
Purchases of marketable securities	Purchases of marketable securities				(47,321)		(314)		Purchases of marketable securities				(415)		(47,321)
Sales of marketable securities	Sales of marketable securities				4,004		20,000		Sales of marketable securities				—		4,004
NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES				(112,169)		(27,316)		NET CASH USED IN INVESTING ACTIVITIES				(95,212)		(112,169)
FINANCING ACTIVITIES	FINANCING ACTIVITIES								FINANCING ACTIVITIES

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

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

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

Payments on principal of finance leases	Payments on principal of finance leases				(1,982)		(1,670)		Payments on principal of finance leases				(2,260)		(1,982)
Distributions paid to non-controlling interest holders	Distributions paid to non-controlling interest holders				(878)		(478)		Distributions paid to non-controlling interest holders				(389)		(878)

Payments under tax receivable agreement					—		(6,643)

Debt issuance costs	Debt issuance costs				(968)		—		Debt issuance costs				—		(968)
Proceeds from stock option exercises	Proceeds from stock option exercises				6,688		2,239		Proceeds from stock option exercises				334		6,688
Employee withholding taxes related to net settled equity awards	Employee withholding taxes related to net settled equity awards				(3,510)		(1,779)		Employee withholding taxes related to net settled equity awards				(2,214)		(3,510)

NET CASH PROVIDED BY FINANCING ACTIVITIES					242,977		136,602
NET INCREASE IN CASH AND CASH EQUIVALENTS					174,548		137,784
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES									NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES				(4,529)		242,977
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS									NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				(45,408)		174,548
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				146,873		37,099		CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				302,406		146,873
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	321,421	$	174,883	CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	256,998	$	321,421

See accompanying Notes to Condensed Consolidated Financial Statements.

8 | Shake Shack Inc.

Form 10-Q

Table of Contents

SHAKE SHACK INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Shake Shack Inc.

Form 10-Q | 9

Table of Contents

NOTE 1: NATURE OF OPERATIONS

Shake Shack Inc. was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings"). Shake Shack is the sole managing member of SSE Holdings and, as sole managing member, the Company operates and controls all of the business and affairs of SSE Holdings. As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of September ~~29, 2021~~28, 2022 the Company owned ~~93.1%~~93.2% of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings.

The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve ~~hamburgers,~~burgers, chicken, hot dogs, ~~chicken, crinkle-cut~~crinkle cut fries, shakes, frozen custard, beer, wine and more. As of September ~~29, 2021,~~28, 2022, there were ~~350~~402 Shacks in operation, system-wide, of which ~~205~~232 were domestic Company-operated Shacks, 2430 were domestic licensed Shacks and ~~121~~140 were international licensed Shacks. ~~As of September 29, 2021, 2 domestic Company-operated Shacks and 7 licensed Shacks were temporarily closed primarily due to the COVID-19 pandemic.~~

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as the Company has the majority economic interest in SSE Holdings and, as the sole managing member, has decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, the Company consolidates SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of September ~~29, 2021~~28, 2022 and December ~~30, 2020,~~29, 2021, the net assets of SSE Holdings were ~~$383,138~~$364,693 and ~~$383,669,~~$376,857, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. Refer to Note 6, Debt, for additional information.

Fiscal Year

The Company operates on a 52/53 week fiscal year ending on the last Wednesday inof 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.

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

~~Table of Contents~~

Use of Estimates

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

10 | Shake Shack Inc.

Form 10-Q

Table of Contents

Recently Adopted Accounting Pronouncements

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


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

Recently Issued Accounting Pronouncements

The Company reviewed all recently issued accounting pronouncements and concluded that they were not applicable or not expected to have a significant impact on our Condensed Consolidated Financial Statements.

NOTE 3: REVENUE

Revenue Recognition

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

Revenue from Shack sales ~~are~~is recognized when payment is tendered at the point of sale, net of discounts, as the performance obligation has been satisfied.

~~Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold.~~ Sales tax collected from ~~customers~~guests is excluded from Shack sales and the obligation is included inas sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from gift cards is deferred and recognized ~~upon~~over time as redemptions occur.

During fiscal 2022, the Company concluded it has 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, the Company recognizes breakage income and reduces the related gift card liability for unredeemed gift cards in proportion to actual redemptions of gift cards. The Company 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, the Company concluded that this accounting change represented a change in accounting estimate. As a result, a cumulative catch-up adjustment was recorded during the thirteen weeks ended March 30, 2022 that resulted in $1,281 of gift card breakage income. Inclusive of this cumulative catch-up, $1,415 of gift card breakage income was recognized during the thirty-nine weeks ended September 28, 2022. Gift card breakage income is included in Shack sales in the Condensed Consolidated Statements of Income (Loss).

Licensing revenue includes initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant ~~goods~~good or ~~services~~service transferred to the licensee ~~in the contracts,~~ and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the ~~licenses~~license and considered as one performance obligation per Shack. The Company determines the transaction price for each contract, which is comprised of the initial territory fee and an estimate of the total Shack opening fees the Company expects to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an ~~estimate of the~~estimated number of Shacks the Company expects the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the

Shake Shack Inc.

Form 10-Q | 11

Table of Contents

~~license granted~~expects the licensee to ~~the Shack. Because the Company~~open. The transaction price is ~~transferring licenses~~then allocated equally to ~~access intellectual property during a contractual term, revenue~~each Shack expected to open. Revenue is recognized on a straight-line basis over the license ~~term.~~term, therefore the performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack. Generally, payment for the initial territory fee is received upon execution of the ~~licensing~~license agreement and payment for the Shack opening fees is received either in advance of or upon opening the related Shack. These payments are initially deferred and recognized asin revenue as the performance obligations are satisfied, which occurs over a long-term period.

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

Revenue recognized during the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, disaggregated by type iswas as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			September 28 2022		September 29 2021		September 28 2022		September 29 2021
Shack sales	Shack sales	$	186,972	$	126,288	$	519,110	$	353,855	Shack sales	$	219,501	$	186,972	$	639,346	$	519,110
Licensing revenue:	Licensing revenue:									Licensing revenue:
Sales-based royalties	Sales-based royalties	6,711		3,867		16,961		10,943		Sales-based royalties	8,050		6,711		21,936		16,961
Initial territory and opening fees	Initial territory and opening fees	212		246		566		559		Initial territory and opening fees	263		212		675		566
Total revenue	Total revenue	$	193,895	$	130,401	$	536,637	$	365,357	Total revenue	$	227,814	$	193,895	$	661,957	$	536,637

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied ~~(or~~or partially ~~unsatisfied)~~unsatisfied as of September ~~29, 2021~~28, 2022 was ~~$17,821.~~$19,808. The Company expects to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties.

Contract Balances

~~Opening and closing balances of contract~~Contract liabilities and receivables from contracts with customers iswere as follows:


		September 29 2021		December 31 2020			September 28 2022		December 29 2021
Shack sales receivables	Shack sales receivables	$	5,612	$	5,373	Shack sales receivables	$	6,607	$	6,939
Licensing receivables, net of allowance for doubtful accounts	Licensing receivables, net of allowance for doubtful accounts	3,874		2,647		Licensing receivables, net of allowance for doubtful accounts	3,790		4,005
Gift card liability	Gift card liability	2,656		2,637		Gift card liability	1,743		3,297
Deferred revenue, current	Deferred revenue, current	759		608		Deferred revenue, current	892		763
Deferred revenue, long-term	Deferred revenue, long-term	12,745		12,151		Deferred revenue, long-term	14,358		12,669

Revenue recognized during the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020~~29, 2021 that was included in ~~their~~the respective liability balances at the beginning of the period iswas as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			September 28 2022		September 29 2021		September 28 2022		September 29 2021
Gift card liability(1)	Gift card liability(1)	$	73	$	91	$	400	$	436	Gift card liability(1)	$	82	$	73	$	1,725	$	400
Deferred revenue	Deferred revenue	203		234		543		539		Deferred revenue	234		203		638		543

(1)For the thirty-nine weeks ended September 28, 2022, amount includes the cumulative catch-up adjustment that resulted in $1,281 of gift card breakage income as noted above.

12 | Shake Shack Inc.

Form 10-Q

Table of Contents

NOTE 4: FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 12

~~Table of Contents~~

As of September ~~29, 2021~~28, 2022 and December ~~30, 2020,~~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. ~~Fair~~The fair value of these investments is measured using Level 1 ~~inputs (unadjusted quoted prices in active markets for identical assets).~~inputs. The carrying value of these investments in equity securities approximates fair value.

Assets measured at fair value on a recurring basis as of September ~~29, 2021~~28, 2022 and December ~~30, 2020~~29, 2021 were as follows:


			Fair Value Measurements						Fair Value Measurements
			September 29 2021		December 30 2020				September 28 2022		December 29 2021
			Level 1		Level 1				Level 1		Level 1
Equity securities:	Equity securities:						Equity securities:
		Mutual funds	$	80,082	$	36,887		Mutual funds	$	80,015	$	80,000
Total Marketable securities	Total Marketable securities		$	80,082	$	36,887	Total Marketable securities		$	80,015	$	80,000

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

A summary of ~~Other~~other income ~~net~~(expense) from equity securities recognized during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021 ~~and September 23, 2020 is~~was as follows:


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended					Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020					September 28 2022		September 29 2021		September 28 2022		September 29 2021
Equity securities:	Equity securities:											Equity securities:
		Dividend income	$	56	$	40	$	223	$	290			Dividend income	$	290	$	56	$	502	$	223

		Realized gain (loss) on sale of investments	—		—		(5)		79				Realized gain (loss) on sale of investments	—		—		—		(5)
		Unrealized gain (loss) on equity securities	(80)		—		(117)		(22)				Unrealized gain (loss) on equity securities	161		(80)		(400)		(117)
Total	Total		$	(24)	$	40	$	101	$	347		Total		$	451	$	(24)	$	102	$	101

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

Assets and liabilities ~~that are~~ measured at fair value on a non-recurring basis include long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. There were no impairment charges recognized during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021. During the thirty-nine weeks ended September 23, 2020, the Company recognized an impairment charge of $1,132 at one location. Of the total impairment charge, $736 was attributed to property and equipment held and used, $383 was attributed to operating lease right-of-use assets, and $13 was attributed to finance lease right-of-use assets. The impairment charge was included in Impairment and loss on disposal of assets on the Condensed Consolidated Statements of Income (Loss). The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. There were no impairment charges recognized during the thirteen weeks ended September 23, 2020.

Shake Shack Inc.

Form 10-Q | 13

Table of Contents

NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities as of September 28, 2022 and December 29, 2021 ~~and December 30, 2020 are~~were as follows:


		September 29 2021		December 30 2020			September 28 2022		December 29 2021
Sales tax payable	Sales tax payable	$	4,230	$	4,285	Sales tax payable	$	4,846	$	4,575

Gift card liability	Gift card liability	2,656		2,637		Gift card liability	1,743		3,297

Current portion of financing equipment lease liabilities	Current portion of financing equipment lease liabilities	2,553		1,998		Current portion of financing equipment lease liabilities	2,546		2,711
Legal reserve						Legal reserve	7,065		533
Other	Other	3,834		5,280		Other	3,297		3,385
Other current liabilities	Other current liabilities	$	13,273	$	14,200	Other current liabilities	$	19,497	$	14,501

The components of Other long-term liabilities as of September 28, 2022 and December 29, 2021 ~~and December 30, 2020 are~~were as follows:

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

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


	September 28 2022		December 29 2021
Deferred licensing revenue	$	14,358	$	12,669
Long-term portion of financing equipment lease liabilities	3,584		4,303
Other	2,646		5,801
Other long-term liabilities	$	20,588	$	22,773

NOTE 6: DEBT

~~Revolving Credit Facility~~

~~In August 2019, the Company entered into a revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $50,000,~~The components 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~~Long-term debt as of ~~certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon request of up to $15,000.~~

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

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

In March 2021, the Company entered into a second amendment to the Revolving Credit Facility (“Second Amendment”). The Second Amendment modified the applicable covenants and restrictions in the Revolving Credit Facility to permit the 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 28, 2022 and ~~(iii) added~~

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

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

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

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

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


	September 28 2022		December 29 2021
2021 Convertible Notes	$	250,000	$	250,000
Discount and debt issuance costs, net of amortization	5,672		6,458
Total Long-term debt	$	244,328	$	243,542

Convertible Notes

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

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

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but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

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

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

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

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

As of September 29, 2021, the Convertible Notes had a gross principal balance of $250,000 and a balance of $243,280, net of unamortized discount and debt issuance costs of $6,720. As of September 29, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method. Total amortization expense for the thirteen and thirty-nine weeks ended September 28, 2022 was $262 and $786, respectively, and $262 and $605, respectively, for the thirteen and thirty-nine weeks ended September 29, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the issuance of the Convertible Notes, the Company also incurred consulting and advisory fees of $236 for the thirty-nine weeks ended September 29, 2021 and was included in General and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

At September ~~29, 2021,~~28, 2022, the fair value of the Convertible Notes was approximately ~~$215,898,~~$168,250, 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 maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $50.0 million and issuance of letters of credit upon our request of up to $15.0 million. As of September 28, 2022 and December 29, 2021, no amounts were outstanding under the Revolving Credit Facility.

In August 2022, the Company entered into an irrevocable standby letter of credit to secure obligations under the workers' compensation insurance coverage in the amount of $1,260, which expires in July 2023 and renews automatically for one-year periods. As of September 28, 2022, the Company maintained $1,863 of letters of credit in connection with the Revolving Credit Facility. The Company maintained a letter of credit of $603 in connection with the Revolving Credit Facility as of December 29, 2021.

As of September 28, 2022, the Revolving Credit Facility had unamortized deferred financing costs of $67 which were included in Other assets on the Condensed Consolidated Balance Sheets. Total interest expense related to the Revolving Credit Facility for

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the thirteen and thirty-nine weeks ended September 28, 2022 was $28 and $101, respectively, and $37 and $442, respectively, for the thirteen and thirty-nine weeks ended September 29, 2021. Interest expense for the thirty-nine weeks ended September 29, 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility.

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 September 28, 2022, the Company was in compliance with all covenants.

NOTE 7: LEASES

Nature of Leases

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

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

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~~the~~ real estate leases have initial terms ranging from 10 to 15 years and typically include 2two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the ~~options to extend the lease. The real~~renewal options. Real estate leases typically ~~provide for~~contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period.

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

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

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

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A summary of operating and finance ~~and operating~~ lease ~~right-of-use~~ assets and lease liabilities as of September 28, 2022 and December 29, 2021 ~~and December 30, 2020 is~~were as follows:


		Classification	September 29 2021		December 30 2020			Classification	September 28 2022		December 29 2021
Operating leases							Operating leases	Operating lease assets	$	370,536	$	347,277
Finance leases	Finance leases	Property and equipment, net	$	6,328	$	5,409	Finance leases	Property and equipment, net	5,911		6,810
Operating leases		Operating lease assets	338,886		306,317
Total right-of-use assets	Total right-of-use assets		$	345,214	$	311,726	Total right-of-use assets		$	376,447	$	354,087

Operating leases:							Operating leases:
								Operating lease liabilities, current	$	40,690	$	35,519
								Long-term operating lease liabilities	429,165		400,113
Finance leases:	Finance leases:						Finance leases:
		Other current liabilities	$	2,553	$	1,998		Other current liabilities	2,546		2,711
		Other long-term liabilities	3,977		3,586			Other long-term liabilities	3,584		4,303
Operating leases:
		Operating lease liabilities, current	38,811		35,657
		Long-term operating lease liabilities	378,686		343,736
Total lease liabilities	Total lease liabilities		$	424,027	$	384,977	Total lease liabilities		$	475,985	$	442,646

The components of lease expense for the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021 were as follows:


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Operating lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	$	15,178	$	12,497	$	43,188	$	37,213
Finance lease cost:
	Amortization of right-of-use assets	Depreciation and amortization expense	750		715		2,275		2,003
	Interest on lease liabilities	Interest expense	55		47		162		158
Variable lease cost		Occupancy and related expenses Other operating expenses Pre-opening costs General and administrative expenses	3,887		3,347		10,994		9,556
Short-term lease cost		Occupancy and related expenses	264		79		395		228
Total lease cost			$	20,134	$	16,685	$	57,014	$	49,158

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
Classification September 29
2021 September 23
2020 September 29
2021 September 23
2020
Finance lease cost:
Amortization of right-of-use assets Depreciation and amortization expense $ 715 $ 531 $ 2,003 $ 1,710
Interest on lease liabilities Interest expense 47 51 158 161
Operating lease cost Occupancy and related expenses
Pre-opening costs
General and administrative expenses 12,497 11,506 37,213 33,726
Short-term lease cost Occupancy and related expenses 79 138 228 331
Variable lease cost Occupancy and related expenses
Pre-opening costs
General and administrative expenses 3,347 3,267 9,556 9,413
Total lease cost $ 16,685 $ 15,493 $ 49,158 $ 45,341

As of September ~~29, 2021,~~28, 2022, future minimum lease payments for ~~finance~~operating and ~~operating~~finance leases consisted of the following:


		Finance Leases		Operating Leases			Operating Leases		Finance Leases
2021		$	743	$	10,232
2022		2,560		50,556
2022(1)						2022(1)	$	8,674	$	777
2023	2023	1,671		61,009		2023	62,329		2,434
2024	2024	927		60,907		2024	70,816		1,686
2025	2025	574		59,962		2025	69,899		830
2026						2026	66,196		452
Thereafter	Thereafter	449		294,310		Thereafter	312,088		332
Total minimum payments	Total minimum payments	6,924		536,976		Total minimum payments	590,002		6,511
Less: imputed interest	Less: imputed interest	395		119,479		Less: imputed interest	131,214		367
Total lease liabilities	Total lease liabilities	$	6,529	$	417,497	Total lease liabilities	$	458,788	$	6,144

(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of September 28, 2022.

As of September ~~29, 2021~~28, 2022 the Company had additional operating lease commitments of ~~$50,967~~$130,410 for non-cancelable leases without a possession date, which begin to commence in ~~2021.~~2022. These lease commitments are consistent with the leases that have been executed thus far.

A summary of lease terms and discount rates for ~~finance~~operating and ~~operating~~finance leases as of September 28, 2022 and December 29, 2021 ~~and December 30, 2020 is~~were as follows:

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

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		September 28 2022		December 29 2021
Weighted average remaining lease term (years):
	Operating leases	9.0		9.5
	Finance leases	5.3		5.4
Weighted average discount rate:
	Operating leases	5.5	%	3.9	%
	Finance leases	3.5	%	3.1	%

Supplemental cash flow information related to leases for the thirty-nine weeks ended September 28, 2022 and September 29, 2021 ~~and September 23, 2020 is~~were as follows:


			Thirty-Nine Weeks Ended						Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020				September 28 2022		September 29 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
		Operating cash flows from finance leases	$	158	$	161		Operating cash flows from operating leases	$	45,398	$	35,703
		Operating cash flows from operating leases	35,703		29,449			Operating cash flows from finance leases	162		158
		Financing cash flows from finance leases	1,982		1,670			Financing cash flows from finance leases	2,260		1,982
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:						Right-of-use assets obtained in exchange for lease obligations:
		Finance leases	2,922		1,411			Operating leases	45,927		52,747
		Operating leases	52,747		42,502			Finance leases	1,376		2,922

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NOTE 8: NON-CONTROLLING INTERESTS

Shake Shack is the primary beneficiary and sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. The Company reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, the Company will receive a corresponding number of LLC Interests, increasing the total ownership interest in SSE Holdings. Changes in the ownership interest in SSE Holdings while the Company retains its controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in SSE Holdings as of September ~~29, 2021~~28, 2022 and December ~~30, 2020.~~29, 2021.


		September 29, 2021			December 30, 2020				September 28, 2022			December 29, 2021
		LLC Interests	Ownership %		LLC Interests	Ownership %			LLC Interests	Ownership %		LLC Interests	Ownership %
Number of LLC Interests held by Shake Shack Inc.	Number of LLC Interests held by Shake Shack Inc.	39,139,379	93.1	%	38,717,790	92.9	%	Number of LLC Interests held by Shake Shack Inc.	39,279,699	93.2	%	39,142,397	93.1	%
Number of LLC Interests held by non-controlling interest holders	Number of LLC Interests held by non-controlling interest holders	2,921,587	6.9	%	2,951,188	7.1	%	Number of LLC Interests held by non-controlling interest holders	2,869,513	6.8	%	2,921,587	6.9	%
Total LLC Interests outstanding	Total LLC Interests outstanding	42,060,966	100.0	%	41,668,978	100.0	%	Total LLC Interests outstanding	42,149,212	100.0	%	42,063,984	100.0	%

The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) to Shake Shack Inc. and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 was ~~6.9%~~6.8% and ~~7.0%~~6.9%, respectively. The non-controlling interest holders' weighted average ownership percentage for the thirteen and thirty-nine weeks ended September ~~23, 2020~~29, 2021 was ~~7.5%~~6.9% and ~~7.9%~~7.0%, respectively.

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The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity during the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020.~~29, 2021.


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended						Thirteen Weeks Ended				Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020				September 28 2022		September 29 2021		September 28 2022		September 29 2021
Net income (loss) attributable to Shake Shack Inc.	Net income (loss) attributable to Shake Shack Inc.		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)	Net income (loss) attributable to Shake Shack Inc.		$	(2,024)	$	(2,178)	$	(13,374)	$	1,075
Other comprehensive income:
Other comprehensive income (loss):											Other comprehensive income (loss):

												Unrealized gain (loss) on foreign currency translation adjustment	—		(1)		(2)		(2)

Transfers (to) from non-controlling interests:											Transfers (to) from non-controlling interests:

		Increase in additional paid-in capital as a result of the redemption of LLC Interests	—		44		33		239			Increase in additional paid-in capital as a result of the redemption of LLC Interests	7		—		313		33

		Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effects	(386)		367		2,186		627			Increase (decrease) in additional paid-in capital as a result of activity under its stock compensation plan and the related income tax effects	(182)		(386)		(2,790)		2,185
		Increase in additional paid-in capital as a result of the issuance of Class A common stock sold in equity offerings	—		—		—		135,718
Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.	Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.		$	(2,564)	$	(5,148)	$	3,294	$	113,854	Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.		$	(2,199)	$	(2,565)	$	(15,853)	$	3,291

The following table summarizes redemptions of LLC Interests activity during the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020.~~29, 2021.


			Thirteen Weeks Ended		Thirty-Nine Weeks Ended				Thirteen Weeks Ended		Thirty-Nine Weeks Ended
			September 29 2021	September 23 2020	September 29 2021	September 23 2020			September 28 2022	September 29 2021	September 28 2022	September 29 2021
Redemption and acquisition of LLC Interests	Redemption and acquisition of LLC Interests						Redemption and acquisition of LLC Interests
		Number of LLC Interests redeemed by non-controlling interest holders	—	5,000	29,601	33,195		Number of LLC Interests redeemed by non-controlling interest holders	2,000	—	52,074	29,601

		Number of LLC Interests received by Shake Shack Inc.	—	5,000	29,601	33,195		Number of LLC Interests received by Shake Shack Inc.	2,000	—	52,074	29,601
Issuance of Class A common stock	Issuance of Class A common stock						Issuance of Class A common stock
		Shares of Class A common stock issued in connection with redemptions of LLC Interests	—	5,000	29,601	33,195		Shares of Class A common stock issued in connection with redemptions of LLC Interests	2,000	—	52,074	29,601

Cancellation of Class B common stock	Cancellation of Class B common stock						Cancellation of Class B common stock
		Shares of Class B common stock surrendered and canceled	—	5,000	29,601	33,195		Shares of Class B common stock surrendered and canceled	2,000	—	52,074	29,601

During the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022, the Company received an aggregate of ~~5,023~~11,029 and ~~391,988~~85,228 LLC Interests, respectively, in connection with the activity under its stock compensation plan and ~~38,564~~5,023 and ~~180,068~~391,988 LLC Interests, respectively, during the thirteen and thirty-nine weeks ended September ~~23, 2020.~~29, 2021.

NOTE 9: EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021 ~~and September 23, 2020 is~~was as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			September 28 2022		September 29 2021		September 28 2022		September 29 2021
Stock options	Stock options	$	—	$	14	$	3	$	301	Stock options	$	—	$	—	$	—	$	3
Performance stock units	Performance stock units	868		233		2,065		1,009		Performance stock units	1,053		868		3,476		2,065
Restricted stock units	Restricted stock units	1,456		1,092		3,895		2,748		Restricted stock units	2,462		1,456		6,679		3,895
Equity-based compensation expense	Equity-based compensation expense	$	2,324	$	1,339	$	5,963	$	4,058	Equity-based compensation expense	$	3,515	$	2,324	$	10,155	$	5,963

Total income tax benefit recognized related to equity-based compensation	Total income tax benefit recognized related to equity-based compensation	$	44	$	60	$	174	$	135	Total income tax benefit recognized related to equity-based compensation	$	107	$	44	$	224	$	174

20 | Shake Shack Inc.

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Equity-based compensation expense ~~is included in General and administrative expenses and Labor and related expenses on the Condensed Consolidated Statements of Income (Loss)~~recorded during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021 ~~and September 23, 2020~~was as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 29 2021		September 23 2020		September 29 2021		September 23 2020			September 28 2022		September 29 2021		September 28 2022		September 29 2021
General and administrative expenses	General and administrative expenses	$	2,094	$	1,199	$	5,358	$	3,681	General and administrative expenses	$	3,245	$	2,094	$	9,390	$	5,358
Labor and related expenses	Labor and related expenses	230		140		605		377		Labor and related expenses	270		230		765		605
Equity-based compensation expense	Equity-based compensation expense	$	2,324	$	1,339	$	5,963	$	4,058	Equity-based compensation expense	$	3,515	$	2,324	$	10,155	$	5,963

NOTE 10: INCOME TAXES

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

The effective income tax rates for the thirteen weeks ended September 28, 2022 and September 29, 2021 were 39.5% and ~~September 23, 2020 were~~ 19.3% ~~and 11.5%~~, respectively. The increase was primarily driven by ~~higher~~an increase in tax credits and a ~~decrease~~year-to-date rate catch-up adjustment, partially offset by higher tax expense driven by an increase in ~~pre-tax loss.~~nondeductible expenses, higher foreign tax expense, and lower quarter over quarter benefit from equity-based compensation. Additionally, an increase in the Company's ownership interest in SSE Holdings increases its share of the taxable income (loss) of SSE Holdings. The weighted-average ownership interest in SSE Holdings was ~~93.1%~~93.2% and ~~92.5%~~93.1% for the thirteen weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, respectively.

The effective income tax rates for the thirty-nine weeks ended September 28, 2022 and September 29, 2021 were 25.5% and ~~September 23, 2020 were~~ 102.3% ~~and 21.2%~~, respectively. The ~~increase~~prior year tax rate was inclusive of a significant tax benefit related to equity-based compensation, which had an increasing impact to the tax rate. The year over year decrease was primarily driven by a decrease in ~~the pre-tax book loss, causing tax credits and windfall~~ tax benefits related to equity-based compensation, ~~to have~~ an ~~increasing effect on~~increase in foreign tax expense, and an increase in pre-tax loss, partially offset by an increase in tax credits. Additionally, an increase in the ~~tax rate, as well as a reduction~~Company's ownership interest in SSE Holdings increases its share of ~~a valuation allowance.~~the taxable income (loss) of SSE Holdings. The Company's weighted-average ownership interest in SSE Holdings was ~~93.0%~~93.1% and ~~92.1%~~93.0% for the thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, respectively.

Deferred Tax Assets and Liabilities

During the thirty-nine weeks ended September ~~29, 2021,~~28, 2022, the Company acquired an aggregate of ~~421,589~~137,302 LLC Interests in connection with the redemption of LLC Interests, and activity relating to its stock compensation plan. The Company recognized a reduction in deferred tax asset in the amount of ~~$10,190~~$437 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. As of September ~~29, 2021,~~28, 2022, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $131,232. However, a portion of the total basis difference will only reverse upon the eventual sale of its interest in SSE Holdings, which the Company expects would result in a capital loss. As of September 29, 2021, the total valuation allowance established against the deferred tax asset to which this portion relates was $980.$104,071.

During the thirty-nine weeks ended September ~~29, 2021,~~28, 2022, the Company also recognized ~~$300~~$232 of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. Refer to "Tax Receivable Agreement," herein for additional information.

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of September ~~29, 2021,~~28, 2022, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets ~~described above~~ relating to ~~basis differences that are expected to result in a capital loss upon eventual sale of its interest in SSE Holdings, New York City UBT~~certain state tax credits and net operating losses and certain foreign tax credits) are more likely than not to be realized. As such, no additional valuation allowance was recognized.

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Tax Receivable Agreement

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

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

During the thirty-nine weeks ended September ~~29, 2021,~~28, 2022, the Company acquired an aggregate of ~~29,601~~52,074 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional liability in the amount of ~~$1,093~~$847 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on estimates of future taxable income. During the thirty-nine weeks ended September 28, 2022 and September 29, 2021, ~~the Company made no payments to the parties to the Tax Receivable Agreement. During the thirty-nine weeks ended September 23, 2020, payments of $6,643,~~ inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement. As of September ~~29, 2021,~~28, 2022, the total amount of TRA Payments due under the Tax Receivable Agreement, was ~~$234,048.~~$234,892. Refer to Note 13, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement.

CARES Act

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

As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company accounts 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 $470 within Labor and other related expenses in the Condensed Consolidated Statement of Income (Loss) for the thirty-nine weeks ended September 28, 2022 as an offset to Social Security tax expense. A corresponding accrual for the benefit expected to be received was recorded within Accrued wages and related liabilities on the Condensed Consolidated Balance Sheet as of September 28, 2022.

Inflation Reduction Act

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) into law. The IRA, among other things, enacted a 15% corporate minimum tax effective for tax years after December 31, 2022, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives. The Company currently does not expect the tax-related provisions of the IRA to have a material impact on our financial results.

22 | Shake Shack Inc.

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NOTE 11: EARNINGS (LOSS) PER SHARE

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts) for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020.~~29, 2021.


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended
			September 28 2022		September 29 2021		September 28 2022		September 29 2021
Numerator:
	Net income (loss) attributable to Shake Shack Inc.—basic		$	(2,024)	$	(2,178)	$	(13,374)	$	1,075
	Reallocation of net income (loss) attributable to non-controlling interests from the assumed conversion of Class B shares		—		—		—		(837)
	Net income (loss) attributable to Shake Shack Inc.—diluted		$	(2,024)	$	(2,178)	$	(13,374)	$	238
Denominator:
	Weighted average shares of Class A common stock outstanding—basic		39,274		39,137		39,221		39,066
	Effect of dilutive securities:
		Stock options	—		—		—		162
		Performance stock units	—		—		—		39
		Restricted stock units	—		—		—		124
		Convertible Notes	—		—		—		1,129
		Shares of Class B common stock	—		—		—		2,928

	Weighted average shares of Class A common stock outstanding—diluted		39,274		39,137		39,221		43,448

Earnings (loss) per share of Class A common stock—basic			$	(0.05)	$	(0.06)	$	(0.34)	$	0.03
Earnings (loss) per share of Class A common stock—diluted			$	(0.05)	$	(0.06)	$	(0.34)	$	0.01

~~22 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table~~The effect of ~~Contents~~

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29
2021 September 23
2020 September 29
2021 September 23
2020
Numerator:
Net income (loss) attributable to Shake Shack Inc.—basic $ (2,178) $ (5,559) $ 1,075 $ (22,730)
Reallocation of net income (loss) attributable to non-controlling interests from the assumed conversion of Class B shares — — (837) —
Net income (loss) attributable to Shake Shack Inc.—diluted $ (2,178) $ (5,559) $ 238 $ (22,730)
Denominator:
Weighted-average shares of Class A common stock outstanding—basic 39,137 38,251 39,066 36,668
Effect of dilutive securities:
Stock options — — 162 —
Performance stock units — — 39 —
Restricted stock units — — 124 —
Convertible Notes — — 1,129 —
Shares of Class B common stock — — 2,928 —
Weighted-average shares of Class A common stock outstanding—diluted 39,137 38,251 43,448 36,668
Earnings (loss) per share of Class A common stock—basic $ (0.06) $ (0.15) $ 0.03 $ (0.62)
Earnings (loss) per share of Class A common stock—diluted $ (0.06) $ (0.15) $ 0.01 $ (0.62)
potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. Refer to Note 6, Debt, for additional information.

Shares of Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of Class B common stock outstanding for the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be ~~antidilutive.~~anti-dilutive.

The following table presents potentially dilutive securities ~~as of the end of the period,~~ excluded from the computations of diluted earnings (loss) per share of Class A common stock for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020.~~29, 2021.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29
2021 September 23
2020 September 29
2021 September 23
2020
Stock options — 764,902 (2) — 764,902 (2)
Performance stock units 45,707 (1) 139,081 (2) 45,707 (1) 139,081 (2)
Restricted stock units — 262,232 (2) — 262,232 (2)
Shares of Class B common stock — 3,112,002 (2) — 3,112,002 (2)

Shake Shack Inc.

Form 10-Q | 23

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	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Stock options	138,306	(1)	—		138,306	(1)	—
Performance stock units	160,064	(1)	45,707	(2)	160,064	(1)	45,707	(2)
Restricted stock units	398,269	(1)	—		398,269	(1)	—
Shares of Class B common stock	2,869,513	(1)	—		2,869,513	(1)	—
Convertible notes	1,466,975	(1)	—		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 performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.

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

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

~~Table of Contents~~

NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020:~~29, 2021:


			Thirty-Nine Weeks Ended						Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020				September 28 2022		September 29 2021
Cash paid for:	Cash paid for:						Cash paid for:
		Income taxes, net of refunds	$	1,788	$	1,270		Income taxes, net of refunds	$	2,904	$	1,788
		Interest, net of amounts capitalized	198		584			Interest, net of amounts capitalized	179		198
Non-cash investing activities:	Non-cash investing activities:						Non-cash investing activities:
		Accrued purchases of property and equipment	15,661		9,544			Accrued purchases of property and equipment	31,593		15,661

		Capitalized equity-based compensation	47		29			Capitalized equity-based compensation	93		47

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

		Revolving Credit Facility amendment-related accrual	46		—			Revolving Credit Facility amendment-related accrual	—		46
		Convertible Notes issuance-related accrual	107		—			Convertible Notes issuance-related accrual	—		107
		Establishment of liabilities under tax receivable agreement	1,093		414			Establishment of liabilities under tax receivable agreement	847		1,093

NOTE 13: COMMITMENTS AND CONTINGENCIES

Lease Commitments

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

~~As security under the terms of one of the~~Certain leases require the Company ~~is obligated under a letter~~to obtain letters of credit. As of September 28, 2022, the Company held two letters of credit, ~~totaling~~one for $130 ~~as of September 29, 2021,~~ which expires in February ~~2026. Additionally, in September 2017,~~2026 and the ~~Company entered into a letter of credit in conjunction with the new home office lease in the amount of~~second for $603 which expires in August ~~2022~~2023 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,

24 | Shake Shack Inc.

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software acquisition/license commitments and service contracts. These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered. The Company also enters into long-term, exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities.

Legal Contingencies

~~In March 2020, a claim was filed against Shake Shack alleging certain violations of~~During the Fair Labor Standards Act. At a mediation between the parties, the Company agreed to settle the matter with the plaintiff and other employees who elect to participate in the settlement for $619. The Company initially accrued for this matter during the thirteenthirty-nine weeks ended ~~March 31, 2021~~September 28, 2022, accruals of $6,750 were recorded in connection with ~~an additional accrual established during the thirteen weeks ended June 30, 2021,~~settling both a private action and ~~paid in full as of September 29, 2021.~~

~~24 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

a regulatory action relating to New York City’s predictive scheduling laws.

The Company is subject to various legal proceedings, claims and liabilities, ~~such as employment-related claims~~involving employees and ~~slip and fall cases,~~guests alike, which arise in the ordinary course of business and are generally covered by insurance. As of September ~~29, 2021,~~28, 2022, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note 10, Income Taxes, the Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related TRA Payments. During the thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, the Company recognized liabilities totaling ~~$1,093~~$847 and ~~$414,~~$1,093, respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of September ~~29, 2021~~28, 2022 and December ~~30, 2020,~~29, 2021, the total obligations under the Tax Receivable Agreement were ~~$234,048~~$234,892 and ~~$232,954,~~$234,045, respectively. There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax ~~benefits.~~benefits generated by all transactions that occurred during the thirty-nine weeks ended September 28, 2022.

NOTE 14: RELATED PARTY TRANSACTIONS

Union Square Hospitality Group

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

Hudson Yards Sports and Entertainment

In fiscal 2011, Shake Shack entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE. The agreement expires in January 2027 and includes 5five consecutive five-year renewal options at HYC's option. As consideration for these rights, HYC pays the Company a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA.

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021

Amounts received from HYC	Licensing revenue	$	180	$	185	$	402	$	243


	~~Classification~~	September 29 2021		December 30 2020

~~Amounts due from HYC~~	~~Accounts receivable, net~~	$	—	$	8

Shake Shack Inc.

Form 10-Q | 25

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	Classification	September 28 2022		December 29 2021

Amounts due from HYC	Accounts receivable, net	$	203	$	90

Madison Square Park Conservancy

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

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 25

~~Table of Contents~~


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Amounts paid to MSP Conservancy	Occupancy and related expenses	$	383	$	215	$	859	$	646

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


	Classification	September 28 2022		December 29 2021
Amounts due to MSP Conservancy	Accrued expenses	$	144	$	—

Olo, Inc.

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

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Amounts paid to Olo, Inc.	Other operating expenses	$	110	$	130	$	316	$	340


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


	Classification	September 28 2022		December 29 2021
Amounts due to Olo, Inc.	Accounts payable	$	37	$	33

~~Square,~~Block, Inc.

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

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Amounts paid to Block, Inc.	Other operating expenses	$	1,092	$	833	$	2,952	$	2,049


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


	Classification	September 28 2022		December 29 2021
Amounts due to Block, Inc.	Accounts payable	$	47	$	52

USHG Acquisition Corp.

The Company's Chief Executive Officer ~~has been appointed to~~serves on the board of directors of USHG Acquisition Corp. in which the Company's Chairman of the Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp. USHG

26 | Shake Shack Inc.

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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 thirty-nine weeks ended September 28, 2022 and September 29, 2021. No amounts were due to or due from USHG Acquisition ~~Corp~~Corp. as of both September ~~29, 2021~~28, 2022 and December ~~30, 2020.~~29, 2021.

Tax Receivable Agreement

The Company entered into a Tax Receivable Agreement that provides for the payment by the Company of 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. Refer to Note 10, Income Taxes, for additional information. No amounts were paid to members during the thirty-nine weeks ended September 28, 2022 and September 29, 2021.

~~Thirteen Weeks Ended~~

~~Thirty-Nine Weeks Ended~~

~~Classification~~

September 29
2021

September 23
2020

September 29
2021

September 23
2020

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

~~Other current liabilities~~

—

~~6,643~~

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 26

~~Table of Contents~~

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


	Classification	September 28 2022		December 29 2021
Amounts due under the Tax Receivable Agreement	Other current liabilities Liabilities under Tax Receivable Agreement, net of current portion	$	234,892	$	234,045

Distributions to Members of SSE Holdings

Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members. No tax distributions were payable to non-controlling interest holders as of September 28, 2022 and December 29, 2021, ~~and December 30, 2020,~~ respectively.

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	Classification	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Amounts paid to non-controlling interest holders	Non-controlling interests	$	65	$	172	$	389	$	878

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

This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including, but not limited to, statements about our growth, strategic plan, and our liquidity. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to any historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Some of the factors which could cause results to differ materially from the Company's expectations include the continuing impact of the COVID-19 pandemic, including the potential impact of any COVID-19 variants, the Company's ability to develop and open new Shacks on a timely basis, increased costs or shortages or interruptions in the supply or delivery of our products, increased labor costs or shortages, inflationary pressures, the Company's management of its digital capabilities and expansion into ~~delivery,~~new channels, including drive-thru, our ability to maintain and grow sales at our existing Shacks, and risks relating to the restaurant industry generally. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020~~29, 2021 ("~~2020~~2021 Form 10-K"). The forward-looking statements included in this Form 10-Q are made only as of the

Shake Shack Inc.

Form 10-Q | 27

Table of Contents

date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion should be read in conjunction with our ~~2020~~2021 Form 10-K and the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.

OVERVIEW

Shake Shack is a modern day "roadside" burger stand serving a classic American menu of premium burgers, chicken, ~~sandwiches,~~ hot dogs, ~~crinkle-cut~~crinkle cut fries, shakes, frozen custard, beer, wine and ~~wine.~~more. As of September ~~29, 2021,~~28, 2022, there were ~~350~~402 Shacks in operation system-wide, of which ~~205~~232 were domestic Company-operated Shacks, 2430 were domestic licensed Shacks and ~~121~~140 were international licensed Shacks.

~~Shake Shack Inc.~~ ~~Form 10-Q~~ | 27

~~Table of Contents~~

Recent ~~Developments and~~Business Trends

The third quarter of 2021 marked the highest sales in the Company's history. Despite achieving this sales milestone, increasing costs continued to challenge the business, mainly in labor and commodity inflation. We also experienced certain supply chain disruptions during the quarter. Although these did not have a material impact on the financial performance for this period, we cannot be certain future supply chain disruptions will not materially impact our financial results.

Same-Shack sales for the thirteen weeks ended September ~~29, 2021~~28, 2022 increased ~~24.8%~~6.3% compared to the same period last year, ~~with urban Shacks increasing 34.0% and suburban Shacks increasing 17.1%. The increase in same-Shack sales for the third quarter 2021 was~~ driven by a ~~25.8%~~2.9% increase in guest traffic ~~due to the return of~~and a 3.4% increase in price mix. The traffic increase was led by in-Shack ~~dining. Same-Shack sales for the thirty-nine weeks ended September 29, 2021~~traffic rebounding. Urban Shacks increased ~~25.8%~~10.9% compared to the same period last year, ~~primarily driven~~while suburban Shacks sustained growth of 2.2%. Compared to the second quarter of 2022, we saw a deceleration in traffic growth across urban and suburban Shacks, offset by ~~a 19.7% increase in guest traffic and an increase in~~ price mix ~~of 6.1%.~~during the thirteen weeks ended September 28, 2022. For the purpose of calculating same-Shack sales growth for the thirteen weeks ended September ~~29, 2021,~~28, 2022, Shack sales for ~~143 Shacks were included in the comparable Shack base, and for the thirty-nine weeks ended September 29, 2021, Shack sales for 144~~171 Shacks were included in the comparable Shack base.

Average weekly sales ~~held steady at $72,000~~were $73,000 in the third quarter of ~~2021~~2022 compared to $72,000 in the same period last year primarily driven by higher menu prices and increased in-Shack traffic, particularly in urban Shacks. Average weekly sales decreased 3.9%, compared to the second quarter of ~~2021~~2022 driven by ~~the opening of five new domestic Company-operated Shacks and the re-opening of two domestic Company-operated Shacks that had been closed due to COVID-19.~~historical seasonality. Shack system-wide sales in the third quarter of ~~2021~~2022 increased ~~53.1%~~18.3% to ~~$298.6~~$353.2 million ~~versus~~compared to the same period last ~~year.~~year and increased 0.4% compared to the second quarter of 2022.

Digital sales for the thirteen ~~and thirty-nine~~ weeks ended September ~~29, 2021~~28, 2022 increased ~~4.3% and 51.3% respectively,~~1.9% to $78.9 million compared to the same period last ~~year. During~~year and decreased 6.2% compared to the ~~third~~second quarter of ~~2021, total~~2022. Total digital sales ~~including~~includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented ~~42.3%~~35.9% of Shack ~~sales.~~sales during the third quarter of 2022. Digital sales retention was ~~nearly 80%~~73% in fiscal September 2022 when compared to fiscal January 2021 when digital sales peaked. During the third quarter of ~~2021~~2022 our new purchasers in Company-owned app and web channels grew ~~14.3%~~7.1% versus the second quarter of ~~2021,~~2022, to ~~3.2~~4.5 million total new purchasers since mid-March of 2020.

~~28 |~~ ~~Shake Shack Inc.~~ ~~Form 10-Q~~

~~Table of Contents~~

Development Highlights

During the third quarter of ~~2021,~~2022, we opened ~~five~~two new domestic Company-operated Shacks, ~~one~~three new domestic licensed Shack and ~~seven~~three new international licensed Shacks. There ~~were two~~was one permanent international licensed Shack ~~closures~~closure in the third quarter of ~~2021.~~2022.

Location

Type

Opening Date

~~Somerville, MA – Assembly Row~~Chantilly, VA — Smithsonian - National Air & Space Museum

Domestic Licensed

7/3/2022

New York, NY — Meatpacking District

Domestic Company-operated

7/~~5/2021~~14/2022

~~Shanghai,~~Cranbury, NJ — Molly Pitcher Travel Plaza

Domestic Licensed

7/25/2022

Chengdu, China ~~– Qiantan~~— Sino-Ocean Taikoo Li

International Licensed

7/~~15/2021~~31/2022

~~Denver, CO – Denver~~Atlanta, GA — Lenox Square

Domestic Company-operated

8/3/2022

Shanghai, China — Qibao Vanke

International Licensed

8/20/2022

Nashville, TN — Nashville International Airport

Domestic Licensed

~~7/20/2021~~

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

~~International Licensed~~

~~7/21/2021~~

~~Burlington, MA – Burlington Mall~~

~~Domestic Company-operated~~

~~8/3/2021~~

~~Hwaseong, South Korea – Dongtanyeakro 160~~

~~International Licensed~~

~~8/20/2021~~

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

~~International Licensed~~

8/28/~~2021~~

~~Orlando, FL – Orlando Premium Outlets~~

~~Domestic Company-operated~~

~~8/30/2021~~

~~Monterrey, MX – Arboleda~~

~~International Licensed~~

~~9/2/2021~~

~~Everett, MA – Encore Boston Harbor~~

~~Domestic Company-operated~~

~~9/10/2021~~2022

Seoul, South Korea ~~– Hongdae~~

~~International Licensed~~

~~9/17/2021~~

~~Hangzhou, China – The MixC~~— Jamsil

International Licensed

9/23/~~2021~~2022

~~Oak Lawn, IL – Oak Lawn~~

~~Domestic Company-operated~~

~~9/24/2021~~

28 | Shake Shack Inc.

Form 10-Q | 29

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020:~~29, 2021:


			Thirteen Weeks Ended								Thirty-Nine Weeks Ended										Thirteen Weeks Ended								Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021				September 23 2020				September 29 2021				September 23 2020				(dollar amounts in thousands)		September 28 2022				September 29 2021				September 28 2022				September 29 2021
Shack sales	Shack sales		$	186,972	96.4	%	$	126,288	96.8	%	$	519,110	96.7	%	$	353,855	96.9	%	Shack sales		$	219,501	96.4	%	$	186,972	96.4	%	$	639,346	96.6	%	$	519,110	96.7	%
Licensing revenue	Licensing revenue		6,923		3.6	%	4,113		3.2	%	17,527		3.3	%	11,502		3.1	%	Licensing revenue		8,313		3.6	%	6,923		3.6	%	22,611		3.4	%	17,527		3.3	%
TOTAL REVENUE	TOTAL REVENUE		193,895		100.0	%	130,401		100.0	%	536,637		100.0	%	365,357		100.0	%	TOTAL REVENUE		227,814		100.0	%	193,895		100.0	%	661,957		100.0	%	536,637		100.0	%
Shack-level operating expenses(1):	Shack-level operating expenses(1):																		Shack-level operating expenses(1):
		Food and paper costs	57,925		31.0	%	37,903		30.0	%	157,472		30.3	%	107,494		30.4	%		Food and paper costs	67,774		30.9	%	57,925		31.0	%	193,645		30.3	%	157,472		30.3	%
		Labor and related expenses	58,208		31.1	%	37,898		30.0	%	157,221		30.3	%	110,597		31.3	%		Labor and related expenses	64,638		29.4	%	58,208		31.1	%	190,954		29.9	%	157,221		30.3	%
		Other operating expenses	26,613		14.2	%	18,743		14.8	%	74,032		14.3	%	50,826		14.4	%		Other operating expenses	33,966		15.5	%	26,613		14.2	%	96,766		15.1	%	74,032		14.3	%
		Occupancy and related expenses	14,640		7.8	%	13,093		10.4	%	43,427		8.4	%	37,974		10.7	%		Occupancy and related expenses	17,337		7.9	%	14,640		7.8	%	50,270		7.9	%	43,427		8.4	%
General and administrative expenses	General and administrative expenses		20,504		10.6	%	14,962		11.5	%	60,435		11.3	%	45,170		12.4	%	General and administrative expenses		26,645		11.7	%	20,504		10.6	%	87,040		13.1	%	60,435		11.3	%
Depreciation and amortization expense	Depreciation and amortization expense		15,183		7.8	%	12,376		9.5	%	43,381		8.1	%	36,233		9.9	%	Depreciation and amortization expense		18,647		8.2	%	15,183		7.8	%	53,589		8.1	%	43,381		8.1	%
Pre-opening costs	Pre-opening costs		2,933		1.5	%	1,822		1.4	%	8,767		1.6	%	5,799		1.6	%	Pre-opening costs		3,041		1.3	%	2,933		1.5	%	8,576		1.3	%	8,767		1.6	%
Impairment and loss on disposal of assets	Impairment and loss on disposal of assets		535		0.3	%	402		0.3	%	1,262		0.2	%	2,924		0.8	%	Impairment and loss on disposal of assets		592		0.3	%	535		0.3	%	1,697		0.3	%	1,262		0.2	%
TOTAL EXPENSES	TOTAL EXPENSES		196,541		101.4	%	137,199		105.2	%	545,997		101.7	%	397,017		108.7	%	TOTAL EXPENSES		232,640		102.1	%	196,541		101.4	%	682,537		103.1	%	545,997		101.7	%
LOSS FROM OPERATIONS	LOSS FROM OPERATIONS		(2,646)		(1.4)	%	(6,798)		(5.2)	%	(9,360)		(1.7)	%	(31,660)		(8.7)	%	LOSS FROM OPERATIONS		(4,826)		(2.1)	%	(2,646)		(1.4)	%	(20,580)		(3.1)	%	(9,360)		(1.7)	%
Other income, net	Other income, net		18		—	%	34		—	%	157		—	%	335		0.1	%	Other income, net		1,482		0.7	%	18		—	%	1,731		0.3	%	157		—	%
Interest expense	Interest expense		(350)		(0.2)	%	(143)		(0.1)	%	(1,224)		(0.2)	%	(697)		(0.2)	%	Interest expense		(475)		(0.2)	%	(350)		(0.2)	%	(1,145)		(0.2)	%	(1,224)		(0.2)	%
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES		(2,978)		(1.5)	%	(6,907)		(5.3)	%	(10,427)		(1.9)	%	(32,022)		(8.8)	%	LOSS BEFORE INCOME TAXES		(3,819)		(1.7)	%	(2,978)		(1.5)	%	(19,994)		(3.0)	%	(10,427)		(1.9)	%
Benefit from income taxes	Benefit from income taxes		(576)		(0.3)	%	(797)		(0.6)	%	(10,665)		(2.0)	%	(6,802)		(1.9)	%	Benefit from income taxes		(1,508)		(0.7)	%	(576)		(0.3)	%	(5,098)		(0.8)	%	(10,665)		(2.0)	%
NET INCOME (LOSS)	NET INCOME (LOSS)		(2,402)		(1.2)	%	(6,110)		(4.7)	%	238		—	%	(25,220)		(6.9)	%	NET INCOME (LOSS)		(2,311)		(1.0)	%	(2,402)		(1.2)	%	(14,896)		(2.3)	%	238		—	%
Less: Net loss attributable to non-controlling interests	Less: Net loss attributable to non-controlling interests		(224)		(0.1)	%	(551)		(0.4)	%	(837)		(0.2)	%	(2,490)		(0.7)	%	Less: Net loss attributable to non-controlling interests		(287)		(0.1)	%	(224)		(0.1)	%	(1,522)		(0.2)	%	(837)		(0.2)	%
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,178)	(1.1)	%	$	(5,559)	(4.3)	%	$	1,075	0.2	%	$	(22,730)	(6.2)	%	NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	(2,024)	(0.9)	%	$	(2,178)	(1.1)	%	$	(13,374)	(2.0)	%	$	1,075	0.2	%

(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 open Shacks and the number of operating weeks in such ~~period, the number of open Shacks and same-Shack sales. Same-Shack sales means, for any reporting period,~~period.


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Shack sales		$	219,501		$	186,972		$	639,346		$	519,110
	Percentage of Total revenue	96.4		%	96.4		%	96.6		%	96.7		%
	Dollar change compared to prior year	$	32,529					$	120,236
	Percentage change compared to prior year	17.4		%				23.2		%

Shack sales for the ~~comparable~~thirteen weeks ended September 28, 2022 increased 17.4% to $219.5 million versus the same period last year. Shack ~~base, which we define as~~sales for the ~~number of domestic Company-operated Shacks open for 24 months or longer.~~

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Shack sales $ 186,972 $ 126,288 $ 519,110 $ 353,855
Percentage of Total revenue 96.4 % 96.8 % 96.7 % 96.9 %
Dollar change compared to prior year $ 60,684 $ 165,255
Percentage change compared to prior year 48.1 % 46.7 %

thirty-nine weeks ended September 28, 2022 increased 23.2% to $639.3 million versus the same period last year. The increases in Shack sales for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to the ~~continued recovery from the COVID-19 pandemic, in addition to the~~ opening of ~~30 net~~27 new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~28, 2022,

~~30 |~~ Shake Shack Inc.

Form 10-Q | 29

Table of Contents

which contributed $20.2 million and $51.3 million, respectively, as well as increased menu prices and increased guest traffic, particularly at our urban locations.

Licensing Revenue

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Licensing revenue	Licensing revenue		$	6,923		$	4,113		$	17,527		$	11,502		Licensing revenue		$	8,313		$	6,923		$	22,611		$	17,527
		Percentage of Total revenue	3.6		%	3.2		%	3.3		%	3.1		%		Percentage of Total revenue	3.6		%	3.6		%	3.4		%	3.3		%
		Dollar change compared to prior year	$	2,810					$	6,025						Dollar change compared to prior year	$	1,390					$	5,084
		Percentage change compared to prior year	68.3		%				52.4		%					Percentage change compared to prior year	20.1		%				29.0		%

~~The increases in~~ Licensing revenue for the thirteen ~~and thirty-nine~~ weeks ended September ~~29, 2021 were~~28, 2022 increased 20.1% to $8.3 million versus the same period last year. The increase in Licensing revenue was primarily due to ~~increased strength across regions where COVID-19 related restrictions have been eased as well as~~ a net increase of 2225 licensed Shacks that opened between September ~~23, 2020~~29, 2021 and September ~~29, 2021. Although~~ 28, 2022, which contributed approximately $1.0 million.

Licensing revenue ~~continued~~for the thirty-nine weeks ended September 28, 2022 increased 29.0% to ~~improve, COVID-19 related challenges remain~~$22.6 million versus the same period last year. The increase in ~~various regions where our licensed Shacks operate. As of~~Licensing revenue during the ~~end of the third quarter 2021, seven licensed Shacks were temporarily closed~~thirty-nine weeks ended September 28, 2022 was primarily due to ~~the COVID-19 pandemic.~~increased sales at existing shacks, particularly domestic airports, and a net increase of 25 licensed Shacks that opened between September 29, 2021 and September 28, 2022, which contributed approximately $2.1 million.

Food and Paper Costs

Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of food and paper costs are variable by nature, changing with sales volume, and are impacted by menu mix and fluctuations in commodity costs, as well as geographic scale and proximity.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Food and paper costs	Food and paper costs		$	57,925		$	37,903		$	157,472		$	107,494		Food and paper costs		$	67,774		$	57,925		$	193,645		$	157,472
		Percentage of Shack sales	31.0		%	30.0		%	30.3		%	30.4		%		Percentage of Shack sales	30.9		%	31.0		%	30.3		%	30.3		%
		Dollar change compared to prior year	$	20,022					$	49,978						Dollar change compared to prior year	$	9,849					$	36,173
		Percentage change compared to prior year	52.8		%				46.5		%					Percentage change compared to prior year	17.0		%				23.0		%

Food and paper costs for the thirteen weeks ended September 28, 2022 increased 17.0% to $67.8 million versus the same period last year. Food and paper costs for the thirty-nine weeks ended September 28, 2022 increased 23.0% to $193.6 million versus the same period last year. The increases in Food and paper costs for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to ~~increased sales volume associated with continued recovery from the COVID-19 pandemic and~~ the opening of 3027 net new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~28, 2022 as well as increased commodity costs.

As a percentage of Shack sales, the ~~increase~~decrease in Food and paper costs for the thirteen weeks ended September ~~29, 2021~~28, 2022 was primarily driven by menu price increases ~~in chicken and beef prices,~~ partially offset by ~~decreases in~~increased paper and packaging ~~costs compared to the same period last year. The decreases in paper and packaging costs were due to all orders being packaged as 'to go' orders in the third quarter last year.~~costs. As a percentage of Shack sales, Food and paper costs was flat for the thirty-nine weeks ended September ~~29, 2021 was relatively flat~~28, 2022 primarily ~~due to elevated beef and chicken prices partially~~driven by increased commodity costs offset by ~~a decrease in paper~~menu price increases and ~~packaging costs compared to the same period last year.~~increased beverage mix..

30 | Shake Shack Inc.

Form 10-Q | 31

Table of Contents

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Labor and related expenses	Labor and related expenses		$	58,208		$	37,898		$	157,221		$	110,597		Labor and related expenses		$	64,638		$	58,208		$	190,954		$	157,221
		Percentage of Shack sales	31.1		%	30.0		%	30.3		%	31.3		%		Percentage of Shack sales	29.4		%	31.1		%	29.9		%	30.3		%
		Dollar change compared to prior year	$	20,310					$	46,624						Dollar change compared to prior year	$	6,430					$	33,733
		Percentage change compared to prior year	53.6		%				42.2		%					Percentage change compared to prior year	11.0		%				21.5		%

Labor and related expenses for the thirteen weeks ended September 28, 2022 increased 11.0% to $64.6 million versus the same period last year. Labor and related expenses for the thirty-nine weeks ended September 28, 2022 increased 21.5% to $191.0 million versus the same period last year. The increases in Labor and related expenses for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to ~~recent investments in wages and bonuses for the Shack teams, as well as~~ the opening of 3027 net new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~28, 2022 as well as increased wages and salaries for our Shack teams.

As a percentage of Shack sales, the ~~increase~~decreases in Labor and related expenses for the thirteen weeks ended September 29, 2021 was primarily due to Shack team investments as noted above, partially offset by greater sales leverage associated with the recovery from COVID-19. As a percentage of Shack sales, the decrease in Labor and ~~related expenses for the~~ thirty-nine weeks ended September ~~29, 2021 was~~28, 2022 were primarily due to ~~greater~~ sales leverage, ~~associated with the recovery from COVID-19,~~ partially offset by increased ~~headcount as our Shacks aim to return to pre-pandemic operating levels.~~wages and salaries.

Other Operating Expenses

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Other operating expenses	Other operating expenses		$	26,613		$	18,743		$	74,032		$	50,826		Other operating expenses		$	33,966		$	26,613		$	96,766		$	74,032
		Percentage of Shack sales	14.2		%	14.8		%	14.3		%	14.4		%		Percentage of Shack sales	15.5		%	14.2		%	15.1		%	14.3		%
		Dollar change compared to prior year	$	7,870					$	23,206						Dollar change compared to prior year	$	7,353					$	22,734
		Percentage change compared to prior year	42.0		%				45.7		%					Percentage change compared to prior year	27.6		%				30.7		%

Other operating expenses for the thirteen weeks ended September 28, 2022 increased 27.6% to $34.0 million versus the same period last year. Other operating expenses for the thirty-nine weeks ended September 28, 2022 increased 30.7% to $96.8 million versus the same period last year. The increases in Other operating expenses for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to ~~higher delivery and transaction costs associated with higher digital sales, facilities costs associated with the re-opening of dining rooms, and~~ the opening of 3027 net new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~28, 2022 and increased facilities costs, mainly utilities, as well as increased transaction costs.

As a percentage of Shack sales, the ~~decreases~~increases in Other operating expenses for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to ~~sales leverage associated with the recovery from COVID-19~~increased facilities costs noted above as well as increased marketing expense, partially offset by ~~higher facilities costs as noted above.~~sales leverage and delivery mix.

Occupancy and Related Expenses

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

~~32 |~~ Shake Shack Inc.

Form 10-Q | 31

Table of Contents


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Occupancy and related expenses	Occupancy and related expenses		$	14,640		$	13,093		$	43,427		$	37,974		Occupancy and related expenses		$	17,337		$	14,640		$	50,270		$	43,427
		Percentage of Shack sales	7.8		%	10.4		%	8.4		%	10.7		%		Percentage of Shack sales	7.9		%	7.8		%	7.9		%	8.4		%
		Dollar change compared to prior year	$	1,547					$	5,453						Dollar change compared to prior year	$	2,697					$	6,843
		Percentage change compared to prior year	11.8		%				14.4		%					Percentage change compared to prior year	18.4		%				15.8		%

Occupancy and related expenses for the thirteen weeks ended September 28, 2022 increased 18.4% to $17.3 million versus the same period last year. Occupancy and related expenses for the thirty-nine weeks ended September 28, 2022 increased 15.8% to $50.3 million versus the same period last year. The increases in Occupancy and related expenses for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were primarily due to the opening of 3027 net new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~28, 2022.

As a percentage of Shack sales, the ~~decreases~~increase in Occupancy and related expenses for the thirteen weeks ended September 28, 2022 was primarily due to an increase in variable rent. As a percentage of Shack sales, the decrease in Occupancy and related expenses for the thirty-nine weeks ended September ~~29, 2021 were~~28, 2022 was primarily due to sales ~~leverage associated with the continued recovery from the COVID-19 pandemic.~~leverage.

General and Administrative Expenses

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
General and administrative expenses	General and administrative expenses		$	20,504		$	14,962		$	60,435		$	45,170		General and administrative expenses		$	26,645		$	20,504		$	87,040		$	60,435
		Percentage of Total revenue	10.6		%	11.5		%	11.3		%	12.4		%		Percentage of Total revenue	11.7		%	10.6		%	13.1		%	11.3		%
		Dollar change compared to prior year	$	5,542					$	15,265						Dollar change compared to prior year	$	6,141					$	26,605
		Percentage change compared to prior year	37.0		%				33.8		%					Percentage change compared to prior year	30.0		%				44.0		%

General and administrative expenses for the thirteen weeks ended September 28, 2022 increased 30.0% to $26.6 million versus the same period last year. General and administrative expenses for the thirty-nine weeks ended September 28, 2022 increased 44.0% to $87.0 million versus the same period last year. The ~~increases~~increase in General and administrative expenses for the thirteen ~~and thirty-nine~~ weeks ended September ~~29, 2021 were~~28, 2022 was primarily due to ~~continued investments~~an increase in wages and other team costs as well as investments in marketing and technology initiatives. The increase in General and administrative expenses for the thirty-nine weeks ended September 28, 2022 was primarily due to ~~support~~an accrual of $6.8 million related to legal matters, expenses incurred related to the ~~continued recovery from the COVID-19 pandemic,~~Company retreat as well as investments in marketing and technology initiatives.

As a percentage of Total revenue, the ~~decreases~~increase in General and administrative expenses for the thirteen weeks ended September 28, 2022 was primarily due to the aforementioned increase in team costs and investment spend. As a percentage of Total revenue, the increase in General and administrative expenses for the thirty-nine weeks ended September ~~29, 2021 were~~28, 2022 was primarily due to ~~sales leverage associated with~~ the ~~continued recovery from the COVID-19 pandemic.~~aforementioned legal accrual and investment spend.

Depreciation and Amortization Expense

Depreciation and amortization expense consists of the depreciation of fixed assets, including leasehold improvements and equipment.

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

32 | Shake Shack Inc.

Form 10-Q

Table of Contents


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Depreciation and amortization expense		$	18,647		$	15,183		$	53,589		$	43,381
	Percentage of Total revenue	8.2		%	7.8		%	8.1		%	8.1		%
	Dollar change compared to prior year	$	3,464					$	10,208
	Percentage change compared to prior year	22.8		%				23.5		%

Depreciation and amortization expense for the thirteen weeks ended September 28, 2022 increased 22.8% to $18.6 million versus the same period last year. Depreciation and amortization expense for the thirty-nine weeks ended September 28, 2022 increased 23.5% to $53.6 million versus the same period last year. The increases in Depreciation and amortization expense for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 were predominantly due to incremental depreciation of capital expenditures related to the opening of 3027 net new domestic Company-operated Shacks between September ~~23, 2020~~29, 2021 and September ~~29, 2021.~~

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

~~Table of Contents~~

28, 2022.

As a percentage of Total revenue, the ~~decreases~~increase in Depreciation and amortization expense for the thirteen weeks ended September 28, 2022 was primarily due to new Shack openings as well as additional technology projects placed into service between September 29, 2021 and September 28, 2022. As a percentage of Total revenue, Depreciation and amortization expense was flat for the thirty-nine weeks ended September ~~29, 2021 were~~28, 2022, primarily due to sales leverage ~~associated with the recovery~~partially offset by increased costs from ~~the COVID-19 pandemic.~~new Shack openings between September 29, 2021 and September 28, 2022.

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Pre-opening costs	Pre-opening costs		$	2,933		$	1,822		$	8,767		$	5,799		Pre-opening costs		$	3,041		$	2,933		$	8,576		$	8,767
		Percentage of Total revenue	1.5		%	1.4		%	1.6		%	1.6		%		Percentage of Total revenue	1.3		%	1.5		%	1.3		%	1.6		%
		Dollar change compared to prior year	$	1,111					$	2,968						Dollar change compared to prior year	$	108					$	(191)
		Percentage change compared to prior year	61.0		%				51.2		%					Percentage change compared to prior year	3.7		%				(2.2)		%

Pre-opening costs for the thirteen weeks ended September 28, 2022 increased 3.7% to $3.0 million versus the same period last year. Pre-opening costs for the thirty-nine weeks ended September 28, 2022 decreased 2.2% to $8.6 million versus the same period last year. The ~~increases~~increase in Pre-opening costs for the thirteen ~~and thirty-nine~~ weeks ended September ~~29, 2021 were~~28, 2022 was due to ~~the higher number of new domestic Company-operated~~increased occupancy expense primarily related to more Shacks ~~opened during the current period~~under construction compared to the prior-year period, ~~as well as those expected~~partially offset by a decrease in other operating expenses. The decrease in Pre-opening costs for the thirty-nine weeks ended September 28, 2022 was due to ~~open.~~less wages and team costs incurred related to unopened Shacks partially offset by an increase in occupancy expense.

Impairment and Loss on Disposal of Assets

Impairment and loss on disposal of assets include impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets. Additionally, ~~impairment~~Impairment and loss on disposal of assets includes the net book value of assets that have been retired and consists primarily of furniture, equipment and fixtures that were replaced in the normal course of business.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(dollar amounts in thousands) September 29
2021 September 23
2020 September 29
2021 September 23
2020
Impairment and loss on disposal of assets $ 535 $ 402 $ 1,262 $ 2,924
Percentage of Total revenue 0.3 % 0.3 % 0.2 % 0.8 %
Dollar change compared to prior year $ 133 $ (1,662)
Percentage change compared to prior year 33.1 % (56.8) %

Shake Shack Inc.

Form 10-Q | 33

Table of Contents

~~The increase in~~


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Impairment and loss on disposal of assets		$	592		$	535		$	1,697		$	1,262
	Percentage of Total revenue	0.3		%	0.3		%	0.3		%	0.2		%
	Dollar change compared to prior year	$	57					$	435
	Percentage change compared to prior year	10.7		%				34.5		%

Impairment and loss on disposal of assets for the thirteen weeks ended September ~~29, 2021 was~~28, 2022 increased 10.7% to $0.6 million versus the same period last year. Impairment and loss on disposal of assets for the thirty-nine weeks ended September 28, 2022 increased 34.5% to $1.7 million versus the same period last year. The increases in Impairment and loss on disposal of assets for the thirteen and thirty-nine weeks ended September 28, 2022 were primarily due to the number of Shacks maturing in our base. ~~For the thirty-nine weeks ended September 29, 2021, the decrease was primarily due to an impairment charge of $1.1 million recorded in the first quarter of fiscal 2020.~~

Other Income, Net

Other income, net consists of interest income, dividend income and net unrealized and realized gains and losses from marketable securities.

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

~~Table of Contents~~


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Other income, net		$	1,482		$	18		$	1,731		$	157
	Percentage of Total revenue	0.7		%	—		%	0.3		%	—		%
	Dollar change compared to prior year	$	1,464					$	1,574
	Percentage change compared to prior year	8,133.3		%				1,002.5		%

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

~~The decrease in~~ Other income, net for the thirteen weeks ended September ~~29, 2021~~28, 2022 increased to $1.5 million. The increase was primarily due to an increase in dividend income of $1.2 million related to an increase in interest rates as well as an increase in unrealized ~~losses~~gains related to our investments in marketable securities, ~~more than offsetting~~compared to the ~~increase in dividend income for the period. The decrease in~~same period last year. Other income, net for the thirty-nine weeks ended September ~~29, 2021~~28, 2022 increased to $1.7 million. The increase was primarily due an increase in dividend income of $1.6 million related to an increase in interest rates, partially offset by an increase in unrealized losses ~~and a decrease in dividend income~~ related to our investments in marketable securities.

Interest Expense

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Interest expense	Interest expense		$	(350)		$	(143)		$	(1,224)		$	(697)		Interest expense		$	(475)		$	(350)		$	(1,145)		$	(1,224)
		Percentage of Total revenue	(0.2)		%	(0.1)		%	(0.2)		%	(0.2)		%		Percentage of Total revenue	(0.2)		%	(0.2)		%	(0.2)		%	(0.2)		%
		Dollar change compared to prior year	$	(207)					$	(527)						Dollar change compared to prior year	$	(125)					$	79
		Percentage change compared to prior year	144.8		%				75.6		%					Percentage change compared to prior year	35.7		%				(6.5)		%

Interest expense for the thirteen weeks ended September 28, 2022 increased 35.7% to $0.5 million versus the same period last year. Interest expense for the thirty-nine weeks ended September 28, 2022 decreased 6.5% to $1.1 million versus the same period last year. The increase in Interest expense for the thirteen weeks ended September ~~29, 2021~~28, 2022 was primarily due to ~~amortization expense related~~an increase in various assessment charges recorded to ~~the issuance of Convertible Notes in March 2021.~~

interest expense. The ~~increase~~decrease in Interest expense for the thirty-nine weeks ended September ~~29, 2021~~28, 2022 was primarily due to ~~amortization expense related to the issuance of Convertible Notes in March 2021 as well as~~ the write-off of previously capitalized costs of $0.3 million associated with the amendment of our Revolving Credit Facility during the thirteen weeks ended March 31, 2021 as well as sponsorship credits received from our banking partners partially offset by amortization expense related to our Convertible Notes issued in March 2021. ~~Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.~~

34 | Shake Shack Inc.

Form 10-Q

Table of Contents

Benefit from Income Taxes

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Benefit from income taxes	Benefit from income taxes		$	(576)		$	(797)		$	(10,665)		$	(6,802)		Benefit from income taxes		$	(1,508)		$	(576)		$	(5,098)		$	(10,665)
		Percentage of Total revenue	(0.3)		%	(0.6)		%	(2.0)		%	(1.9)		%		Percentage of Total revenue	(0.7)		%	(0.3)		%	(0.8)		%	(2.0)		%
		Dollar change compared to prior year	$	221					$	(3,863)						Dollar change compared to prior year	$	(932)					$	5,567
		Percentage change compared to prior year	(27.7)		%				56.8		%					Percentage change compared to prior year	161.8		%				(52.2)		%

Our effective income tax rates for the thirteen weeks ended September 28, 2022 and September 29, 2021 were 39.5% and ~~September 23, 2020 were~~ 19.3% ~~and 11.5%~~, respectively. The increase was primarily driven by ~~higher~~an increase tax credits and a ~~decrease~~year-to-date rate catch-up adjustment, partially offset by higher tax expense driven by an increase in ~~pre-tax loss.~~nondeductible expenses, higher foreign tax expense, and lower quarter over quarter benefit from equity-based compensation. Additionally, an increase in our ownership interest in SSE Holdings increases our share of the taxable income (loss) of SSE Holdings. Our

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

~~Table of Contents~~

~~weighted-average~~ weighted average ownership interest in SSE Holdings was ~~93.1%~~93.2% and ~~92.5%~~93.1% for the thirteen weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, respectively.

Our effective income tax rates for the thirty-nine weeks ended September 28, 2022 and September 29, 2021 were 25.5% and ~~September 23, 2020 were~~ 102.3% ~~and 21.2%~~, respectively. The ~~increase~~prior year tax rate was inclusive of a significant tax benefit related to equity-based compensation, which had an increasing impact to the tax rate. The year over year decrease was primarily driven by a decrease in ~~the pre-tax book loss, causing tax credits and windfall~~ tax benefits related to equity-based compensation, ~~to have~~ an ~~increasing effect on the~~increase in foreign tax ~~rate, as well as a reduction of a valuation allowance.~~expense, and an increase in pre-tax loss, partially offset by an increase in tax credits. Our ~~weighted-average~~weighted average ownership interest in SSE Holdings was ~~93.0%~~93.1% and ~~92.1%~~93.0% for the thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020,~~29, 2021, respectively.

Net ~~Income (Loss)~~Loss Attributable to Non-Controlling Interests

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


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)		September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Net loss attributable to non-controlling interests	Net loss attributable to non-controlling interests		$	(224)		$	(551)		$	(837)		$	(2,490)		Net loss attributable to non-controlling interests		$	(287)		$	(224)		$	(1,522)		$	(837)
		Percentage of Total revenue	(0.1)		%	(0.4)		%	(0.2)		%	(0.7)		%		Percentage of Total revenue	(0.1)		%	(0.1)		%	(0.2)		%	(0.2)		%
		Dollar change compared to prior year	$	327					$	1,653
		Percentage change compared to prior year	(59.3)		%				(66.4)		%

~~The improvement in~~ Net loss attributable to non-controlling interests for the thirteen weeks ended September ~~29, 2021 was primarily due~~28, 2022 increased to ~~an improvement~~a loss of $0.3 million from a loss of $0.2 million in ~~net results compared to~~ the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.9% and 7.5% for the thirteen weeks ended September 29, 2021 and September 23, 2020, respectively.

~~The improvement in~~year. Net loss attributable to non-controlling interests for the thirty-nine weeks ended September ~~29, 2021 was~~28, 2022 increased to a loss of $1.5 million from a loss of $0.8 million in the same period last year.

The increases in Net loss attributable to non-controlling interests for the thirteen and thirty-nine weeks ended September 28, 2022 were primarily due to ~~an improvement~~decreases in net results compared to the same ~~period~~periods last year, partially offset by a decrease in the

Shake Shack Inc.

Form 10-Q | 35

Table of Contents

non-controlling interest holders' weighted average ownership, which was ~~7.0%~~6.8% and ~~7.9%~~6.9%, respectively for the thirteen and thirty-nine weeks ended September ~~29, 2021~~28, 2022 and September ~~23, 2020, respectively.~~29, 2021.

NON-GAAP FINANCIAL MEASURES

To supplement the ~~condensed consolidated financial statements,~~Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

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

~~Table of Contents~~

Shack-Level Operating Profit

Shack-level operating profit is defined as Shack sales less Shack-level operating expenses including Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.

How This Measure Is Useful

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

Limitations of the Usefulness of this Measure

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

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

~~(1)~~36 | ~~For the thirty-nine weeks ended September 23, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.~~

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

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		Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollar amounts in thousands)		September 28 2022			September 29 2021			September 28 2022			September 29 2021
Loss from operations		$	(4,826)		$	(2,646)		$	(20,580)		$	(9,360)
Less:
	Licensing revenue	8,313			6,923			22,611			17,527
Add:
	General and administrative expenses	26,645			20,504			87,040			60,435
	Depreciation and amortization expense	18,647			15,183			53,589			43,381
	Pre-opening costs	3,041			2,933			8,576			8,767
	Impairment and loss on disposal of assets	592			535			1,697			1,262
Shack-level operating profit		$	35,786		$	29,586		$	107,711		$	86,958

Total revenue		$	227,814		$	193,895		$	661,957		$	536,637
Less: Licensing revenue		8,313			6,923			22,611			17,527
Shack sales		$	219,501		$	186,972		$	639,346		$	519,110

Shack-level operating profit margin(1,2)		16.3		%	15.8		%	16.8		%	16.8		%

(1)As a percentage of Shack sales.

(2)For the thirty-nine weeks ended September 28, 2022, Shack-level operating profit margin includes the $1,281 cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales.

EBITDA and Adjusted EBITDA

EBITDA is defined as Net income (loss) before interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease costs, Impairment and loss on the disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that we do not believe directly reflect the core operations and may not be indicative of recurring business operations.

How These Measures Are Useful

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

Limitations of the Usefulness of These Measures

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

~~38 |~~ Shake Shack Inc.

Form 10-Q | 37

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		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)	September 29 2021			September 23 2020			September 29 2021			September 23 2020			(dollar amounts in thousands)	September 28 2022		September 29 2021		September 28 2022		September 29 2021
Net income (loss)	Net income (loss)	$	(2,402)		$	(6,110)		$	238		$	(25,220)		Net income (loss)	$	(2,311)	$	(2,402)	$	(14,896)	$	238
Depreciation and amortization expense	Depreciation and amortization expense	15,183			12,376			43,381			36,233			Depreciation and amortization expense	18,647		15,183		53,589		43,381
Interest expense, net	Interest expense, net	350			143			1,224			697			Interest expense, net	475		350		1,145		1,224
Benefit from income taxes	Benefit from income taxes	(576)			(797)			(10,665)			(6,802)			Benefit from income taxes	(1,508)		(576)		(5,098)		(10,665)
EBITDA	EBITDA	12,555			5,612			34,178			4,908			EBITDA	15,303		12,555		34,740		34,178

Equity-based compensation	Equity-based compensation	2,324			1,339			5,963			4,058			Equity-based compensation	3,515		2,324		10,155		5,963
Amortization of cloud-based software implementation costs~~(1)~~	Amortization of cloud-based software implementation costs~~(1)~~	308			458			935			1,086			Amortization of cloud-based software implementation costs~~(1)~~	397		308		1,080		935
Deferred lease costs~~(2)~~(1)	Deferred lease costs~~(2)~~(1)	108			258			237			407			Deferred lease costs~~(2)~~(1)	(258)		108		(1,908)		237
Impairment and loss on disposal of assets~~(3)~~	Impairment and loss on disposal of assets~~(3)~~	535			402			1,262			2,924			Impairment and loss on disposal of assets~~(3)~~	592		535		1,697		1,262
Debt offering related costs(4)		—			—			236			—
Legal settlement(5)		—			—			619			—

Legal matters														Legal matters	—		—		6,750		619
Gift card breakage cumulative catch-up adjustment														Gift card breakage cumulative catch-up adjustment	—		—		(1,281)		—
Debt offering related costs(2)														Debt offering related costs(2)	—		—		—		236
Executive transition costs~~(6)~~	Executive transition costs~~(6)~~	—			82			179			150			Executive transition costs~~(6)~~	—		—		—		179
Project Concrete(7)		—			8			—			(229)

Other(8)		—			—			—			285

Adjusted EBITDA	Adjusted EBITDA	$	15,830		$	8,159		$	43,609		$	13,589		Adjusted EBITDA	$	19,549	$	15,830	$	51,233	$	43,609

Adjusted EBITDA margin(9)		8.2		%	6.3		%	8.1		%	3.7		%
Adjusted EBITDA margin(3)														Adjusted EBITDA margin(3)	8.6 %		8.2 %		7.7 %		8.1 %

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

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

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

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

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

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

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

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

~~(9)~~(3)Calculated as a percentage of Total revenue, which was ~~$193,895~~$227.8 million and ~~$536,637~~$662.0 million for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, and $193.9 million and $536.6 million for the thirteen and thirty-nine weeks ended September 29, 2021, ~~respectively, and $130,401 and $365,357 for the thirteen and thirty-nine weeks ended September 23, 2020,~~ respectively.

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

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

How These Measures Are Useful

When used in conjunction with GAAP financial measures, adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in Net income (loss) attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to

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

~~Table of Contents~~

our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

Adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share should not be considered alternatives to Net income (loss) and earnings (loss) per share, as determined under GAAP. While these measures are useful in evaluating our performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the Net income (loss) attributable to Shake Shack Inc. Adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share should be evaluated in conjunction

38 | Shake Shack Inc.

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with our GAAP financial results. A reconciliation of adjusted pro forma net income (loss) to Net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings (loss) per fully exchanged and diluted share are set forth below.

~~40 |~~ Shake Shack Inc.

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				Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands, except per share amounts)	(in thousands, except per share amounts)			September 29 2021		September 23 2020		September 29 2021		September 23 2020		(in thousands, except per share amounts)			September 28 2022		September 29 2021		September 28 2022		September 29 2021
Numerator:	Numerator:											Numerator:
		Net income (loss) attributable to Shake Shack Inc.		$	(2,178)	$	(5,559)	$	1,075	$	(22,730)		Net income (loss) attributable to Shake Shack Inc.		$	(2,024)	$	(2,178)	$	(13,374)	$	1,075
		Adjustments:											Adjustments:
			Reallocation of Net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(224)		(551)		(837)		(2,490)				Reallocation of Net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(287)		(224)		(1,522)		(837)
			Executive transition costs(2)	—		82		179		150				Legal matters	—		—		6,750		619
			Project Concrete(3)	—		8		—		(229)				Gift card breakage cumulative catch-up adjustment	—		—		(1,281)		—
														Debt offering related costs(2)	—		—		—		236
														Executive transition costs	—		—		—		179
			Legal settlement(4)	—		—		619		—
			Debt offering related costs(5)	—		—		236		—
			Revolving Credit Facility amendments related costs(6)	—		—		323		—
														Revolving Credit Facility amendments related costs(3)	—		—		—		323

			Other(7)	—		—		—		285
			Impact to income tax benefit(8)	392		1,608		528		3,141
		Adjusted pro forma net income (loss)		$	(2,010)	$	(4,412)	$	2,123	$	(21,873)			Impact to income tax expense (benefit)(4)	(11)		392		(922)		528
Adjusted pro forma net income (loss)												Adjusted pro forma net income (loss)			$	(2,322)	$	(2,010)	$	(10,349)	$	2,123

Denominator:	Denominator:											Denominator:
		Weighted-average shares of Class A common stock outstanding—diluted		39,137		38,251		43,448		36,668			Weighted average shares of Class A common stock outstanding—diluted		39,274		39,137		39,221		43,448
		Adjustments:											Adjustments:
			Assumed exchange of LLC Interests for shares of Class A common stock(1)	2,922		3,114		—		3,125				Assumed exchange of LLC Interests for shares of Class A common stock(1)	2,871		2,922		2,899		—
		Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		42,059		41,365		43,448		39,793				Dilutive effect of stock options	—		—		—		—
														Dilutive effect of convertible notes	—		—		—		—
													Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted		42,145		42,059		42,120		43,448

Adjusted pro forma earnings (loss) per fully exchanged share—diluted	Adjusted pro forma earnings (loss) per fully exchanged share—diluted			$	(0.05)	$	(0.11)	$	0.05	$	(0.55)	Adjusted pro forma earnings (loss) per fully exchanged share—diluted			$	(0.06)	$	(0.05)	$	(0.25)	$	0.05


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended						Thirteen Weeks Ended				Thirty-Nine Weeks Ended
			September 29 2021		September 23 2020		September 29 2021		September 23 2020				September 28 2022		September 29 2021		September 28 2022		September 29 2021
Earnings (loss) per share of Class A common stock—diluted	Earnings (loss) per share of Class A common stock—diluted		$	(0.06)	$	(0.15)	$	0.01	$	(0.62)	Earnings (loss) per share of Class A common stock—diluted		$	(0.05)	$	(0.06)	$	(0.34)	$	0.01
		Assumed exchange of LLC Interests for shares of Class A common stock(1)	—		—		—		(0.01)			Assumed exchange of LLC Interests for shares of Class A common stock(1)	—		—		(0.01)		—
		Non-GAAP adjustments(9)	0.01		0.04		0.04		0.08			Non-GAAP adjustments(5)	(0.01)		0.01		0.10		0.04
Adjusted pro forma earnings (loss) per fully exchanged share—diluted	Adjusted pro forma earnings (loss) per fully exchanged share—diluted		$	(0.05)	$	(0.11)	$	0.05	$	(0.55)	Adjusted pro forma earnings (loss) per fully exchanged share—diluted		$	(0.06)	$	(0.05)	$	(0.25)	$	0.05

(1)Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income (loss) attributable to non-controlling interests. Refer to Note 11, Earnings (Loss) per Share, in the accompanying Condensed Consolidated Financial Statements, for additional information.

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

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

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

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

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

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

~~(8)~~(4)Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 39.2% and 28.8% for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, and 32.5% and 123.4% for the thirteen and thirty-nine weeks endedSeptember 29, 2021, ~~respectively, and 35.3% and 31.3% for the thirteen and thirty-nine weeks ended September 23, 2020,~~ respectively. Amounts include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportioned to each applicable state, local and foreign jurisdiction.

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

40 | Shake Shack Inc.

Form 10-Q | 41

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LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility. As of September 28, 2022, we maintained a Cash and cash equivalents balance of $257.0 million and a short-term investments balance of $80.0 million within Marketable securities. In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.

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

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

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

In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of September ~~29, 2021,~~28, 2022, such obligations totaled ~~$234.0~~$234.9 million. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The amount of such payments are also limited to the extent we utilize the related deferred tax assets. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.

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

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

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

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

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~~Table of Contents~~

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

We believe our existing cash and marketable securities balances will be sufficient to fund our operating and finance lease obligations, capital expenditures, Tax Receivable Agreement obligations and working capital needs for at least the next 12 months and the foreseeable future.

Summary of Cash Flows

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


		Thirty-Nine Weeks Ended					Thirty-Nine Weeks Ended
(in thousands)	(in thousands)	September 29 2021		September 23 2020		(in thousands)	September 28 2022		September 29 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	43,740	$	28,498	Net cash provided by operating activities	$	54,333	$	43,740
Net cash used in investing activities	Net cash used in investing activities	(112,169)		(27,316)		Net cash used in investing activities	(95,212)		(112,169)
Net cash provided by financing activities		242,977		136,602
Increase in Cash and cash equivalents		174,548		137,784
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(4,529)		242,977
Net increase (decrease) in Cash and cash equivalents						Net increase (decrease) in Cash and cash equivalents	(45,408)		174,548
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	146,873		37,099		Cash and cash equivalents at beginning of period	302,406		146,873
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	321,421	$	174,883	Cash and cash equivalents at end of period	$	256,998	$	321,421

Shake Shack Inc.

Form 10-Q | 41

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Operating Activities

For the thirty-nine weeks ended September ~~29, 2021~~28, 2022, net cash provided by operating activities was ~~$43.7~~$54.3 million compared to ~~$28.5~~$43.7 million for the thirty-nine weeks ended September ~~23, 2020,~~29, 2021, an increase of ~~$15.2~~$10.6 million. The increase was primarily ~~due to an increase in net income of $25.4 million and~~driven by the impact of changes in non-cash charges of ~~$11.9~~$23.7 million, partially offset by a ~~change~~$15.1 million decline in operating assets and liabilities of $(22.1) million. The $(22.1) million change in our operating asset and liability balances was primarily driven by an increase in settlement of payables and an increase in and timing of rent payments, partially offset by higher accrued wages.net income when compared to the same prior year period.

Investing Activities

For the thirty-nine weeks ended September ~~29, 2021~~28, 2022, net cash used in investing activities was ~~$112.2~~$95.2 million compared to ~~$27.3~~$112.2 million for the thirty-nine weeks ended September ~~23, 2020, an increase~~29, 2021, a decrease of ~~$84.9~~$17.0 million. This ~~increase~~decrease was primarily due to ~~increased~~a decrease in purchases of marketable securities of ~~$47.0~~$46.9 million ~~and~~partially offset by an increase of ~~$21.9~~$25.9 million in capital expenditures to support our real estate development, ~~and~~which includes 37 Shacks under construction as of September 28, 2022 compared to 21 under construction as of September 29, 2021, as well as to support our digital initiatives.

Financing Activities

For the thirty-nine weeks ended September ~~29, 2021~~28, 2022, net cash used in financing activities was $4.5 million compared to net cash provided by financing activities ~~was~~of $243.0 ~~million compared to $136.6~~ million for the thirty-nine weeks ended September ~~23, 2020, an increase~~29, 2021, a decrease of ~~$106.4~~$247.5 million. This ~~increase~~decrease was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, net of discount ~~decreased payments made under~~during the ~~Tax Receivable Agreement, and increased proceeds from stock option exercises, partially offset by $145.7~~thirty-nine weeks ended September 29, 2021 as well as a decrease of $6.4 million in ~~net cash~~ proceeds from the issuance of Class A common stock ~~during the thirty-nine weeks ended September 23, 2020.~~

~~Revolving Credit Facility~~

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

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

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

~~Table of Contents~~

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

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

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

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

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

Convertible Notes

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

Revolving Credit Facility

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

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

The ~~Convertible Notes~~obligations under the Revolving Credit Facility are ~~convertible at the option~~secured by a first-priority security interest in substantially all of the ~~holders at any time prior to~~assets of SSE Holdings and the ~~close of business on the business day immediately preceding December 1, 2027, only~~guarantors. The obligations under the ~~following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price~~Revolving Credit Facility are guaranteed by each of ~~our Class A common stock, par value $0.001 per share, for at least 20 trading days (whether or not consecutive) during a period~~SSE Holdings' direct and indirect subsidiaries, with certain exceptions.

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of 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 businessSeptember 28, 2022, we were in compliance with all covenants.

4442 | Shake Shack Inc.

Form 10-Q

~~Table of Contents~~

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

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

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

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

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

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

~~OFF-BALANCE SHEET ARRANGEMENTS~~

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

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

Table of Contents

~~CONTRACTUAL OBLIGATIONS~~

There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020, other than those made in the ordinary course of business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020.~~29, 2021.

Recently Issued Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies under Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020.~~29, 2021.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the quarter ended September ~~29, 2021~~28, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~46 |~~ Shake Shack Inc.

Form 10-Q | 43

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

44 | Shake Shack Inc.

Form 10-Q | 47

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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
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
32
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
#
101.INS XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document *

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

Letter Agreement dated October 17, 2022, between Lori George Billingsley and Shake Shack Inc.

8-K

10.1

10/19/2022

31.1

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

31.2

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

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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

# Furnished herewith.

~~48 |~~ Shake Shack Inc.

Form 10-Q | 45

Table of Contents

SIGNATURES

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


	Shake Shack Inc.
	(Registrant)

Date: November ~~5, 2021~~4, 2022	By:	/s/ Randy Garutti
		Randy Garutti
		Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: November ~~5, 2021~~4, 2022	By:	/s/ Katherine I. Fogertey
		Katherine I. Fogertey
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

46 | Shake Shack Inc.

Form 10-Q | 49


Cautionary Note Regarding Forward-Looking Information			1

Part I			2
	Item 1.	Financial Statements (Unaudited)	2
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4643
	Item 4.	Controls and Procedures	4643

Part II			4744
	Item 1.	Legal Proceedings	4744
	Item 1A.	Risk Factors	4744
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4744
	Item 3.	Defaults Upon Senior Securities	4744
	Item 4.	Mine Safety Disclosures	4744
	Item 5.	Other Information	4744
	Item 6.	Exhibits	4845

SIGNATURES			4946


		Page
Note 1	Nature of Operations	10
Note 2	Summary of Significant Accounting Policies	10
Note 3	Revenue	11
Note 4	Fair Value Measurements	1213


Note 5	Supplemental Balance Sheet Information	14
Note 6	Debt	14

Note 7	Leases	16
Note 8	Non-Controlling Interests	19
Note 9	Equity-Based Compensation	20
Note 10	Income Taxes	21
Note 11	Earnings (Loss) Per Share	2223
Note 12	Supplemental Cash Flow Information	24
Note 13	Commitments and Contingencies	24
Note 14	Related Party Transactions	25


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