Shake Shack Inc. 10-Q

Item 1. Financial Statements (Unaudited). Page Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income (Loss) 4 Condensed Consolidated Statements of Comprehensive Income (Loss) 5 Condensed Consolidated Statements of Stockholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Condensed Consolidated Financial Statements 8 2 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share amounts) March 31 2021 December 30 2020 ASSETS Current assets: Cash and cash equivalents $ 374,999 $ 146,873 Marketable securities 40,914 36,887 Accounts receivable, net 8,838 9,464 Inventories 2,734 2,888 Prepaid expenses and other current assets 7,805 7,074 Total current assets 435,290 203,186 Property and equipment, net of accumulated depreciation of $ 179,226 and $ 166,156 , respectively 348,580 336,541 Operating lease assets 312,087 306,317 Deferred income taxes, net 299,838 287,007 Other assets 11,794 12,297 TOTAL ASSETS $ 1,407,589 $ 1,145,348 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,307 $ 23,487 Accrued expenses 28,774 25,920 Accrued wages and related liabilities 13,306 10,441 Operating lease liabilities, current 37,275 35,657 Other current liabilities 15,087 14,200 Total current liabilities 118,749 109,705 Long-term debt 242,875 — Long-term operating lease liabilities 349,670 343,736 Liabilities under tax receivable agreement, net of current portion 234,048 232,954 Other long-term liabilities 22,297 24,460 Total liabilities 967,639 710,855 Commitments and contingencies (Note 13) Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 30, 2020. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,103,239 and 38,717,790 shares issued and outstanding as of March 31, 2021 and December 30, 2020, respectively. 39 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,921,588 and 2,951,188 shares issued and outstanding as of March 31, 2021 and December 30, 2020, respectively. 3 3 Additional paid-in capital 400,371 395,067 Retained earnings 13,518 12,209 Accumulated other comprehensive income 2 3 Total stockholders' equity attributable to Shake Shack Inc. 413,933 407,321 Non-controlling interests 26,017 27,172 Total equity 439,950 434,493 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,407,589 $ 1,145,348 See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 3 Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands, except per share amounts) Thirteen Weeks Ended March 31 2021 March 25 2020 Shack sales $ 150,668 $ 138,048 Licensing revenue 4,614 5,122 TOTAL REVENUE 155,282 143,170 Shack-level operating expenses: Food and paper costs 44,630 39,564 Labor and related expenses 46,382 41,766 Other operating expenses 23,144 17,779 Occupancy and related expenses 13,911 12,558 General and administrative expenses 19,565 16,191 Depreciation and amortization expense 13,726 11,768 Pre-opening costs 3,576 2,243 Impairment and loss on disposal of assets 369 2,088 TOTAL EXPENSES 165,303 143,957 OPERATING LOSS ( 10,021 ) ( 787 ) Other income (expense), net 31 ( 93 ) Interest expense ( 515 ) ( 112 ) LOSS BEFORE INCOME TAXES ( 10,505 ) ( 992 ) Income tax expense (benefit) ( 11,080 ) 87 NET INCOME (LOSS) 575 ( 1,079 ) Less: net loss attributable to non-controlling interests ( 734 ) ( 119 ) NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 1,309 $ ( 960 ) Earnings (loss) per share of Class A common stock: Basic $ 0.03 $ ( 0.03 ) Diluted $ 0.01 $ ( 0.03 ) Weighted-average shares of Class A common stock outstanding: Basic 38,948 34,444 Diluted 42,789 34,444 `See accompanying Notes to Condensed Consolidated Financial Statements. 4 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Thirteen Weeks Ended March 31 2021 March 25 2020 Net income (loss) $ 575 $ ( 1,079 ) Other comprehensive income (loss), net of tax (1) : Change in foreign currency translation adjustment ( 1 ) 1 Net change ( 1 ) 1 OTHER COMPREHENSIVE INCOME (LOSS) ( 1 ) 1 COMPREHENSIVE INCOME (LOSS) 574 ( 1,078 ) Less: comprehensive loss attributable to non-controlling interest ( 734 ) ( 119 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 1,308 $ ( 959 ) (1) Net of tax expense of $ 0 for the thirteen weeks ended March 31, 2021 and March 25, 2020. See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 5 Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands, except share amounts) For the Thirteen Weeks Ended March 31, 2021 and March 25, 2020 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE, DECEMBER 30, 2020 38,717,790 $ 39 2,951,188 $ 3 $ 395,067 $ 12,209 $ 3 $ 27,172 $ 434,493 Net income (loss) 1,309 ( 734 ) 575 Other comprehensive income (loss): Net change in foreign currency translation adjustment ( 1 ) ( 1 ) Equity-based compensation 1,696 1,696 Activity under stock compensation plans 355,849 3,359 82 3,441 Redemption of LLC Interests 29,600 ( 29,600 ) 36 ( 36 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 213 213 Distributions paid to non-controlling interest holders ( 467 ) ( 467 ) BALANCE, MARCH 31, 2021 39,103,239 $ 39 2,921,588 $ 3 $ 400,371 $ 13,518 $ 2 $ 26,017 $ 439,950 BALANCE, DECEMBER 25, 2019 34,417,302 $ 35 3,145,197 $ 3 $ 244,410 $ 54,367 $ 2 $ 23,168 $ 321,985 Net loss ( 960 ) ( 119 ) ( 1,079 ) Other comprehensive income (loss): Net change in foreign currency translation adjustment 1 1 Equity-based compensation 1,313 1,313 Activity under stock compensation plans 77,903 — 424 ( 361 ) 63 Redemption of LLC Interests 28,195 — ( 28,195 ) — 195 ( 195 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 628 628 Distributions paid to non-controlling interest holders ( 305 ) ( 305 ) BALANCE, MARCH 25, 2020 34,523,400 $ 35 3,117,002 $ 3 $ 246,970 $ 53,407 $ 3 $ 22,188 $ 322,606 6 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Thirteen Weeks Ended March 31 2021 March 25 2020 OPERATING ACTIVITIES Net income (loss) (including amounts attributable to non-controlling interests) $ 575 $ ( 1,079 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization expense 13,726 11,768 Amortization of debt issuance costs 86 — Amortization of cloud computing asset 313 260 Non-cash operating lease cost 12,330 10,742 Equity-based compensation 1,681 1,300 Deferred income taxes ( 1,523 ) 3,775 Non-cash interest expense 337 69 Gain on sale of marketable securities — ( 79 ) Impairment and loss on disposal of assets 369 2,088 Unrealized loss on available-for-sale securities 46 356 Other non-cash (income) expense ( 1 ) 183 Changes in operating assets and liabilities: Accounts receivable 626 3,150 Inventories 154 306 Prepaid expenses and other current assets ( 731 ) ( 439 ) Other assets ( 216 ) ( 1,039 ) Accounts payable 1,474 ( 4,449 ) Accrued expenses ( 9,420 ) ( 6,330 ) Accrued wages and related liabilities 2,865 ( 5,113 ) Other current liabilities ( 158 ) 273 Long-term operating lease liabilities ( 10,754 ) ( 8,755 ) Other long-term liabilities ( 1,828 ) 497 NET CASH PROVIDED BY OPERATING ACTIVITIES 9,951 7,484 INVESTING ACTIVITIES Purchases of property and equipment ( 23,155 ) ( 19,159 ) Purchases of marketable securities ( 4,073 ) ( 192 ) Sales of marketable securities — 20,000 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ( 27,228 ) 649 FINANCING ACTIVITIES Proceeds from issuance of convertible notes, net of discount 243,750 — Proceeds from revolving credit facility — 50,000 Deferred financing costs ( 70 ) — Payments on principal of finance leases ( 602 ) ( 615 ) Distributions paid to non-controlling interest holders ( 467 ) ( 305 ) Payments under tax receivable agreement — ( 6,569 ) Debt issuance costs ( 649 ) — Proceeds from stock option exercises 6,451 1,032 Employee withholding taxes related to net settled equity awards ( 3,010 ) ( 969 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 245,403 42,574 NET INCREASE IN CASH AND CASH EQUIVALENTS 228,126 50,707 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 146,873 37,099 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 374,999 $ 87,806 See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 7 Table of Contents SHAKE SHACK INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) Page Note 1 Nature of Operations 9 Note 2 Summary of Significant Accounting Policies 9 Note 3 Revenue 10 Note 4 Fair Value Measurements 11 Note 5 Supplemental Balance Sheet Information 13 Note 6 Debt 13 Note 7 Leases 15 Note 8 Non-Controlling Interests 17 Note 9 Equity-Based Compensation 19 Note 10 Income Taxes 19 Note 11 Earnings (Loss) Per Share 20 Note 12 Supplemental Cash Flow Information 22 Note 13 Commitments and Contingencies 22 Note 14 Related Party Transactions 23 8 | Shake Shack Inc. Form 10-Q 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"). We are the sole managing member of SSE Holdings and, as sole managing member, we operate and control all of the business and affairs of SSE Holdings. As a result, we consolidate the financial results of SSE Holdings and report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of March 31, 2021 we owned 93.0 % of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings. We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, hot dogs, chicken, crinkle-cut fries, shakes, frozen custard, beer, wine and more. As of March 31, 2021, there were 321 Shacks in operation, system-wide, of which 192 were domestic Company-operated Shacks, 22 were domestic licensed Shacks and 107 were international licensed Shacks. As of March 31, 2021, four domestic Company-operated Shacks and 16 licensed Shacks were temporarily closed, primarily due to the COVID-19 pandemic. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020 ("2020 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 should be read in conjunction with the consolidated financial statements and related notes thereto included in our 2020 Form 10-K. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year. SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, we consolidate SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of March 31, 2021 and December 30, 2020, the net assets of SSE Holdings were $ 380,713 and $ 383,669 , respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. See Note 6, Debt, for more information. Fiscal Year We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal 2021 contains 52 weeks and ends on December 29, 2021. Fiscal 2020 contained 53 weeks and ended on December 30, 2020. Unless otherwise stated, references to years in this report relate to fiscal years. Use of Estimates The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and Shake Shack Inc. Form 10-Q | 9 Table of Contents liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Recently Adopted Accounting Pronouncements We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2021. Accounting Standards Update Description Date Adopted Simplifying the Accounting for Income Taxes (ASU 2019-12) This standard simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC 740, “Income Taxes” (“ASC 740”), and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The adoption of this standard did not have a material impact to our condensed consolidated financial statements. December 31, 2020 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. (ASU 2020-06) This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. We elected to early adopt this standard, beginning December 31, 2020. The guidance of this ASU is applicable to our convertible notes issued in March 2021. As a result, the convertible notes are accounted for as a single liability measured at amortized cost. The if-converted earnings per share ("EPS") method is used, with the effect of potential share settlement included in diluted EPS. Refer to Note 6, Debt, for further details of the convertible notes issued. December 31, 2020 NOTE 3: REVENUE Revenue Recognition Revenue consists of Shack sales and Licensing revenue. Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Shack revenues are recognized when payment is tendered at the point of sale 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 is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from our gift cards is deferred and recognized upon redemption. Licensing revenues include initial territory fees, Shack opening fees, and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant goods or services transferred to the licensee in our contracts, and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the licenses and considered as one performance obligation per Shack. We determine the transaction price for each contract, which is comprised of the initial territory fee, and an estimate of the total Shack opening fees we expect to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack. Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial territory fee is received upon execution of the licensing agreement, and payment for the Shack opening fees are received either in advance of or upon opening the related Shack. These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period. 10 | Shake Shack Inc. Form 10-Q Table of Contents Revenue from sales-based royalties is recognized as the related sales occur. Revenue recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020, disaggregated by type is as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 Shack sales $ 150,668 $ 138,048 Licensing revenue: Sales-based royalties 4,425 4,944 Initial territory and opening fees 189 178 Total revenue $ 155,282 $ 143,170 The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 was $ 16,748 . We expect to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties. Contract Balances Opening and closing balances of contract liabilities and receivables from contracts with customers is as follows: March 31 2021 December 31 2020 Shack sales receivables $ 5,641 $ 5,373 Licensing receivables, net of allowance for doubtful accounts 2,420 2,647 Gift card liability 2,600 2,637 Deferred revenue, current 612 608 Deferred revenue, long-term 11,965 12,151 Revenue recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 that was included in their respective liability balances at the beginning of the period is as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 Gift card liability $ 219 $ 300 Deferred revenue 181 175 NOTE 4: FAIR VALUE MEASUREMENTS Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying value of our Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses approximate their fair value due to the short-term nature of these financial instruments. As of March 31, 2021 and December 30, 2020, we held certain assets that are required to be measured at fair value on a recurring basis including our Marketable securities, which consist of investments in equity securities. Fair value of these investments is measured using Level 1 inputs (unadjusted quoted prices in active markets for identical assets). The carrying value of these investments in equity securities approximates fair value. Our assets measured at fair value on a recurring basis as of March 31, 2021 and December 30, 2020 were as follows: Shake Shack Inc. Form 10-Q | 11 Table of Contents Fair Value Measurements March 31 2021 December 30 2020 Level 1 Level 1 Equity securities: Mutual funds $ 40,914 $ 36,887 Total Marketable securities $ 40,914 $ 36,887 Refer to Note 6, Debt, for the fair value of the Company's outstanding debt instruments. A summary of Other income (expense) from equity securities recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 Equity securities: Dividend income $ 74 $ 184 Realized gain (loss) on sale of investments — 79 Unrealized gain (loss) on equity securities ( 46 ) ( 356 ) Total $ 28 $ ( 93 ) Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. During the thirteen weeks ended March 25, 2020, we recognized an impairment charge of $ 1,132 at one location. Of the total impairment charge, $ 736 was attributed to property and equipment held and used, $ 383 was attributed to operating lease right-of-use assets, and $ 13 was attributed to finance lease right-of-use assets. The asset impairment charge was included in Impairment and loss on disposal of assets on the Condensed Consolidated Statement of Income (Loss). The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. There were no impairment charges recognized during the thirteen weeks ended March 31, 2021. Shake Shack Inc. Form 10-Q | 12 Table of Contents NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION The components of Other current liabilities as of March 31, 2021 and December 30, 2020 are as follows: March 31 2021 December 30 2020 Sales tax payable $ 4,045 $ 4,285 Gift card liability 2,600 2,637 Current portion of financing equipment lease liabilities 2,445 1,998 Other 5,997 5,280 Other current liabilities $ 15,087 $ 14,200 The components of Other long-term liabilities as of March 31, 2021 and December 30, 2020 are as follows: March 31 2021 December 30 2020 Deferred licensing revenue $ 11,965 $ 12,151 Long-term portion of financing equipment lease liabilities 4,056 3,586 Other (1) 6,276 8,723 Other long-term liabilities $ 22,297 $ 24,460 (1) As of March 31, 2021, Other included $ 3,359 of deferred lease incentive liabilities related to leases with variable lease cost as well as $ 2,607 of deferred Social Security taxes associated with the Coronavirus Aid, Relief, and Economic Security Act. NOTE 6: DEBT Revolving Credit Facility In August 2019, we entered into a revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $ 50,000 , of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $ 100,000 , to be made available subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $ 15,000 . In March 2020, we drew down the full $ 50,000 available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020. In May 2020, we entered into a first amendment to the Revolving Credit Facility ("First Amendment"), which, among other things, provided for modified financial covenant compliance requirements for a period of time. The First Amendment required us to maintain minimum liquidity of $ 25,000 through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bore interest at either: (i) the London Interbank Offered Rate ("LIBOR") plus a percentage ranging from 1.0 % to 2.5 % or (ii) the base rate plus a percentage ranging from 0.0 % to 1.5 %, in each case depending on our net lease adjusted leverage ratio. In March 2021, we entered into a second amendment to the Revolving Credit Facility (“Second Amendment”). The Second Amendment modified the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith. In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment; (ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iii) added mechanics relating to the transition from the use of LIBOR to the Secured Overnight Financing Rate ("SOFR") upon the discontinuance or unavailability of LIBOR. Subsequently, and also in March 2021, we entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) with JPMorgan Chase Bank, N.A. (as successor agent to Wells Fargo Bank, National Association), as administrative agent, and Shake Shack Inc. Form 10-Q | 13 Table of Contents the lenders party thereto. In addition, in March 2021, Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A. The Third Amendment appoints JPMorgan Bank, N.A. as administrative agent under the Revolving Credit Facility. In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026. As of March 31, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility. The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries (with certain exceptions). The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios. We are not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above. In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit our ability to incur debt; incur liens; make investments; engage in mergers, consolidations, liquidations or acquisitions; dispose of assets; make distributions on or repurchase equity securities; engage in transactions with affiliates; and prohibits us, with certain exceptions, from engaging in any line of business not related to our current line of business. As of March 31, 2021, we were in compliance with all covenants. As of March 31, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $ 110 , and was included in Other assets on the Condensed Consolidated Balance Sheet. Total interest expense related to the Revolving Credit Facility were $ 368 and $ 52 for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Total interest expense for the thirteen weeks ended March 31, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility. Convertible Notes In March 2021, we issued $ 225,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. We granted an option to the initial purchasers to purchase up to an additional $ 25,000 aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $ 250,000 aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election. The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of our Class A common stock, par value $ 0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if we call such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances. The Convertible Notes had an initial conversion rate of 5.8679 shares of Shake Shack’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 170.42 per share of Shake Shack’s Class A common stock. We may not redeem the Convertible Notes prior to March 6, 2025. We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after March 6, 2025 if the last reported sale price of Shake Shack’s Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 Shake Shack Inc. Form 10-Q | 14 Table of Contents 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 (“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, by Shake Shack Inc and the aggregate number of outstanding shares of common stock. As of March 31, 2021, the Convertible Notes had a gross principal balance of $ 250,000 and a balance of $ 242,875 , net of unamortized discount and debt issuance costs of $ 7,125 . As of March 31, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method. Total amortization expense was $ 86 for the thirteen weeks ended March 31, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the Convertible Notes, we also incurred costs of $ 236 , including consulting and advisory fees, in the thirteen weeks ended March 31, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss). At March 31, 2021, the fair value of the Convertible Notes was approximately $ 248,125 , 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. NOTE 7: LEASES Nature of Leases We currently lease all of our domestic Company-operated Shacks, our home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2037. We evaluate contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of Accounting Standards Codification Topic 842 ("ASC 842"). Upon the possession of a leased asset, we determine its classification as an operating or finance lease. Our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases. Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, we record the straight-line lease Shake Shack Inc. Form 10-Q | 15 Table of Contents expense and any contingent rent, if applicable, in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). As there are no explicit rates provided in our leases, we use our incremental borrowing rate in determining the present value of future lease payments. The discount rate used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the incremental borrowing rate is our credit rating and is subject to judgment. We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own. We expend cash for leasehold improvements to build out and equip our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof. In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property. We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset. A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2021 and December 30, 2020 is as follows: Classification March 31 2021 December 30 2020 Finance leases Property and equipment, net $ 6,315 $ 5,409 Operating leases Operating lease assets 312,087 306,317 Total right-of-use assets $ 318,402 $ 311,726 Finance leases: Other current liabilities $ 2,445 $ 1,998 Other long-term liabilities 4,056 3,586 Operating leases: Operating lease liabilities, current 37,275 35,657 Long-term operating lease liabilities 349,670 343,736 Total lease liabilities $ 393,446 $ 384,977 The components of lease expense for the thirteen weeks ended March 31, 2021 and March 25, 2020 was as follows: Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Finance lease cost: Amortization of right-of-use assets Depreciation expense $ 613 $ 577 Interest on lease liabilities Interest expense 54 55 Operating lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses 12,330 10,742 Short-term lease cost Occupancy and related expenses 82 124 Variable lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses 2,851 3,730 Total lease cost $ 15,930 $ 15,228 Shake Shack Inc. Form 10-Q | 16 Table of Contents As of March 31, 2021, future minimum lease payments for finance and operating leases consisted of the following: Finance Leases Operating Leases 2021 $ 2,023 $ 35,013 2022 2,183 53,111 2023 1,326 56,121 2024 689 55,896 2025 438 54,853 Thereafter 289 246,023 Total minimum payments 6,948 501,017 Less: imputed interest 447 114,072 Total lease liabilities $ 6,501 $ 386,945 As of March 31, 2021 we had additional operating lease commitments of $ 55,964 for non-cancelable leases without a possession date, which will begin to commence in 2021. These lease commitments are consistent with the leases that we have executed thus far. A summary of lease terms and discount rates for finance and operating leases as of March 31, 2021 and December 30, 2020 is as follows: March 31 2021 December 30 2020 Weighted-average remaining lease term (years): Finance leases 5.5 5.2 Operating leases 9.6 9.7 Weighted-average discount rate: Finance leases 3.5 % 3.6 % Operating leases 3.9 % 4.2 % Supplemental cash flow information related to leases for the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases 54 $ 55 Operating cash flows from operating leases 11,825 11,329 Financing cash flows from finance leases 602 559 Right-of-use assets obtained in exchange for lease obligations: Finance leases 1,518 716 Operating leases 11,095 28,035 NOTE 8: NON-CONTROLLING INTERESTS We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. We report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or Shake Shack Inc. Form 10-Q | 17 Table of Contents exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. Changes in our ownership interest in SSE Holdings while we retain our controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital. The following table summarizes the ownership interest in SSE Holdings as of March 31, 2021 and December 30, 2020. March 31, 2021 December 30, 2020 LLC Interests Ownership% LLC Interests Ownership % Number of LLC Interests held by Shake Shack Inc. 39,103,239 93.0 % 38,717,790 92.9 % Number of LLC Interests held by non-controlling interest holders 2,921,588 7.0 % 2,951,188 7.1 % Total LLC Interests outstanding 42,024,827 100.0 % 41,668,978 100.0 % The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) to Shake Shack Inc. and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the thirteen weeks ended March 31, 2021 and March 25, 2020 was 7.0 % and 8.4 %, respectively. The following table summarizes the effects of changes in ownership of SSE Holdings on our equity during the thirteen weeks ended March 31, 2021 and March 25, 2020. Thirteen Weeks Ended March 31 2021 March 25 2020 Net income (loss) attributable to Shake Shack Inc. $ 1,309 $ ( 960 ) Transfers (to) from non-controlling interests: Increase in additional paid-in capital as a result of the redemption of LLC Interests 36 195 Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effect 3,359 424 Total effect of changes in ownership interest on equity attributable to Shake Shack Inc. $ 4,704 $ ( 341 ) The following table summarizes redemptions of LLC Interests activity during the thirteen weeks ended March 31, 2021 and March 25, 2020. Thirteen Weeks Ended March 31 2021 March 25 2020 Redemption and acquisition of LLC Interests Number of LLC Interests redeemed by non-controlling interest holders 29,600 28,195 Number of LLC Interests received by Shake Shack Inc. 29,600 28,195 Issuance of Class A common stock Shares of Class A common stock issued in connection with redemptions of LLC Interests 29,600 28,195 Cancellation of Class B common stock Shares of Class B common stock surrendered and canceled 29,600 28,195 During the thirteen weeks ended March 31, 2021 and March 25, 2020, we received an aggregate of 355,849 and 77,903 LLC Interests, respectively, in connection with the activity under our stock compensation plan . 18 | Shake Shack Inc. Form 10-Q Table of Contents NOTE 9: EQUITY-BASED COMPENSATION A summary of equity-based compensation expense recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 Stock options $ 20 $ 261 Performance stock units 414 413 Restricted stock units 1,247 626 Equity-based compensation expense $ 1,681 $ 1,300 Total income tax benefit recognized related to equity-based compensation $ 67 $ 36 Equity-based compensation expense is included in General and administrative expenses and Labor and related expenses on the Condensed Consolidated Statements of Income (Loss) during the thirteen weeks ended March 31, 2021 and March 25, 2020 as follows: Thirteen Weeks Ended March 31 2021 March 25 2020 General and administrative expenses $ 1,541 $ 1,214 Labor and related expenses 140 86 Equity-based compensation expense $ 1,681 $ 1,300 NOTE 10: INCOME TAXES We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions. Our effective income tax rates for the thirteen weeks ended March 31, 2021 and March 25, 2020 were 105.5 % and ( 8.8 )%, respectively. The increase was primarily driven by lower pre-tax book income resulting in a loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on the tax rate, as well as a reduction of a valuation allowance. Additionally, an increase in our ownership interest in SSE Holdings increases our share of the taxable income (loss) of SSE Holdings. Our weighted-average ownership interest in SSE Holdings was 93.0 % and 91.6 % for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Deferred Tax Assets and Liabilities During the thirteen weeks ended March 31, 2021, we acquired an aggregate of 385,449 LLC Interests in connection with the redemption of LLC Interests, and activity relating to our stock compensation plan. We recognized a deferred tax asset in the amount of $ 10,204 associated with the basis difference in our investment in SSE Holdings upon acquisition of these LLC Interests. As of March 31, 2021, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was $ 142,867 . However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss. As of March 31, 2021, the total valuation allowance established against the deferred tax asset to which this portion relates was $ 1,260 . Shake Shack Inc. Form 10-Q | 19 Table of Contents During the thirteen weeks ended March 31, 2021, we also recognized $ 300 of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. See "Tax Receivable Agreement," herein for more information. We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of March 31, 2021, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that are expected to result in a capital loss upon eventual sale of our interest in SSE Holdings, New York City UBT credits and certain foreign tax credits) are more likely than not to be realized. As such, no additional valuation allowance was recognized. Tax Receivable Agreement Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. We plan to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. We intend to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. On February 4, 2015, we entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by us of 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). We expect to benefit from the remaining 15 % of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests. During the thirteen weeks ended March 31, 2021, we acquired an aggregate of 29,600 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. We recognized an additional liability in the amount of $ 1,094 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income. During the thirteen weeks ended March 31, 2021 and March 25, 2020, payments of $ 0 and $ 6,569 , inclusive of interest, were made to the parties to the Tax Receivable Agreement, respectively. As of March 31, 2021, the total amount of TRA Payments due under the Tax Receivable Agreement, was $ 234,048 . See Note 13, Commitments and Contingencies, for more information relating to our liabilities under the Tax Receivable Agreement. NOTE 11: EARNINGS (LOSS) PER SHARE The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts) for the thirteen weeks ended March 31, 2021 and March 25, 2020. 20 | Shake Shack Inc. Form 10-Q Table of Contents Thirteen Weeks Ended March 31 2021 March 25 2020 Numerator: Net income (loss) attributable to Shake Shack Inc.—basic $ 1,309 $ ( 960 ) Reallocation of net loss attributable to non-controlling interests from the assumed conversion of Class B shares ( 734 ) — Net income (loss) attributable to Shake Shack Inc.—diluted $ 575 $ (960) Denominator: Weighted-average shares of Class A common stock outstanding—basic 38,948 34,444 Effect of dilutive securities: Stock options 232 — Performance stock units 53 — Restricted stock units 164 — Convertible Notes 451 — Shares of Class B common stock 2,941 — Weighted-average shares of Class A common stock outstanding—diluted 42,789 34,444 Earnings (loss) per share of Class A common stock—basic $ 0.03 $ ( 0.03 ) Earnings (loss) per share of Class A common stock—diluted $ 0.01 $ ( 0.03 ) Shares of our Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of our Class B common stock outstanding for the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be antidilutive. The following table presents potentially dilutive securities, as of the end of the period, excluded from the computations of diluted earnings (loss) per share of Class A common stock for the thirteen weeks ended March 31, 2021 and March 25, 2020. Thirteen Weeks Ended March 31 2021 March 25 2020 Stock options 1,698 (1) 847,207 (3) Performance stock units 51,974 (2) 179,253 (3) Restricted stock units — 264,431 (3) Shares of Class B common stock — 3,117,002 (3) (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 exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money"). (2) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period. (3) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive. Shake Shack Inc. Form 10-Q | 21 Table of Contents NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information for the thirteen weeks ended March 31, 2021 and March 25, 2020: Thirteen Weeks Ended March 31 2021 March 25 2020 Cash paid for: Income taxes, net of refunds $ 388 $ 801 Interest, net of amounts capitalized 70 61 Non-cash investing activities: Accrued purchases of property and equipment 12,949 13,715 Capitalized equity-based compensation 9 13 Non-cash financing activities: Revolving Credit Facility amendment-related accrual 112 — Convertible Notes issuance-related accrual 312 — Establishment of liabilities under tax receivable agreement 1,094 310 NOTE 13: COMMITMENTS AND CONTINGENCIES Lease Commitments We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2037. Under certain of these leases, we are liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for our proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. See Note 7, Leases. As security under the terms of one of our leases, we are obligated under a letter of credit totaling $ 130 as of March 31, 2021, which expires in February 2026. Additionally, in September 2017, we entered into a letter of credit in conjunction with our new home office lease in the amount of $ 603 , which expires in August 2021 and renews automatically for one-year periods through January 31, 2034. Purchase Commitments Purchase obligations include legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered. We also enter into long-term, exclusive contracts with certain vendors to supply us with food, beverages and paper goods, obligating us to purchase specified quantities. Legal Contingencies In March 2020, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act. At a mediation between the parties, we agreed to settle the matter with the plaintiff and other employees who elect to participate in the settlement for $ 595 . As of March 31, 2021, an accrual in the amount of $ 595 was recorded for this matter and related expenses. In February 2018, a claim was filed against Shake Shack in California state court alleging certain violations of the California Labor Code. At a mediation between the parties, we agreed to settle the matter with the plaintiff and all other California employees who elect to participate in the settlement for $ 1,200 . As of March 31, 2021, an accrual in the amount of $ 1,180 was recorded for this matter and related expenses. 22 | Shake Shack Inc. Form 10-Q Table of Contents We are subject to various legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. As of March 31, 2021, the amount of the ultimate liability with respect to these matters was not material. Liabilities under Tax Receivable Agreement As described in Note 10, Income Taxes, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay certain of the members of SSE Holdings 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. We are not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. During the thirteen weeks ended March 31, 2021 and March 25, 2020, we recognized liabilities totaling $ 1,094 and $ 310 , respectively, relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of March 31, 2021 and December 30, 2020, our total obligations under the Tax Receivable Agreement were $ 234,048 and $ 232,954 , respectively. There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits. NOTE 14: RELATED PARTY TRANSACTIONS Union Square Hospitality Group The Chairman of our Board of Directors serves as the Chief Executive Officer of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiaries, set forth below, are considered related parties. Hudson Yards Sports and Entertainment In fiscal 2011, we entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE. The agreement expires in January 2027 and includes five consecutive five-year renewal options at HYC's option. As consideration for these rights, HYC pays us a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays us a percentage of profits on sales of branded beverages, as defined in the MLA. Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts received from HYC Licensing revenue $ — $ 22 Classification March 31 2021 December 30 2020 Amounts due from HYC Accounts Receivable $ — $ 8 Shake Shack Inc. Form 10-Q | 23 Table of Contents Madison Square Park Conservancy The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack. No amounts were due to MSP Conservancy as of both March 31, 2021 and December 30, 2020. Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts paid to MSP Conservancy Occupancy and related expenses $ 215 $ 219 Olo, Inc. The Chairman of our Board of Directors serves as a director of Olo, Inc. (formerly known as "Mobo Systems, Inc."), a platform we use in connection with our mobile ordering application. No amounts were due to Olo as of both March 31, 2021 and December 30, 2020. Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts paid to Olo Other operating expenses $ 147 $ 52 Square, Inc. Our Chief Executive Officer is a member of the Board of Directors of Square, Inc. ("Square"). We currently use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with the processing of a limited amount of sales at certain of our locations, sales for certain off-site events and in connection with our kiosk technology. Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts paid to Square Other operating expenses $ 462 $ 571 Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts due to Square Accounts Payable $ 9 $ — USHG Acquisition Corp. Our Chief Executive Officer has been appointed to the board of directors of USHG Acquisition Corp. in which the Chairman of our Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp. USHG Acquisition Corp. is a newly organized blank check company incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. No amounts were due to or due from USHG Acquisition Corp as of both March 31, 2021 and December 30, 2020. Tax Receivable Agreement As described in Note 10, Income Taxes, we entered into a Tax Receivable Agreement with certain members of SSE Holdings that provides for the payment by us of 85 % of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions. Shake Shack Inc. Form 10-Q | 24 Table of Contents Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts paid to members (inclusive of interest) Other current liabilities $ — $ 6,569 Classification March 31 2021 December 30 2020 Amounts due under the Tax Receivable Agreement Other current liabilities Liabilities under tax receivable agreement, net of current portion $ 234,048 $ 232,954 Distributions to Members of SSE Holdings Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members. No tax distributions were payable to non-controlling interest holders as of March 31, 2021 and December 30, 2020, respectively. Thirteen Weeks Ended Classification March 31 2021 March 25 2020 Amounts paid to non-controlling interest holders Non-controlling interests $ 467 $ 305