What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 259 added, 257 removed, 315 unchanged (62% of the section changed)

13 unchanged sentences

Shake Shack is a modern day "roadside" burger stand serving a classic American menu of premium burgers, chicken sandwiches, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.

As of 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 June 30, 2021, there were 339 Shacks in operation system-wide, of which 200 were domestic Company-operated Shacks, 23 were domestic licensed Shacks and 116 were international licensed Shacks.

Shake Shack Inc.

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Recent Developments and Trends

We have experienced continued positive momentum in the business during the first quarter of 2021, and through April 28 ("fiscal April"), all while continuing to support our Shack teams, our guests and the communities in which we operate during the COVID-19 pandemic.

With COVID cases stabilizing and more regions steadily loosening restrictions, we are optimistic that improving trends can continue for our industry.

With a continued prioritization on health and safety, we have steadily re-opened dining rooms under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

Same-Shack sales continued to improve across all regions, up 5.7% in the first quarter 2021, when compared to down 17.4% in the fourth quarter 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales retention.

Same-Shack sales in fiscal April were up 86% compared to the same period last year.

As of the end of fiscal April 2021, the vast majority of Shacks were operating with open dining rooms, the majority of which continue to remain under varying levels of capacity restrictions, especially in urban Shacks.

The Company continues to experience recovery across urban and suburban markets, however many major urban markets, such as Manhattan, remain materially below pre-COVID levels, while office, events and tourism traffic return.

Average weekly sales were $64,000 in the first quarter of 2021.

Fiscal February was heavily impacted by severe winter weather, resulting in average weekly sales of $60,000, followed by a significant improvement to $68,000 in fiscal March, and continuing through fiscal April with $69,000.

This continued improvement was driven by a substantial increase in in-Shack sales, as well as a high retention of digital sales.

During the first quarter of 2021, total digital sales, including orders placed on the Shake Shack app, website and third-party delivery platforms, represented 60% of Shack sales.

Fiscal January and February digital mix was 64% and 62% of Shack sales, respectively, driven largely by increased delivery due to bad weather across large portions of the United States.

Digital sales mix decreased to 54% of Shack sales in fiscal March and 51% of Shack sales in fiscal April, driven by an increase in in-Shack dining as the weather improved and parts of the country continued to re-open.

Encouragingly, while in-Shack dining continues to increase, there continues to be a high level of digital sales retention with 90% of fiscal January's digital sales retained in fiscal April.

Company-owned app and web channels continued to perform well in the first quarter 2021, with 2.4 million first-time purchasers between mid-March of 2020 and the end of fiscal March 2021, and over 230% year-over-year sales growth, when compared to the first quarter 2020.

Licensing revenue for the first quarter of 2021 was $4.6 million, reflecting a decrease of 9.9% versus the same period last year.

We did, however, see improvement in total weekly sales performance throughout the quarter, with sales recovery led by improvements in both our international and domestic licensed Shacks, particularly in airports which are experiencing increases in Transportation Security Administration ("TSA") flight traffic.

Development Highlights

During the first quarter 2021, we opened ten new domestic Company-operated Shacks and two new international licensed Shacks.

These openings were partially offset by the closure of one domestic Company-operated Shack and one international licensed Shack.

We experienced continued positive momentum in the business during the second quarter of 2021, while continuing to support our Shack teams, our guests and the communities in which we operate, as we navigate the COVID-19 pandemic.

We remain focused on the recovery of both sales and profitability across our Shack base and growth over the long term.

Our strategic plan centers on the evolution of our Shack formats through physical and digital transformation with the objective of delivering a seamless, elevated guest experience.

Same-Shack sales grew 52.7% year-on-year in the second quarter of 2021, compared to up 5.7% in the first quarter of 2021.

Sales improved across all regions, and was led by strength of in-Shack dining as well as healthy retention of our digital sales.

Although suburban Shacks are performing closer to pre-pandemic levels than urban, we saw encouraging momentum across urban Shacks throughout the second quarter.

We also reached a milestone in our urban recovery, with the reopening of the Union Station, DC and Grand Central Station, NYC Shacks in late June and early July, respectively.

In the Southeast region, notably Texas, same-Shack sales are now above pre-pandemic levels;

these markets continue to represent growth opportunities for the business across a variety of formats.

Average weekly sales were $72,000 in the second quarter of 2021, marking the highest level since the pandemic started, and up from $64,000 in the first quarter of 2021.

Average weekly sales grew each month of the second quarter of 2021 and were $74,000 in fiscal June.

During the second quarter of 2021, total digital sales, including orders placed on the Shake Shack app, website and third-party delivery platforms, represented 47% of Shack sales.

Even as the mix shifted with the return of in-Shack dining, retention of digital sales was approximately 80% in fiscal June when compared to fiscal January when digital sales peaked, with the Company-owned app channel performing higher than our digital average.

During the second quarter of 2021 our new purchasers in Company-owned app and web channels grew 16.7% versus the first quarter of 2021, to 2.8 million total new purchasers since mid-March of 2020;

continued investment across these channels is helping bring in new guests, even as in-Shack dining returns.

We look forward to continuing to build on this strong foundation by offering our guests new and innovative ways to elevate their dining experience.

Licensing revenue for the second quarter of 2021 was $6.0 million, reflecting an increase of 164.2% versus the same period last year.

Improvement was driven domestically by the return of air travel across airports and gradual lifting of capacity restrictions at major US stadiums;

internationally, improvement was seen across the regions where COVID-related restrictions have been eased .

28 | Shake Shack Inc.

Development Highlights

During the second quarter of 2021, we opened eight new domestic Company-operated Shacks, one new domestic licensed Shack and nine new international licensed Shacks.

There were no permanent Shack closures in the second quarter of 2021.

Location Type Opening Date

Kuwait City, Kuwait — Waterfront International Licensed 1/28/2021

Plymouth Meeting, PA — Plymouth Meeting Domestic Company-Operated 2/4/2021

Nanuet, NY — Nanuet Domestic Company-Operated 2/8/2021

Dubai, UAE — First Avenue Mall, Motor City International Licensed 2/11/2021

Ardmore, PA — Suburban Square Domestic Company-Operated 2/19/2021

Towson, MD — Towson Domestic Company-Operated 2/20/2021

Woburn, MA — Woburn Domestic Company-Operated 3/1/2021

Huntersville, NC — Huntersville Domestic Company-Operated 3/2/2021

Nashville, TN — Downtown Nashville Domestic Company-Operated 3/4/2021

New York, NY — Bryant Park Domestic Company-Operated 3/22/2021

Boulder, CO — Boulder Domestic Company-Operated 3/26/2021

Hoboken, NJ — Hoboken Domestic Company-Operated 3/29/2021

As of May 6, 2021, we have opened another five domestic Company-operated Shacks, and expect a total of 16 to 18 openings by the mid-year point.

Though our rate of recovery and development plans continue to be impacted by the ongoing uncertainty due to COVID, we are aiming to open a total of between 35 and 40 new domestic Company-operated Shacks, and 15 to 20 new licensed Shacks, in fiscal 2021.

Liquidity Update

In March 2021, we issued $225 million aggregate principal amount of 0% Convertible Senior Notes due 2028 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

We granted an option to the initial purchasers to purchase up to an additional $25 million aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250 million aggregate principal amount of Convertible Notes.

The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances.

Upon conversion, we pay or deliver, as the case may be, cash, shares of Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election.

Financial Highlights for the First Quarter 2021

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

▪ Shack sales in the first quarter 2021 increased 9.1% to $150.7 million versus the same period last year.

Total Shack sales improved further in fiscal April with an increase of 171% versus the same period last year.

▪ Same-Shack sales 1 improved to up 5.7% in the first quarter 2021 versus the same period last year.

In fiscal April, Same-Shack sales continued to recover, with an increase of 86% versus the same period last year.

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

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

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

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

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

Bronx, NY — Bay Plaza Domestic Company-operated 4/1/2021

Seoul, South Korea — Nowon International Licensed 4/2/2021

Los Angeles, CA — Dodger Stadium Domestic Licensed 4/9/2021

Mexico City, Mexico — Roma Cibeles International Licensed 4/14/2021

Beaverton, OR — Cedar Hills Domestic Company-operated 4/16/2021

Macao, China — The Londoner International Licensed 4/17/2021

Santa Monica, CA — Santa Monica Domestic Company-operated 4/18/2021

Los Angeles, CA — Bunker Hill Domestic Company-operated 4/19/2021

Fishers, IN — Fishers Domestic Company-operated 4/22/2021

Beijing, China — China World International Licensed 4/26/2021

Singapore, Singapore — Great World International Licensed 4/28/2021

Shenzhen, China — MixC International Licensed 5/20/2021

Kuwait City, Kuwait — 360 Mall International Licensed 6/1/2021

Istanbul, Turkey — Istanbul Airport International Licensed 6/4/2021

Tampa, FL — Midtown Tampa Domestic Company-operated 6/7/2021

Seoul, South Korea — Coex Mall International Licensed 6/9/2021

San Francisco, CA — San Francisco Centre Domestic Company-operated 6/28/2021

Franklin, TN — Franklin Domestic Company-operated 6/28/2021

Financial Highlights for the Second Quarter 2021

▪ Total revenue in the second quarter of 2021 increased 104.2% to $187.5 million versus the same period last year.

▪ Shack sales in the second quarter of 2021 increased 102.7% to $181.5 million versus the same period last year.

▪ Same-Shack sales (1) improved to up 52.7% in the second quarter of 2021 versus the same period last year.

▪ Licensed revenue in the second quarter of 2021 increased 164.2% to $6.0 million versus the same period last year.

▪ Shack system-wide sales in the second quarter of 2021 increased 127.7% to $281.9 million, versus the same period last year.

▪ Operating income in the second quarter of 2021 was $3.3 million compared to an operating loss of $24.1 million in the same period last year.

▪ Shack-level operating profit (2) increased 1,699.7% in the second quarter of 2021 versus the same period last year, to $34.8 million, or 19.2% of Shack sales.

▪ Net income was $2.1 million and adjusted EBITDA 2 was $20.6 million in the second quarter of 2021, compared to a net loss of $18.0 million and adjusted EBITDA of $(8.8) million in the same period last year.

▪ Net income attributable to Shake Shack Inc.

was $1.3 million and adjusted pro forma net income 2 was $1.8 million, or $0.04 per fully exchanged and diluted share in the first quarter 2021, compared to net loss attributable to Shake Shack Inc.

of $1.0 million and adjusted pro forma net income of $0.8 million, or $0.02 per fully exchanged and diluted share, in the same period last year.

was $1.9 million and adjusted pro forma net income 2 was $2.4 million, or $0.05 per fully exchanged and diluted share in the second quarter of 2021, compared to net loss attributable to Shake Shack Inc.

of $16.2 million and adjusted pro forma net loss of $18.3 million, or $(0.45) per fully exchanged and diluted share, in the same period last year.

▪ Net system-wide Shack openings , comprised of eight net domestic Company-operated Shacks and ten net licensed Shacks.

▪ Cash and cash equivalents and marketable securities on hand was $420.2 million as of June 30, 2021.

Shake Shack Inc.

Form 10-Q | 29

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

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

(1) In order to compare like-for-like periods for fiscal 2021, same-Shack sales will compare the 52 weeks from December 31, 2020 through December 29, 2021 to the 52 weeks from January 2, 2020 through December 30, 2020.

For Q1 2021, same-Shack sales compares the thirteen weeks from December 31, 2020 through March 31, 2021 to the thirteen weeks from January 2, 2021 through April 1, 2021.

For Q2 2021, same-Shack sales compares the thirteen weeks from April 1, 2021 through June 30, 2021 to the thirteen weeks from April 2, 2020 through July 1, 2020.

(2) This represents a non-GAAP measure.

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

30 | Shake Shack Inc.

RESULTS OF OPERATIONS

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

The following table summarizes our results of operations for the thirteen and twenty-six weeks ended June 30, 2021 and June 24, 2020:

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Shack sales $ 181,470 96.8 % $ 89,519 97.5 % $ 332,138 96.9 % $ 227,567 96.9 %

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TOTAL EXPENSES 184,153 98.2 % 115,861 126.2 % 349,456 102.0 % 259,818 110.6 %

OPERATING LOSS (10,021) (6.5) % (787) (0.5) %

Other income (expense), net 31 — % (93) (0.1) %

OPERATING INCOME (LOSS) 3,307 1.8 % (24,075) (26.2) % (6,714) (2.0) % (24,862) (10.6) %

Other income, net 108 0.1 % 394 0.4 % 139 — % 301 0.1 %

Interest expense (359) (0.2) % (442) (0.5) % (874) (0.3) % (554) (0.2) %

LOSS BEFORE INCOME TAXES (10,505) (6.8) % (992) (0.7) %

INCOME (LOSS) BEFORE INCOME TAXES 3,056 1.6 % (24,123) (26.3) % (7,449) (2.2) % (25,115) (10.7) %

Income tax expense (benefit) 991 0.5 % (6,092) (6.6) % (10,089) (2.9) % (6,005) (2.6) %

NET INCOME (LOSS) 2,065 1.1 % (18,031) (19.6) % 2,640 0.8 % (19,110) (8.1) %

net loss attributable to non-controlling interests (734) (0.5) % (119) (0.1) %

Net income (loss) attributable to non-controlling interests 121 0.1 % (1,820) (2.0) % (613) (0.2) % (1,939) (0.8) %

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

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Shack sales in any period are directly influenced by the number of operating weeks in such period, the number of open Shacks and same-Shack sales.

Same-Shack sales means, for any reporting period, sales performance at our Company-operated domestic Shacks that have been open for at least 24 months.

28 | Shake Shack Inc.

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Same-Shack sales means, for any reporting period, sales for the comparable Shack base, which we define as the number of domestic Company-operated Shacks open for 24 months or longer.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Shack sales $ 181,470 $ 89,519 $ 332,138 $ 227,567

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Percentage change compared to prior year 102.7 % 46.0 %

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

Same-Shack sales continued to improve across all regions, and increased 5.7% for the first quarter of 2021, compared to down 17.4% in the fourth quarter of 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales retention.

The increase in first quarter 2021 same-Shack sales was due to a price and sales mix increase of 18.0% — a combination of our end-of-year price increase in December, increased pricing on third-party delivery channels which rolled out over the early part of this fiscal year, and a higher number of items per check, particularly in our digital channels — partially offset by a 12.3% decrease in guest traffic.

For the purpose of calculating same-Shack sales growth, Shack sales for 123 Shacks were included in the comparable Shack base as of the end of the first quarter of 2021 versus 90 Shacks for the first quarter of 2020.

The increases in Shack sales for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to the continued momentum associated with the recovery from the COVID-19 pandemic, in addition to the opening of 29 net new domestic

Shake Shack Inc.

Form 10-Q | 31

Company-operated Shacks between June 24, 2020 and June 30, 2021.

Digital sales for the thirteen and twenty-six weeks ended June 30, 2021 increased 27.4% and 89.3% respectively, compared to the same period last year.

Same-Shack sales for the thirteen weeks ended June 30, 2021 increased 52.7% compared to the same period last year, with urban Shacks increasing 53.8% and suburban Shacks increasing 51.8%.

The increase in same-Shack sales for the second quarter 2021 was driven by a 61.5% increase in guest traffic due to the return of in-Shack dining.

Same-Shack sales for the twenty-six weeks ended June 30, 2021 increased 26.4% compared to the same period last year, primarily driven by a 16.1% increase in guest traffic and an increase in price mix of 10.3%.

For the purpose of calculating same-Shack sales growth for the thirteen weeks ended June 30, 2021, Shack sales for 130 Shacks were included in the comparable Shack base, and for the twenty-six weeks ended June 30, 2021, Shack sales for 132 Shacks were included in the comparable Shack base.

Licensing Revenue

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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

(dollar amounts in thousands) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Licensing revenue $ 5,990 $ 2,267 $ 10,604 $ 7,389

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Percentage change compared to prior year 164.2 % 43.5 %

Licensed revenue for the thirteen weeks ended March 31, 2021 decreased 9.9% to $4.6 million versus the same prior-year period, primarily due to reduced sales related to the COVID-19 pandemic, partially offset by a net increase of 9 Shacks opened between March 25, 2020 and March 31, 2021.

As of the end of the first quarter 2021, 16 licensed Shacks remained temporarily closed due to COVID.

Through the first quarter of 2021, we did, however, see improvement in total weekly sales performance throughout the quarter, with sales recovery led by improvements in both our international and domestic licensed Shacks, particularly in airports which are experiencing increases in TSA flight traffic.

The increases in Licensing revenue for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to a net increase of 18 Shacks that opened between June 24, 2020 and June 30, 2021 as well as increased strength across regions where COVID related restrictions have been eased.

Our licensed business continues to show improvement despite challenges that still remain due to the COVID-19 pandemic.

As of the end of the second quarter 2021, eight licensed Shacks were temporarily closed due to the COVID-19 pandemic.

Food and Paper Costs

Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items.

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

Shake Shack Inc.

Form 10-Q | 29

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

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 Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Food and paper costs $ 54,917 $ 30,027 $ 99,547 $ 69,591

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Percentage change compared to prior year 82.9 % 43.0 %

The increase in Food and paper costs for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021, as well as increased paper and packaging costs and beef costs.

The increases in Food and paper costs for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to increased sales volume associated with continued recovery from the COVID-19 pandemic and the opening of 29 net new domestic Company-operated Shacks between June 24, 2020 and June 30, 2021.

As a percentage of Shack sales, the decreases in Food and paper costs for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to lower beef prices and paper and packaging prices, compared to the same period last year.

32 | Shake Shack Inc.

Labor and Related Expenses

Labor and related expenses include domestic Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers' compensation expense and medical benefits.

As we expect with other variable expense items, we expect labor costs to grow as our Shack sales grow.

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

(dollar amounts in thousands) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Labor and related expenses $ 52,631 $ 30,933 $ 99,013 $ 72,699

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Percentage change compared to prior year 70.1 % 36.2 %

The increase in Labor and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to our annual wage rate increase, higher payroll taxes at the state level, and a more normalized level of performance related bonuses, including the impact of the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.

As a percentage of Shack sales, the increase in Labor and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to our annual wage increase, a more normalized level of performance related bonuses and new Shack openings at higher levels of labor, partially offset by an increase in labor productivity at existing Shacks.

The increases in Labor and related expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to increases in Shack team costs across all Shacks associated with the recovery from COVID-19, as well as the opening of 29 net new domestic Company-operated Shacks between June 24, 2020 and June 30, 2021.

As a percentage of Shack sales, the decreases in Labor and related expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to greater sales leverage associated with the recovery from COVID-19, partially offset by increased headcount.

Other Operating Expenses

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Other operating expenses $ 24,275 $ 14,304 $ 47,419 $ 32,083

2 unchanged sentences

Percentage change compared to prior year 69.7 % 47.8 %

The increase in Other operating expenses for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021 and higher delivery commission as a result of digital growth.

30 | Shake Shack Inc.

As a percentage of Shack sales, the increase in Other operating expenses for the thirteen weeks ended March 31, 2021 was primarily due to higher delivery commissions as a result of digital growth.

The increases in Other operating expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to higher delivery and transaction costs associated with the continued momentum of digital sales and an increase of in-Shack dining across all Shacks, as well as the opening of 29 net new domestic Company-operated Shacks between June 24, 2020 and June 30, 2021.

As a percentage of Shack sales, the decrease in Other operating expenses for the thirteen weeks ended June 30, 2021 was primarily due to sales leverage associated with the recovery from COVID-19 as higher in-Shack sales growth outpaced delivery compared to the same period last year.

As a percentage of Shack sales, the increase in Other operating expenses for the twenty-six weeks ended June 30, 2021 was primarily related to higher delivery commissions as customers continue to take advantage of our multiple delivery offerings compared to the prior year period as well as higher costs for gloves and other disposables.

Occupancy and Related Expenses

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Shake Shack Inc.

Form 10-Q | 33

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Occupancy and related expenses $ 14,876 $ 12,323 $ 28,787 $ 24,881

2 unchanged sentences

Percentage change compared to prior year 20.7 % 15.7 %

The increase in Occupancy and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.

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

The increases in Occupancy and related expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to the opening of 29 net new domestic Company-operated Shacks between June 24, 2020 and June 30, 2021.

As a percentage of Shack sales, the decreases in Occupancy and related expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic.

General and Administrative Expenses

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

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 Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

General and administrative expenses $ 20,366 $ 14,017 $ 39,931 $ 30,208

2 unchanged sentences

Percentage change compared to prior year 45.3 % 32.2 %

The increase in General and administrative expenses for the thirteen weeks ended March 31, 2021 was primarily due to continued investment across the business, including an increase in headcount to support the strategic growth plan, and increased investments in marketing and our digital initiatives.

As a percentage of total revenue, the increase in General and administrative expenses for the thirteen weeks ended March 31, 2021 was primarily due primarily to drivers described above.

The increases in General and administrative expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to an increase in wages and other team costs to support the continued recovery from the COVID-19 pandemic, as well as an increase in marketing expenses.

As a percentage of total revenue, the decreases in General and administrative expenses for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic.

Depreciation and Amortization Expense

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

Shake Shack Inc.

Form 10-Q | 31

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Depreciation and amortization expense $ 14,472 $ 12,089 $ 28,198 $ 23,857

2 unchanged sentences

Percentage change compared to prior year 19.7 % 18.2 %

The increase in Depreciation and amortization expense for the thirteen weeks ended March 31, 2021 was primarily due to incremental depreciation of capital expenditures related to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021 and increased technology investments to support our digital initiatives.

As a percentage of total revenue, the increase in Depreciation and amortization expense for the thirteen weeks ended March 31, 2021 was primarily due to the aforementioned items.

The increases in Depreciation and amortization expense for the thirteen and twenty-six weeks ended June 30, 2021 were predominantly due to incremental depreciation of capital expenditures related to the opening of 29 net new domestic Company-operated Shacks between June 24, 2020 and June 30, 2021.

As a percentage of total revenue, the decreases in Depreciation and amortization expense for the thirteen and twenty-six weeks ended June 30, 2021 were primarily due to sales leverage associated with the recovery from the COVID-19 pandemic.

Pre-Opening Costs

Pre-opening costs consist primarily of legal fees, rent, managers' salaries, training costs, employee 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.

34 | Shake Shack Inc.

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.

1 unchanged sentence

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

(dollar amounts in thousands) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Pre-opening costs $ 2,258 $ 1,734 $ 5,834 $ 3,977

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Percentage change compared to prior year 30.2 % 46.7 %

The increase in Pre-opening costs for the thirteen weeks ended March 31, 2021 was due to the increased fiscal 2021 development pipeline for new domestic Company-operated Shacks, including those expected to open in the first half of the fiscal year.

The increases in Pre-opening costs for the thirteen and twenty-six weeks ended June 30, 2021 were due to the higher number of new domestic Company-operated Shacks opened during the current period compared to the prior-year period, as well as those expected to open.

Impairment and Loss on Disposal of Assets

1 unchanged sentence

Additionally, impairment and loss on disposal of assets includes the net book value of assets that have been retired and consists primarily of furniture, equipment and fixtures that were replaced in the normal course of business.

32 | Shake Shack Inc.

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Impairment and loss on disposal of assets $ 358 $ 434 $ 727 $ 2,522

2 unchanged sentences

Percentage change compared to prior year (17.5) % (71.2) %

The decrease in Impairment and loss on disposal of assets for the thirteen weeks ended March 31, 2021 was primarily due to asset impairment charges of $1.1 million in the first quarter of 2020 related to the impairment of one Shack.

In addition, loss on disposal of assets decreased due to several Shack renovations in fiscal 2020.

Other Income (Expense), Net

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Other income (expense), net $ 31 $ (93)

The decrease in Impairment and loss on disposal of assets for the thirteen weeks ended June 30, 2021 was primarily due to the number of Shacks maturing in our base.

For the twenty-six weeks ended June 30, 2021, the decrease was primarily due to an impairment charge of $1.1 million recorded during the first quarter of 2020.

Other Income, Net

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Other income, net $ 108 $ 394 $ 139 $ 301

Percentage of total revenue 0.1 % 0.4 % — % 0.1 %

1 unchanged sentence

Percentage change compared to prior year (72.6) % (53.8) %

The increase in Other income (expense), net for the thirteen weeks ended March 31, 2021 was primarily due to a decline in unrealized losses related to our investments in marketable securities, partially offset by a decrease in dividend income.

The decrease in Other income, net for the thirteen weeks ended June 30, 2021 was primarily due to a decrease in unrealized gains related to our investments in marketable securities partially offset by an increase in dividend income.

The decrease in Other income, net for the twenty-six weeks ended June 30, 2021 was primarily due to a decrease in dividend income and an increase in unrealized losses related to our investments in marketable securities.

Shake Shack Inc.

Form 10-Q | 35

Interest Expense

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Interest expense primarily 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, imputed interest on deferred compensation, imputed interest on our deemed landlord financing liability, and interest and fees on our Revolving Credit Facility.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Interest expense $ (359) $ (442) $ (874) $ (554)

2 unchanged sentences

Percentage change compared to prior year (18.8) % 57.8 %

The increase in Interest expense was primarily due to the write-off of previously capitalized costs of $0.3 million associated with the amendment of our Revolving Credit Facility in March 2021.

Refer to Note 6, Debt, for further details.

The decrease in Interest expense for the thirteen weeks ended June 30, 2021 was primarily due to a decrease in interest charges and fees associated with our Revolving Credit Facility in the current period.

The increase in Interest expense for the twenty-six weeks ended June 30, 2021 was primarily due to the write-off of previously capitalized costs of $0.3 million associated with the amendment of our Revolving Credit Facility in March 2021.

Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information.

Income Tax Expense (Benefit)

We are the sole managing member of SSE Holdings, and as a result, consolidate the financial results of SSE Holdings.

We are 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.

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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.

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 us.

We are also subject to withholding taxes in foreign jurisdictions.

Shake Shack Inc.

Form 10-Q | 33

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Income tax expense (benefit) $ 991 $ (6,092) $ (10,089) $ (6,005)

2 unchanged sentences

Percentage change compared to prior year (116.3) % 68.0 %

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.

Our effective income tax rates for the thirteen weeks ended June 30, 2021 and June 24, 2020 were 32.4% and 25.3%, respectively.

The increase was primarily driven by higher pre-tax book income resulting in income and higher foreign withholding taxes, partially offset by 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.

Net Loss Attributable to Non-Controlling Interests

Our weighted-average ownership interest in SSE Holdings was 93.0% and 92.3% for the thirteen weeks ended June 30, 2021 and June 24, 2020, respectively.

Our effective income tax rates for the twenty-six weeks ended June 30, 2021 and June 24, 2020 were 135.4% and 23.9%, respectively.

Our weighted-average ownership interest in SSE Holdings was 93.0% and 92.0% for the twenty-six weeks ended June 30, 2021 and June 24, 2020, respectively.

36 | Shake Shack Inc.

Net Income (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.

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and the non-controlling interest holders.

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Net loss attributable to non-controlling interests $ (734) $ (119)

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Net income (loss) attributable to non-controlling interests $ 121 $ (1,820) $ (613) $ (1,939)

Percentage of total revenue 0.1 % (2.0) % (0.2) % (0.8) %

1 unchanged sentence

Percentage change compared to prior year (106.6) % (68.4) %

The increase in Net loss attributable to non-controlling interests for the thirteen weeks ended March 31, 2021 was primarily due to an increase in net loss for SSE Holdings for the period, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 8.4% for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

The increase in Net income (loss) attributable to non-controlling interests for the thirteen weeks ended June 30, 2021 was primarily due to an increase in net results causing a profit for the period, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 7.7% for the thirteen weeks ended June 30, 2021 and June 24, 2020, respectively.

The increase in Net income (loss) attributable to non-controlling interests for the twenty-six weeks ended June 30, 2021 was primarily due to an increase in net results which moderated the loss for the period, and a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 8.0% for the twenty-six weeks ended June 30, 2021 and June 24, 2020, respectively.

NON-GAAP FINANCIAL MEASURES

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with U.S.

GAAP, we use the following non-GAAP financial measures:

Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

To supplement the 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").

Shake Shack Inc.

Form 10-Q | 37

Shack-Level Operating Profit

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How This Measure Is Useful

When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that the Company believes are useful measures to evaluate the performance and profitability of its Shacks.

Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by management to develop internal budgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods.

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.

The Company believes presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of its operating performance that can provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks.

It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates the business, as well as the financial and operational decision-making.

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

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Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with the Company's GAAP financial results.

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

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Operating loss $ (10,021) $ (787)

A reconciliation of Shack-level operating profit to Operating income (loss), the most directly comparable GAAP financial measure, is set forth below.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Operating income (loss) $ 3,307 $ (24,075) $ (6,714) $ (24,862)

Licensing revenue 5,990 2,267 10,604 7,389

3 unchanged sentences

Impairment and loss on disposal of assets (1)

358 434 727 2,522

Shack-level operating profit $ 34,771 $ 1,932 $ 57,372 $ 28,313

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19.2 % 2.2 % 17.3 % 12.4 %

(1) For the thirteen weeks ended March 25, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

(1) For the twenty-six weeks ended June 24, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

(2) As a percentage of Shack sales.

38 | Shake Shack Inc.

Form 10-Q | 35

EBITDA and Adjusted EBITDA

EBITDA is defined as Net income (loss) before interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense.

Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease cost, Impairment and loss on the disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.

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 the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results.

Adjusted EBITDA is a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance-based equity incentive programs and certain bonus arrangements.

The Company believes presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of the Company's 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.

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 our ongoing operating performance.

Limitations of the Usefulness of These Measures

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EBITDA and adjusted EBITDA exclude certain normal recurring expenses.

Therefore, these measures may not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the GAAP financial measures.

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.

Thirteen Weeks Ended

(dollar amounts in thousands) March 31

2021 March 25

Shake Shack Inc.

Form 10-Q | 39

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands) June 30

Net income (loss) $ 2,065 $ (18,031) $ 2,640 $ (19,110)

5 unchanged sentences

Amortization of cloud-based software implementation costs (1)

314 368 627 628

Deferred lease costs (2)

(75) 479 129 149

Impairment and loss on disposal of assets (3)

358 434 727 2,522

Debt offering related costs (4)

1 unchanged sentence

Executive transition costs (6)

179 34 179 68

Project Concrete (7)

1 unchanged sentence

Adjusted EBITDA margin (9)

11.0 % (9.6) % 8.1 % 2.3 %

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

1 unchanged sentence

(3) Includes losses on disposals of property and equipment in the normal course of business.

For the thirteen weeks ended March 25, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

36 | Shake Shack Inc.

For the twenty-six weeks ended June 24, 2020, this amount includes a non-cash impairment charge of $1.1 million related to one Shack.

(4) Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees.

Refer to Note 6, Debt, for further details.

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.

See Note 13, Commitments and Contingencies, for further details.

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.

1 unchanged sentence

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

(9) Calculated as a percentage of total revenue which was $155.3 million and $143.2 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

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

Adjusted pro forma net income represents net income (loss) attributable to Shake Shack Inc.

assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that we don't believe directly reflect our core operations and may not be indicative of our recurring business operations.

Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income (loss) by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to any dilutive securities such as outstanding equity-based awards.

(9) Calculated as a percentage of total revenue, which was $187,460 and $342,742 for the thirteen and twenty-six weeks ended June 30, 2021, respectively, and $91,786 and $234,956 for the thirteen and twenty-six weeks ended June 24, 2020, respectively.

Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings (loss) 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 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 and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors.

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

driven by increases in our ownership of SSE Holdings, which are unrelated to

40 | Shake Shack Inc.

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

Limitations of the Usefulness of These Measures

Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net income (loss) and earnings (loss) per share, as determined under GAAP.

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 and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results.

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

Adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results.

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

Shake Shack Inc.

Form 10-Q | 41

Thirteen Weeks Ended

(in thousands, except per share amounts) March 31

2021 March 25

Thirteen Weeks Ended Twenty-Six Weeks Ended

(in thousands, except per share amounts) June 30

Net income (loss) attributable to Shake Shack Inc.

$ 1,944 $ (16,211) $ 3,253 $ (17,171)

Reallocation of net loss attributable to non-controlling interests from the assumed exchange of LLC Interests (1)

Reallocation of Net income (loss) attributable to non-controlling interests from the assumed exchange of LLC Interests (1)

121 (1,820) (613) (1,939)

Executive transition costs (2)

179 34 179 68

Project Concrete (3)

1 unchanged sentence

Debt offering related costs (5)

Revolving Credit Facility amendment-related costs (6)

Income tax benefit (7)

Adjusted pro forma net income $ 1,753 $ 798

Revolving Credit Facility amendments related costs (6)

Income tax (expense) benefit (7)

112 (286) 136 1,533

Adjusted pro forma net income (loss) $ 2,380 $ (18,259) $ 4,133 $ (17,461)

Weighted-average shares of Class A common stock outstanding—diluted 43,789 37,309 43,289 35,876

Assumed exchange of LLC Interests for shares of Class A common stock (1)

Dilutive effect of stock options — 704

— 3,117 — 3,131

Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted 43,789 40,426 43,289 39,007

Adjusted pro forma earnings per fully exchanged share—diluted $ 0.04 $ 0.02

Thirteen Weeks Ended

2021 March 25

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.05 $ (0.45) $ 0.10 $ (0.45)

Thirteen Weeks Ended Twenty-Six Weeks Ended

Earnings (loss) per share of Class A common stock - diluted $ 0.05 $ (0.43) $ 0.06 $ (0.48)

Assumed exchange of LLC Interests for shares of Class A common stock (1)

— (0.01) — (0.01)

Non-GAAP adjustments (9)

Adjusted pro forma earnings per fully exchanged share—diluted $ 0.04 $ 0.02

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

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

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

— (0.01) 0.04 0.04

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.05 $ (0.45) $ 0.10 $ (0.45)

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.

See Note 13, Commitments and Contingencies, for further details.

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, for further details.

Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements , for additional information.

(6) Expense incurred in connection with the Company's amendments on the Revolving Credit Facility, including the write-off of previously capitalized costs on the Revolving Credit Facility.

Refer to Note 6, Debt, for further details.

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

Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements , for additional information.

(7) Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 27.0% and 167.8% for the thirteen and twenty-six weeks ended June 30, 2021, respectively, and 24.1% and 30.2% for the thirteen and twenty-six weeks ended June 24, 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.

Additionally, the thirteen and twenty-six weeks ended June 24, 2020 includes the establishment of a valuation allowance.

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

(9) Represents the per share impact of non-GAAP adjustments for each period.

Refer to the reconciliation of Adjusted Pro Forma Net Income above for further details.

Refer to the reconciliation of Adjusted Pro Forma Net Income (Loss) above, for additional information.

42 | Shake Shack Inc.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

38 | Shake Shack Inc.

Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility.

In March 2021, we issued 0% Convertible Notes of Convertible Debt, and received $243.8 million of proceeds, net of discounts.

Refer to Note 6, Debt, for further discussion.

As of March 31, 2021, we maintained a cash and cash equivalents balance of $375.0 million and a short-term investments balance of $40.9 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 June 30, 2021, we maintained a Cash and cash equivalents balance of $340.1 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.

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In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement.

As of March 31, 2021, such obligations totaled $234.0 million.

As of June 30, 2021, such obligations totaled $234.0 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.

11 unchanged sentences

Our Revolving Credit Facility was further amended in March 2021, resulting in a modification of the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes, including obligations and transactions in connection therewith.

Refer to Note 6, Debt, for further information.

Refer to Note 6, Debt, in the accompanying condensed consolidated financial statements, for additional information.

Shake Shack Inc.

Form 10-Q | 43

• 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.

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

Shake Shack Inc.

Form 10-Q | 39

Summary of Cash Flows

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

Thirteen Weeks Ended

(in thousands) March 31

2021 March 25

Twenty-Six Weeks Ended

(in thousands) June 30

Net cash provided by operating activities $ 37,005 $ 17,993

Net cash provided by (used in) investing activities (27,228) 649

Net cash used in investing activities (87,969) (17,905)

Net cash provided by financing activities 244,194 136,797

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Operating Activities

For the thirteen weeks ended March 31, 2021 net cash provided by operating activities was $10.0 million compared to $7.5 million for the thirteen weeks ended March 25, 2020, an increase of $2.5 million.

The increase was primarily due to change in operating assets and liabilities of $3.9 million and an increase in net income of $1.7 million, partially offset by the impact of non-cash charges of $3.1 million.

The $3.9 million change in our operating asset and liability balances was primarily driven by Accrued wages and related liabilities being a source of cash of $2.9 million in the first quarter of 2021, primarily driven by higher accruals associated with payroll costs, compared to a use of cash of $5.1 million in the first quarter of 2020;

Accounts payable being a source of cash of $1.5 million in the first quarter of 2021, driven by timing of payments, compared to a use of cash of $4.4 million in the first quarter of 2020;

partially offset by Accrued expenses being a use of cash of $9.4 million in the first quarter of 2021, due to the timing of accruals associated with tax payments, compared to a use of cash of $6.3 million in the first quarter of 2020;

Other long-term liabilities being a use of cash of $1.8 million in the first quarter of 2021, due to the timing of tax payments, compared to a source of cash of $0.5 million in the first quarter of 2020;

and Accounts Receivable being a source of cash of $0.6 million in the first quarter of 2021, primarily driven by timing of cash receipts of open receivables, compared to a source of cash of $3.2 million in the first quarter of 2020.

For the twenty-six weeks ended June 30, 2021 net cash provided by operating activities was $37.0 million compared to $18.0 million for the twenty-six weeks ended June 24, 2020, an increase of $19.0 million.

The increase was primarily due to an increase in net income of $21.7 million and the impact of non-cash charges of $0.9 million partially offset by a change in operating assets and liabilities of $(3.6) million.

The $(3.6) million change in our operating asset and liability balances was primarily driven by an increase in and timing of rent payments, partially offset by higher accrued wages and timing of cash receipts of receivables.

Investing Activities

For the thirteen weeks ended March 31, 2021 net cash used in investing activities was $27.2 million compared to net cash provided by investing activities of $0.6 million for the thirteen weeks ended March 25, 2020, a decrease of $27.8 million.

This decrease was primarily due to a decrease of $20.0 million of proceeds from sales of marketable securities, an increase of $4.0 million in capital expenditures to support our real estate development and digital initiatives and increased purchases of marketable securities of $3.9 million.

For the twenty-six weeks ended June 30, 2021 net cash used in investing activities was $88.0 million compared to $17.9 million for the twenty-six weeks ended June 24, 2020, an increase of $70.1 million.

This increase was primarily due to increased purchases of marketable securities of $47.0 million, a decrease of $16.0 million of proceeds from sales of marketable securities and an increase of $7.1 million in capital expenditures to support our real estate development and digital initiatives.

Financing Activities

For the thirteen weeks ended March 31, 2021 net cash provided by financing activities was $245.4 million compared to $42.6 million for the thirteen weeks ended March 25, 2020, an increase of $202.8 million.

This increase was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, decreased payments made under the Tax Receivable Agreement, and increased proceeds from stock option exercises, partially offset by $50.0 million in gross cash proceeds from the drawdown of funds from our Revolving Credit Facility in the first quarter of 2020 — which was repaid in full, plus interest, in the second quarter of 2020.

For the twenty-six weeks ended June 30, 2021 net cash provided by financing activities was $244.2 million compared to $136.8 million for the twenty-six weeks ended June 24, 2020, an increase of $107.4 million.

This increase was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, net of discount, decreased payments made under the Tax Receivable Agreement, and increased proceeds from stock option exercises, partially offset by $145.7 million in net cash proceeds from the issuance of Class A common stock during the twenty-six weeks ended June 24, 2020.

Revolving Credit Facility

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The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.

40 | Shake Shack Inc.

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.

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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.

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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.

As of June 30, 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.

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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 $0.1 million, and was included in Other assets on the Condensed Consolidated Balance Sheet.

Total interest expense related to the Revolving Credit Facility were $0.4 million and $0.1 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

Total interest expense for the thirteen weeks ended March 31, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.

As of June 30, 2021, we were in compliance with all covenants.

As of June 30, 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 twenty-six weeks ended June 30, 2021, total interest expense related to the Revolving Credit Facility were $0.04 million and $0.4 million, respectively and $0.4 million and $0.6 million, respectively, during thirteen and twenty-six weeks ended June 24, 2020.

Total interest expense for the twenty-six weeks ended June 30, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.

Convertible Notes

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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.

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 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

Shake Shack Inc.

Form 10-Q | 45

consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day;

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;

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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.

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.

We may not redeem the Convertible Notes prior to March 6, 2025.

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

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.

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will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, by Shake Shack Inc and the aggregate number of outstanding shares of common stock.

As of March 31, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $242.9 million, net of unamortized discount and debt issuance costs of $7.1 million.

As of March 31, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method.

Total amortization expense was $0.1 million for the thirteen weeks ended March 31, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss).

In connection with the Convertible Notes, we also incurred costs of $0.2 million, including consulting and advisory fees, in the thirteen weeks ended March 31, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At March 31, 2021, the fair value of the Convertible Notes was approximately $248.1 million, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy.

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As of June 30, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $243.0 million, net of unamortized discount and debt issuance costs of $7.0 million.

As of June 30, 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 $0.2 million and $0.3 million respectively, for thirteen and twenty-six weeks ended June 30, 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 twenty-six weeks ended June 30, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At June 30, 2021, the fair value of the Convertible Notes was approximately $237.2 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.

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.

46 | Shake Shack Inc.

OFF-BALANCE SHEET ARRANGEMENTS

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Recently Issued Accounting Pronouncements

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

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

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis