What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-26 · 291 added, 325 removed, 399 unchanged (61% of the section changed)

17 unchanged sentences

This commitment drives our integration into the local communities in which we operate and fosters a deep and lasting connection with our guests.

Recent Development and Trends

We experienced steady recovery in the business during the fourth quarter of 2020, all while continuing to support our Shack teams, our guests and the communities in which we operate during the COVID-19 global pandemic.

COVID-19 was officially declared a global pandemic by the World Health Organization in March 2020.

The virus has impacted all global economies, and particularly in the United States, it has resulted in varying levels of restrictions and shutdowns implemented by national, state, and local authorities.

In response to the outbreak, in March 2020, we closed all dining rooms and temporarily shifted to a “to-go” only operating model in all of our domestic Company-operated Shacks.

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

Same-Shack sales improved across all regions on a sequential basis in the fourth quarter 2020 when compared to the third quarter 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales.

Most notably, same-Shack sales improved sequentially in each of the last nine months of fiscal 2020, and through fiscal January 2021.

During the fourth quarter of fiscal 2020, same-Shack sales were down 17.4% compared to the same period last year, with urban Shacks down 31% and suburban Shacks approximately flat compared to the same period last year.

Similar to prior years, in mid-December we increased menu prices approximately 2% on average across all Company-operated Shacks.

Our fourth quarter 2020 same-Shack sales reflect sequential improvement from the prior quarter, during which same-Shack sales were down 31.7%, with urban Shacks down 43% and suburban Shacks down 16%.

Subsequent to the fourth quarter of 2020, in fiscal January 2021, same-Shack sales were down 5%, with urban Shacks down 17% and suburban Shacks up 8% compared to the same period last year.

In the beginning of fiscal February 2021, trends were impacted by cold weather and snowstorms across many parts of the country, causing more than 130 full or partial lost operating days from Shack closures.

Through the first three weeks of fiscal February 2021, same-Shack sales were down 16%, with urban Shacks down 27% and suburban Shacks down 4% compared to the same period last year.

As expected, urban locations are still acutely impacted by the pandemic and suburban locations are recovering to pre-COVID sales levels quicker.

New York City, particularly Manhattan, continues to lag other regions and we expect this to be an ongoing trend until offices return and business and tourism traffic fully recovers.

Two domestic Company-operated Shacks were temporarily closed as of the end of the fourth quarter 2020.

Furthermore, as of the end of the fourth quarter 2020, approximately half of our domestic Company-operated Shacks had open dining rooms with varying capacity restrictions, with the majority of Shacks also utilizing outdoor patio space, whenever possible.

During the fourth quarter of 2020, total digital sales, including orders placed on the Shake Shack app, website and third party delivery platforms, represented 59% of total Shack sales, with this trend continuing through the start of fiscal 2021, with digital sales mix at 64% in fiscal January 2021 and 63% during the first three weeks of fiscal February 2021.

In fiscal 2021, through the first three weeks of fiscal February 2021, Company-owned app and web sales increased approximately 300% compared to the same period in the prior year.

Furthermore, we added over 2 million first-time purchasers to our Company-owned app and web channels between mid-March 2020 and the end of fiscal January 2021.

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The following table presents fiscal monthly information about our current trends in Shack sales.

Fiscal 2020 Fiscal 2021

Quarter Second

Quarter Third

Quarter Fourth

Quarter First

(dollar amounts in thousands) Mar 25 Apr 22 May 20 Jun 24 Jul 22 Aug 19 Sep 23 Oct 21 Nov 18 Dec 30 (1)

Jan 27 Feb 17 (2)

Average weekly sales (3)

$56 $32 $50 $52 $56 $59 $61 $62 $62 $62 $63 $60

Total year-over-year sales growth (decline) (11)% (56)% (32)% (32)% (23)% (20)% (10)% (5)% (3)% 18% (6)% (2)%

Same-Shack sales % (4)

(29)% (64)% (42)% (42)% (39)% (34)% (23)% (21)% (17)% (15)% (5)% (16)%

(1) When excluding the impact of the 53rd week, total year-over-year sales were down 1%.

(2) Represents the first three weeks of fiscal February 2021.

Our fiscal year ends on the last Wednesday in December.

Fiscal year 2021 and 2019 included 52 weeks and fiscal year 2020 included 53 weeks.

The additional operating week of fiscal 2020 is referred to as the "53rd week." For fiscal year 2020, comparable store sales percentages were calculated excluding the 53rd week in the fourth quarter.

For discussion of our results of operations and changes in financial condition for fiscal 2020 compared to fiscal 2019 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended December 30, 2020, filed on February 26, 2021.

The following definitions apply to these terms as used herein:

"Average unit volumes" are calculated by dividing total Shack sales by the number of Shacks open during the period.

For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks used in the denominator such that it corresponds to the period of associated sales.

"Average weekly sales" is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period.

For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales.

(4) "Same-Shack sales" or “SSS” represents Shack sales for the comparable Shack base, which is defined as the number of domestic Company-operated Shacks open for 24 full fiscal months or longer.

"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic Company-operated Shacks open for 24 full fiscal months or longer.

For days that Shacks were temporarily closed, the comparative 2020 period was also adjusted.

For fiscal December, same-Shack sales excludes the impact of the sixth week and compares the five weeks from November 19, 2020 through December 23, 2020 to the five weeks from November 21, 2019 through December 25, 2019.

Average weekly sales were $62,000 in the fourth quarter 2020, a 6.9% increase compared to the third quarter 2020.

This improvement is in addition to typically lower seasonal average weekly sales during the fourth quarter of any given year, and it continued through fiscal January 2021 with average weekly sales of $63,000.

During the first three weeks of fiscal February 2021 average weekly sales were $60,000, reflecting the impact of cold weather and snowstorms, which affected nearly all regions.

Our licensed business has shown overall steady recovery, as noted herein, however the business does continue to be impacted by the pandemic.

Our domestic licensed business still faces significant headwinds, with airport and stadium Shacks still either closed or at significantly reduced traffic.

As of the end of fiscal 2020, 17 licensed Shacks remained temporarily closed.

Furthermore, approximately half of our UK Shacks were closed as of the end of fiscal 2020, as the government maintained lockdowns to control the virus spread.

The following table presents fiscal monthly information about our licensed sales trends.

Fiscal 2020 Fiscal 2021

Quarter Second

Quarter Third

Quarter Fourth

Quarter First

(dollar amounts in millions) Mar 25 Apr 22 May 20 Jun 24 Jul 22 Aug 19 Sep 23 Oct 21 Nov 18 Dec 30 (1)

Jan 27 Feb 17 (2)

Weekly licensed sales (3)

$ 4.6 $ 2.0 $ 2.4 $ 3.5 $ 4.6 $ 5.4 $ 5.7 $ 5.9 $ 5.9 $ 6.4 $ 5.6 $ 6.0

Total year-over-year licensed sales growth (decline) 13 % (65) % (58) % (47) % (32) % (23) % (9) % (10) % (10) % 4 % (27) % (7) %

Number of open licensed Shacks 96 56 59 91 98 104 105 107 106 106 107 108

(1) When excluding the impact of the 53rd week, total year-over-year licensed sales were down 15%.

(2) Represents the first three weeks of fiscal February 2021.

(3) Weekly licensed sales is an operating measure and consists of sales from domestic licensed Shacks and international licensed Shacks.

We do not recognize the sales from licensed Shacks as revenue.

Of these amounts, revenue is limited to licensing revenue based on a percentage of sales from domestic and international licensed Shacks, as well as certain up-front fees such as territory fees and opening fees.

Same-Shack sales % reflects the change in year-over-year Shack sales for domestic Company-operated Shacks open for 24 full fiscal months or longer.

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

"Shack system-wide sales" is an operating measure and consists of sales from our domestic Company-operated Shacks, domestic licensed Shacks and our international licensed Shacks.

We do not recognize the sales from our licensed Shacks as revenue.

Of these amounts, our revenue is limited to Shack sales from domestic Company-operated Shacks and licensing revenue based on a percentage of sales from domestic and international licensed Shacks, as well as certain up-front fees such as territory and opening fees.

Recent Business Trends

Throughout 2021 we faced varying degrees of COVID-19 related pressures.

Despite this, we are pleased to report revenue in the fourth quarter and full year of $203.3 million and $739.9 million, respectively.

Additionally, we saw our same-Shack sales versus 2019 in growth to exit the year at 2.2% in the fourth quarter, with sequential improvement throughout 2021.

Although not fully recovered, we saw improvement in some of our hardest hit markets in the fourth quarter, with our urban markets exiting the fourth quarter down only 4% versus 2019.

As pleased as we are with our performance in the fourth quarter, we understand that the challenges that we faced in 2021 are not entirely behind us.

Fiscal January saw a significant amount of lost sales, as some of

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Form 10-K | 54

our Shacks were impacted by closures or lost hours.

Additionally, we saw a deceleration in our Same-Shack sales, finishing fiscal January up slightly at 2%.

Our performance in January is a sign that the issues that have impacted our business for the past two years are not entirely in our rear-view mirror.

Looking forward to 2022, we anticipate continued inflationary pressures and sales deleverage which will pressure our Shack margins.

Despite this, we believe that Shake Shack is uniquely positioned to manage through these headwinds.

Through a combination of our largest development schedule ever, a healthy balance sheet which supports continued investments in digital and team members, and exciting new formats such as drive-thrus, we believe we will exit 2022 stronger than where we started.

We are incredibly excited for this next chapter in the Shake Shack story.

Same-Shack sales for the fiscal fourth quarter ended December 29, 2021 increased 20.8% compared to the same period last year, with urban Shacks increasing 32.6% and suburban Shacks increasing 11.9%.

Along with the continued recovery of both urban and suburban markets, this increase was driven by an 18.1% increase in guest traffic and a 2.7% increase in price mix.

Additionally, Same-Shack sales increased 2.2% in the fourth quarter of 2021 versus the same period in 2019.

Same-Shack sales for the fiscal year ended December 29, 2021 increased 24.2% compared to the same period last year, with urban Shacks increasing 26.1% and suburban Shacks increasing 22.7%.

This increase was due to a 19.2% increase in guest traffic due to the return of in-Shack dining as well as an increase in price mix of 5.0%.

Additionally, Same-Shack sales decreased 7.8% in fiscal year 2021 compared to fiscal year 2019.

For the purpose of calculating same-Shack sales growth for the fiscal fourth quarter ended December 29, 2021, Shack sales for 156 Shacks were included in the comparable Shack base, and for the fiscal year ended December 29, 2021, Shack sales for 157 Shacks were included in the comparable Shack base.

Average weekly sales was $74,000 in the fiscal fourth quarter ended December 29, 2021, compared to $62,000 in the same period last year, driven by higher menu prices, the opening of 13 new domestic Company-operated Shacks and the continued growth in urban and suburban Shacks.

Average weekly sales was $71,000 for the fiscal year ended December 29, 2021 compared to $58,000 for the same period last year, driven by the opening of 35 net new domestic Company-operated Shacks.

Shack system-wide sales increased 31.9% to $314.3 million for the fiscal fourth quarter ended December 29, 2021, versus the same period last year.

Shack system-wide sales increased 44.2% to $1,123.1 million for the fiscal year ended December 29, 2021, versus the same period last year.

Average unit volume for domestic Company-operated Shacks was $3.7 million for the fiscal year ended December 29, 2021 compared to $3.0 million in the same period last year.

Digital sales for the fiscal fourth quarter and fiscal year ended December 29, 2021 decreased 8.7% and increased 29.7% respectively, compared to the same periods last year.

Total digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 41.6% of Shack sales during the fiscal fourth quarter ended December 29, 2021.

Digital sales retention was approximately 80% in fiscal December 2021 when compared to fiscal January 2021, when digital sales peaked.

During the fourth quarter of 2021 our new purchasers in Company-owned app and web channels grew 9.6% versus the third quarter of 2021, to 3.5 million total new purchasers since mid-March of 2020.

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Development Highlights

During fiscal 2020, we opened 20 new domestic Company-operated Shacks and 16 net new licensed Shacks.

During fiscal 2021, we expect to open between 35 to 40 new domestic Company-operated Shacks and 15 to 20 new licensed Shacks.

During fiscal 2021, we opened 36 new domestic Company-operated Shacks and 26 new licensed Shacks.

There were one permanent domestic Company-operated Shack closure and three permanent international licensed Shack closures in fiscal 2021.

Below are Shacks opened during the fourth quarter of 2021.

Location Type Opening Date

Singapore — Suntec City International Licensed September 30

Murray, UT — Fashion Place Domestic Company-Operated October 1

Madison, WI — Hilldale Center Domestic Company-Operated October 5

Abu Dhabi, UAE — Dalma Mall International Licensed October 5

Pasadena, CA — Pasadena Domestic Company-Operated October 12

White Plains, NY — The Westchester Domestic Company-Operated October 26

Makati, Philippines — Greenbelt, Legazpi Village International Licensed October 29

Mexico City, Mexico — Terraza Coapa International Licensed November 5

Houston, TX — The Woodlands Domestic Company-Operated November 19

South Korea — Daejeon Dunsan International Licensed November 20

VivoCity, Singapore — VivoCity International Licensed December 1

Oakland, CA — Oakland Domestic Company-Operated December 8

Denver, CO — Cherry Creek Domestic Company-Operated December 10

Edgewater, CO — Edgewater Domestic Company-Operated December 19

Beijing China — Xidan International Licensed December 21

Liquidity Update

In March 2020, we drew down the full $50.0 million available under the Revolving Credit Facility, of which the full amount was repaid, plus interest, in fiscal June 2020.

In fiscal April 2020, we raised $135.9 million of proceeds, net of underwriting discounts and commissions, from the sale of 3,416,070 shares of our Class A common stock in an underwritten offering, and $9.8 million of proceeds, net of commissions, from the sale of 233,467 shares of our Class A common stock pursuant to an "at-the-market" equity offering program.

See “Liquidity and Capital Resources” for more information.

Financial Highlights for Fiscal 2020

• Total revenue for the fiscal year ended December 30, 2020 decreased 12.1% to $522.9 million versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental revenue of $11.1 million.

Excluding the 53rd week, total revenue in fiscal year 2020 decreased 13.9%.

• Shack sales for the fiscal year ended December 30, 2020 decreased 11.9% to $506.3 million versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental Shack sales of $10.7 million.

Excluding the 53rd week, Shack sales in fiscal year 2020 decreased 13.7%.

• Same-Shack sales 1 decreased 27.8%, for the fiscal year ended December 30, 2020 versus the prior year.

• Licensed revenue for the fiscal year ended December 30, 2020 decreased 16.9% to $16.5 million versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental licensed revenue of $0.4 million.

Excluding the 53rd week, licensed revenue in fiscal year 2020 decreased 18.9%.

• Shack system-wide sales decreased 13.0% to $778.9 million, versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental Shack system-wide sales of $17.7 million.

Excluding the 53rd week, Shack system-wide sales in the fiscal year 2020 decreased 15.0%.

• Operating loss for the fiscal year ended December 30, 2020 was $43.9 million compared to operating income of $25.7 million versus the same period last year.

This operating loss includes a non-cash impairment charge of $7.6 million related to two Shacks and the expansion space of the Company's home office .

• Shack-level operating profit 2 , a non-GAAP measure, decreased 44.2% to $71.4 million, or 14.1% of Shack sales in fiscal year 2020, inclusive of a $0.9 million reduction in Occupancy and related expenses due to the closure of our Shack in Penn Station.

• Net loss was $45.5 million and adjusted EBITDA 2 , a non-GAAP measure, was $22.7 million in fiscal year 2020, compared to net income of $24.1 million and adjusted EBITDA of $81.8 million in the same period last year.

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• Net loss attributable to Shake Shack Inc was $42.2 million and adjusted pro forma net loss 2 , a non-GAAP measure, was $22.3 million, or a loss of $0.56 per fully exchanged and diluted share in fiscal year 2020, compared to net income attributable to Shake Shack Inc.

of $19.8 million, adjusted pro forma net income of $27.4 million, or $0.72 per fully exchanged and diluted share, in the same period last year.

• We opened 36 net system-wide Shacks , comprised of 20 domestic company-operated Shacks and 16 net licensed Shacks.

In the fourth quarter 2020, we were notified by our landlord of the early termination of our lease at Penn Station, NY.

The termination was due to the landlord’s plans to redevelop the Long Island Rail Road Concourse following the successful completion of the East End Gateway and opening of the Moynihan Train Hall.

This closure is effective as of fiscal February 2021.

(1) Fiscal 2020 excludes the impact of the 53rd week.

Same-Shack sales compares the 52 weeks from December 26, 2019 through December 23, 2020 to the 52 weeks from December 27, 2018 through December 25, 2019.

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.

(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.

See “Non-GAAP Financial Measures.”

Lone Tree, CO — Park Meadows Domestic Company-operated 10/13/2021

Rochester, MI — Rochester Hills Domestic Company-operated 10/18/2021

Alabang, Philippines — Alabang Town Center International Licensed 10/21/2021

Indianapolis, IN — The Fashion Mall at Keystone Domestic Company-operated 10/28/2021

Westgate, Singapore — Westgate Singapore International Licensed 10/30/2021

Sillim, South Korea — Sillim International Licensed 11/5/2021

Encino, CA — Encino Courtyard Domestic Company-operated 11/13/2021

Columbus, OH — Polaris Domestic Company-operated 11/29/2021

Raleigh, NC — PNC Arena Domestic Licensed 12/1/2021

Miami, FL — Dadeland Mall Domestic Company-operated 12/4/2021

Maple Grove, MN — Maple Grove Domestic Company-operated 12/6/2021

Indianapolis, IN — Downtown Indianapolis Domestic Company-operated 12/12/2021

Cheonan, South Korea — Cheonan International Licensed 12/13/2021

Shenzhen, China — Coco Park Shenzhen International Licensed 12/14/2021

Danbury, CT — Danbury Domestic Company-operated 12/15/2021

Lee's Summit, MO — Lee's Summit Domestic Company-operated 12/20/2021

Bethesda, MD — Westfield Montgomery Mall Domestic Company-operated 12/20/2021

New York, NY — 630 Lexington Ave (54th & Lex) Domestic Company-operated 12/27/2021

Whitehall, PA — Lehigh Valley Mall Domestic Company-operated 12/28/2021

Other Business Transactions

To further strengthen our Balance Sheet and position ourselves for growth, In March 2021, the Company issued $225 million aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Company granted an option to the initial purchasers to purchase up to an additional $25 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, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

Shake Shack Inc.

12 unchanged sentences

General and administrative expenses 85,996 11.6 % 64,250 12.3 %

Depreciation expense 48,801 9.3 % 40,392 6.8 %

Depreciation and amortization expense 58,991 8.0 % 48,801 9.3 %

Pre-opening costs 13,291 1.8 % 8,580 1.6 %

1 unchanged sentence

TOTAL EXPENSES 755,746 102.1 % 566,743 108.4 %

OPERATING INCOME (LOSS) (43,876) (8.4) % 25,685 4.3 %

LOSS FROM OPERATIONS (15,853) (2.1) % (43,876) (8.4) %

Other income (expense), net 95 — % (786) (0.2) %

Interest expense (1,577) (0.2) % (815) (0.2) %

INCOME (LOSS) BEFORE INCOME TAXES (45,477) (8.7) % 27,514 4.6 %

Income tax expense 57 — % 3,386 0.6 %

NET INCOME (LOSS) (45,534) (8.7) % 24,128 4.1 %

net income (loss) attributable to non-controlling interests (3,376) (0.6) % 4,301 0.7 %

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

LOSS BEFORE INCOME TAXES (17,335) (2.3) % (45,477) (8.7) %

Income tax expense (benefit) (7,224) (1.0) % 57 — %

NET LOSS (10,111) (1.4) % (45,534) (8.7) %

Net loss attributable to non-controlling interests (1,456) (0.2) % (3,376) (0.6) %

NET LOSS ATTRIBUTABLE TO SHAKE SHACK INC.

$ (8,655) (1.2) % $ (42,158) (8.1) %

(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year.

Fiscal year 2020 was a 53-week year with the extra operating week (the " 53rd week ") falling in our fiscal fourth quarter.

Fiscal 2019 contained 52 weeks.

(1) As a percentage of Shack sales.

3 unchanged sentences

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.

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.

(dollar amounts in thousands) 2021 2020

3 unchanged sentences

Percentage change compared to prior year 41.2 %

Shack Sales for the fiscal year ended December 30, 2020 decreased 11.9% to $506.3 million versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental Shack sales of $10.7 million.

Excluding the 53rd week, Shack sales in fiscal year 2020 decreased 13.7%.

The decrease in Shack sales for fiscal 2020 was primarily due a decline in same-Shack sales due to the impact from the COVID-19 pandemic, partially offset by the opening of 20 new domestic Company-operated Shacks during fiscal 2020.

Same-Shack sales improved across all regions on a sequential basis when compared to the third quarter, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with a high retention of digital sales.

Most notably, same-Shack sales have improved sequentially over each of the last nine months of fiscal 2020.

For fiscal 2020, same-Shack sales were down 27.8%, primarily driven by a 36.9% decrease in guest traffic partially offset by an increase in price mix of 9.1%.

This increase in price mix was driven by an increase in average check, primarily from a higher digital sales mix combined with an overall increase in check, due to higher number of items per order since the start of the pandemic.

For the purpose of calculating same-Shack sales growth for fiscal 2020, Shack sales for 114 Shacks were included in the comparable Shack base at the end of fiscal 2020.

Shack Sales for the fiscal year ended December 29, 2021 increased 41.2% to $715.0 million versus the prior year.

This increase is inclusive of the impact of the 53rd week in the fiscal year ended December 30, 2020, which resulted in incremental Shack sales of $10.7 million.

Excluding the 53rd week, Shack sales in fiscal year 2021 increased 44.2% versus the prior year.

The increase in Shack sales for fiscal 2021 was primarily due to the continued recovery from the COVID-19 pandemic, in addition to the opening of 35 net new domestic Company-operated Shacks during the fiscal year.

Licensing Revenue

6 unchanged sentences

Percentage change compared to prior year 50.7 %

Licensed revenue for the fiscal year ended December 30, 2020 decreased 16.9% to $16.5 million versus the prior year.

This decrease is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental licensed revenue of $0.4 million.

Excluding the 53rd week, licensed revenue in fiscal year 2020 decreased 18.9%.

The decrease in licensing revenue for fiscal 2020 was primarily due to reduced sales related to the COVID-19 pandemic, partially offset by a net increase of 16 Shacks opened during fiscal 2020.

Our licensed business has shown gradual improvement, however the business continues to be impacted by the pandemic.

Our domestic licensed business still faces significant headwinds, with airport and stadium Shacks still either closed or operating at significantly reduced traffic.

As of the end of fiscal 2020, 17 licensed Shacks remained temporarily closed.

Furthermore, approximately half of the UK Shacks were closed as of the end of fiscal 2020, as the government maintained lockdowns to control the virus spread.

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Licensing revenue for the fiscal year ended December 29, 2021 increased 50.7% to $24.9 million versus the prior year.

This increase is inclusive of the impact of the 53rd week in the fiscal year ended December 30, 2020, which resulted in incremental Licensing revenue of $0.4 million.

Excluding the 53rd week, Licensing revenue in fiscal year 2021 increased 54.8%.

The increase in Licensing revenue for fiscal 2021 was primarily due to increased strength across regions where COVID-19 related restrictions have been eased as well as a net increase of 23 Shacks opened during fiscal 2021.

Our licensed business continues to show improvement despite the COVID-19 related challenges that remain in various regions where our licensed Shacks operate, as we continue to benefit from increased travel, tourism and spectator attendance at sporting events.

Food and Paper Costs

1 unchanged sentence

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.

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(dollar amounts in thousands) 2021 2020

3 unchanged sentences

Percentage change compared to prior year 42.3 %

The decrease in Food and paper costs for fiscal 2020 was primarily due to a decline in sales volume related to the COVID-19 pandemic, partially offset by the opening of 20 new domestic Company-operated Shacks during fiscal 2020.

As a percentage of Shack sales, the increase in Food and paper costs for fiscal 2020 was primarily due to higher paper and packaging costs, with all orders packaged as 'to go' orders since the start of the pandemic, and significant inflation in beef prices, partially offset by lower chicken costs.

For a large part of the second quarter of fiscal 2020, we experienced significant inflation in beef, with costs nearly double that of last year for most of June.

Beef prices returned to more normalized levels in the third quarter of fiscal 2020.

Food and paper costs for the fiscal year ended December 29, 2021 increased 42.3% to $218.3 million versus the prior year.

The increase in Food and paper costs for fiscal 2021 was primarily due to increased sales volume associated with continued recovery from the COVID-19 pandemic and the opening of 35 net new domestic Company-operated Shacks during fiscal 2021.

As a percentage of Shack sales, the increase in Food and paper costs for fiscal 2021 was primarily driven by higher beef and chicken prices partially offset by a decrease in paper and packaging costs compared to the prior year.

In addition, higher menu prices across our channels enacted in fiscal 2021 helped offset some of the higher Food and paper costs we experienced in fiscal 2021.

The decrease in paper and packaging costs in fiscal 2021 was due to decreased usage of bags & clam shells compared to fiscal 2020 where orders were being packaged as 'to go' orders as part of COVID-19 protocols that were enacted.

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 are likely to grow as our Shack sales grow.

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

4 unchanged sentences

Percentage change compared to prior year 37.2 %

The decrease in labor and related expenses for fiscal 2020 was primarily due to reductions in staffing expenses across all Shacks associated with the impact of COVID-19.

These decreases were partially offset by the opening of 20 new domestic Company-operated Shacks during fiscal 2020, and a number of incremental payroll costs to support our Shack employees.

These incremental payroll costs were related to a temporary 10% premium pay raise to hourly employees through the end of August, guaranteed bonuses for Shack teams, and payments related to scheduling changes for hourly team members as teams navigated the challenging operating conditions caused by COVID-19.

This investment in our teams had an incremental impact of close to $6 million on our results of operations during fiscal 2020.

As a percentage of Shack sales, the increase in labor and related expenses for fiscal 2020 was primarily due to sales deleverage associated with the impact of COVID-19 and, to a lesser extent, increases in bonuses and starting wages, partially offset by the reduction of labor hours.

Labor and related expenses or the fiscal year ended December 29, 2021 increased 37.2% to $215.1 million versus the prior year.

The increase in Labor and related expenses for fiscal 2021 was primarily due to increased staffing levels as we continued to recover from the COVID-19 pandemic as well as the recruiting and training of new team members amidst elevated turnover in our business, recent investments in wages and bonuses for our Shack teams and the opening of 35 net new domestic Company-operated Shacks during fiscal 2021.

We expect to invest more in our teams in the coming years as we build to staff our restaurants of today and those that are to come.

As a percentage of Shack sales, Labor and related expenses declined from 31.0% in fiscal 2020 to 30.1% in fiscal 2021.

This decrease in Labor and related expenses for fiscal 2021 was primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic in addition to higher menu prices throughout our channels and lower staffing levels across our Shacks, partially offset by increased hourly wages.

Shake Shack Inc.

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Other Operating Expenses

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.

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

(dollar amounts in thousands) 2021 2020

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Percentage change compared to prior year 41.0 %

The increase in other operating expenses for fiscal 2020 was primarily due to higher delivery expense as a result of digital growth, as well as the opening of 20 new domestic Company-operated Shacks during fiscal 2020, partially offset by a reduction in expenses in our Shacks, including reduced maintenance expenses, as well as a reduction in credit card fees and other related expenses.

As a percentage of Shack sales, the increase in other operating expenses for fiscal 2020 was primarily due to higher delivery commissions as a result of digital growth and sales deleverage associated with the impact of COVID-19, partially offset by lower maintenance expenses.

Other operating expenses for the fiscal year ended December 29, 2021 increased 41.0% to $103.2 million versus the prior year.

The increase in Other operating expenses for fiscal 2021 was primarily due to higher delivery and transaction costs associated with higher sales, higher facilities costs associated with the re-opening of dining rooms and the opening of 35 net new domestic Company-operated Shacks during fiscal 2021.

As a percentage of Shack sales, Other operating expenses for fiscal 2021 was relatively flat compared to fiscal 2020 primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic and higher menu prices across our channels, partially offset by higher facilities costs as noted above.

Occupancy and Related Expenses

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Percentage change compared to prior year 14.8 %

The increase in Occupancy and related expenses for fiscal 2020 was primarily due to the opening of 20 new domestic Company-operated Shacks during the fiscal year, partially offset by lower variable rent expense associated with lower revenue, as well as the impact of a $0.9 million reduction in Occupancy and related expenses related to the impairment, and closing of our Penn Station Shack.

In the fourth quarter 2020, we were notified by our landlord of its early termination of our lease at Penn Station, NY due to its plans to redevelop the Long Island Rail Road Concourse following the successful completion of the East End Gateway and opening of the Moynihan Train Hall.

This closure was effective as of fiscal February 2021.

As a percentage of Shack sales, the increase in Occupancy and related expenses for fiscal 2020 was primarily due to sales deleverage associated with the impact of COVID-19.

Occupancy and related expenses for the fiscal year ended December 29, 2021 increased 14.8% to $59.2 million versus the prior year.

The increase in Occupancy and related expenses for fiscal 2021 was primarily due to the opening of 35 net new domestic Company-operated Shacks during the fiscal year.

As a percentage of Shack sales, the decrease in Occupancy and related expenses for fiscal 2021 was primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic and higher menu prices across our channels.

General and Administrative Expenses

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

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(dollar amounts in thousands) 2021 2020

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Percentage change compared to prior year 33.8 %

The decrease in general and administrative expenses for fiscal 2020 was primarily due to disciplined cost reduction across the majority of discretionary spend categories and reduced home office compensation expense, partially offset by increased technology expenses to support our digital initiatives.

As a percentage of total revenue, the increase in general and administrative expenses for fiscal 2020 was primarily due to sales deleverage associated with the impact of COVID-19.

Depreciation Expense

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

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General and administrative expenses for the fiscal year ended December 29, 2021 increased 33.8% to $86.0 million versus the prior year.

The increase in General and administrative expenses for fiscal 2021 was primarily due to increased headcount, continued investments in wages and other team member costs to support the continued recovery from the COVID-19 pandemic, as well as investments in marketing and technology initiatives.

As a percentage of total revenue, the decrease in General and administrative expenses for fiscal 2021 was primarily due to sales leverage associated with the continued recovery from the COVID-19 pandemic and higher menu prices across our channels.

Depreciation and Amortization Expense

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

(dollar amounts in thousands) 2021 2020

Depreciation expense $ 48,801 $ 40,392

Depreciation and amortization expense $ 58,991 $ 48,801

Percentage of total revenue 8.0 % 9.3 %

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Percentage change compared to prior year 20.9 %

The increase in depreciation expense for fiscal 2020 was primarily due to incremental depreciation of capital expenditures related to the opening of 20 new domestic Company-operated Shacks during fiscal 2020 and increased technology investments to support our digital initiatives.

As a percentage of total revenue, the increase in depreciation expense for fiscal 2020 was primarily due to sales deleverage associated with the impact of COVID-19.

Depreciation and amortization expense for the fiscal year ended December 29, 2021 increased 20.9% to $59.0 million versus the prior year.

The increase in Depreciation and amortization expense for fiscal 2021 was primarily due to incremental depreciation of capital expenditures related to the opening of 35 net new domestic Company-operated Shacks during fiscal 2021.

As a percentage of total revenue, the decrease in Depreciation and amortization expense for fiscal 2021 was primarily due to sales leverage associated with the recovery from the COVID-19 pandemic and higher menu prices across our channels.

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.

Pre-opening costs consist primarily of legal fees, rent, managers' salaries, training costs, team member payroll and related expenses, costs to relocate and compensate Shack management teams prior to an opening and wages, travel and lodging costs for our opening training team and other supporting team members.

All such costs incurred prior to the opening of a domestic Company-operated Shack are expensed in the period in which the expense was incurred.

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Percentage change compared to prior year 54.9 %

The decrease in pre-opening costs for fiscal 2020 was due to the lower number of new domestic Company-operated Shacks opened during fiscal 2020 compared to fiscal 2019.

Pre-opening costs for the fiscal year ended December 29, 2021 increased 54.9% to $13.3 million versus the prior year.

The increase in Pre-opening costs for fiscal 2021 was due to the higher number of new domestic Company-operated Shacks opened during fiscal 2021 compared to fiscal 2020, as well as those expected to open.

In addition, we incurred above average pre-opening costs for our two drive-thru locations opened towards the end of fiscal 2021.

Shake Shack Inc.

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Percentage change compared to prior year (83.9) %

The increase in impairment and loss on disposal of assets in fiscal 2020 was primarily due to asset impairment charges on operating lease assets and property and equipment of $7.6 million recorded during fiscal 2020, primarily relating to unused home office expansion space as well as the impairment of two Shacks — including the termination of our Penn Station Shack lease — and to a lesser extent, the number of maturing Shacks in our base.

Impairment and loss on disposal of assets for the fiscal year ended December 29, 2021 decreased 83.9% to $1.6 million versus the prior year.

The decrease in Impairment and loss on disposal of assets in fiscal 2021 was primarily due to non-cash impairment charges of $7.6 million during fiscal 2020, related to two Shacks and the home office, and to a lesser extent, the number of maturing Shacks in our base.

Other Income (Expense), Net

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

(dollar amounts in thousands) 2021 2020

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Percentage change compared to prior year (112.1) %

The decrease in other income (expense), net for fiscal 2020 was primarily due to a decrease in dividend income, the absence of other income related to the adjustment of liabilities under the Tax Receivable Agreement in fiscal 2019, as well as unrealized losses related to our investments in marketable securities.

Other income (expense), net for the fiscal year ended December 29, 2021 improved 112.1% to $0.1 million versus the prior year.

The improvement in Other income (expense), net for fiscal 2021 was primarily due to the absence of expense related to the adjustment under the Tax Receivable Agreement, partially offset by an increase in unrealized losses related to our investments in marketable securities, compared to fiscal 2020.

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.

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

(dollar amounts in thousands) 2021 2020

Interest expense

$ (1,577) $ (815)

Percentage of total revenue (0.2) % (0.2) %

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Percentage change compared to prior year 93.5 %

The increase in interest expense for fiscal 2020 was primarily due to an increase in interest and fees associated with our Revolving Credit Facility in the current fiscal year.

Interest expense for the fiscal year ended December 29, 2021 increased 93.5% to $1.6 million versus the prior year.

The increase in Interest expense for fiscal 2021 was primarily due to the amortization debt issuance costs related to our Convertible Notes which were issued in March 2021.

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Income Tax Expense

Income Tax Expense (Benefit)

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

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(dollar amounts in thousands) 2021 2020

Income tax expense $ 57 $ 3,386

Income tax expense (benefit)

$ (7,224) $ 57

Percentage of total revenue (1.0) % — %

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Our effective income tax rates for fiscal 2021 and fiscal 2020 were 41.7% and (0.1)%, respectively.

The decrease in our effective income tax rate from fiscal 2019 to fiscal 2020 was primarily driven by lower tax rates for foreign and state taxes mainly in connection with lower pre-tax book income and remeasurement of deferred tax assets, partially offset by lower tax credits and an increase in valuation allowance.

Net Income (Loss) Attributable to Non-controlling Interests

The increase in our effective income tax rate from fiscal 2020 to fiscal 2021 was primarily driven by the increase in the income tax benefit from the release of the valuation allowance and higher tax credits, partially offset by higher foreign tax expense.

Net Loss Attributable to Non-controlling Interests

We are the sole managing member of SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings.

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In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income to Shake Shack Inc.

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.

(dollar amounts in thousands) 2021 2020

Net income (loss) attributable to non-controlling interests $ (3,376) $ 4,301

Net loss attributable to non-controlling interests

$ (1,456) $ (3,376)

Percentage of total revenue (0.2) % (0.6) %

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Percentage change compared to prior year (56.9) %

The decrease in net income (loss) attributable to non-controlling interests for fiscal 2020 was primarily due to lower pre-tax book income resulting in a net loss during fiscal 2020, and a decrease in the non-controlling interest holders' weighted average ownership, which was 7.7% and 15.9% for fiscal 2020 and fiscal 2019, respectively.

Fiscal 2019 Compared to Fiscal 2018

The comparison of fiscal 2019 to fiscal 2018 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 25, 2019, filed on February 24, 2020.

Net loss attributable to non-controlling interests for the fiscal year ended December 29, 2021 improved 56.9% to $1.5 million versus the prior year.

The improvement in Net loss attributable to non-controlling interests for fiscal 2021 was primarily due to an improvement in net results compared to fiscal 2020 and a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 7.7% for fiscal 2021 and fiscal 2020, respectively.

NON-GAAP FINANCIAL MEASURES

To supplement the 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

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NON-GAAP FINANCIAL MEASURES

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

generally accepted accounting principles (“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), adjusted pro forma earnings (loss) per fully exchanged and diluted share and adjusted pro forma effective tax rate (collectively the "non-GAAP financial measures").

pro forma net income (loss), adjusted pro forma earnings (loss) per fully exchanged and diluted share and adjusted pro forma effective tax rate (collectively the "non-GAAP financial measures").

Shack-Level Operating Profit

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Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by our management to develop 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 of our performance-based employee bonus arrangements.

It is also used to evaluate team member compensation as it serves as a metric in certain of our performance-based team member bonus arrangements.

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

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

A reconciliation of Shack-level operating profit to Operating income, the most directly comparable GAAP financial measure, is as follows.

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A reconciliation of Shack-level operating profit to Income (loss) from Operations, the most directly comparable GAAP financial measure, is as follows.

(dollar amounts in thousands) 2021 2020 2019

2019 2018 2017 2016

Operating income (loss) (2)

Income (loss) from operations (1)

$ (15,853) $ (43,876) $ 25,685

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General and administrative expenses 85,996 64,250 65,649

Depreciation expense 48,801 40,392 29,000 21,704 14,502

Depreciation and amortization expense 58,991 48,801 40,392

Pre-opening costs 13,291 8,580 14,834

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16.7 % 14.1 % 22.3 %

(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year.

Fiscal year 2020 was a 53-week year with the extra operating week (the " 53rd week ") falling in our fiscal fourth quarter 2020.

Fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016 each contained 52 weeks.

(2) For fiscal 2020, Operating income (loss) included a $0.9 million reduction in Occupancy and related expenses due to the closure of our Shack in Penn Station.

(3) For fiscal year 2020, this amount includes a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

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(1) Fiscal 2020 included a $0.9 million reduction in Occupancy and related expenses due to the closure of our Shack in Penn Station.

(2) Fiscal 2020 included a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

(3) As a percentage of Shack sales.

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(in thousands) 2021 2020 2019

2019 2018 2017 2016

Net income (loss)

Depreciation expense 48,801 40,392 29,000 21,704 14,502

$ (10,111) $ (45,534) $ 24,128

Depreciation and amortization expense 58,991 48,801 40,392

Interest expense, net 1,577 815 434

Income tax expense 57 3,386 8,862 151,409 6,350

Income tax expense (benefit) (7,224) 57 3,386

EBITDA 43,233 4,139 68,340

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Deferred lease costs (2)

92 2,608 876 983 2,251

Impairment and loss on disposal of assets (3)

1,632 10,151 1,352

Other (income) loss related to adjustment of liabilities under tax receivable agreement 1,147 (808) (78) (1,362) (688)

Other income related to adjustment of liabilities under tax receivable agreement resulting from the enactment of the TCJA — — — (125,859) —

Legal Settlement (4)

Debt offering related costs (5)

Executive transition costs (6)

150 126 340 664 —

Other (income) loss related to adjustment of liabilities under tax receivable agreement (2) 1,147 (808)

Project Concrete (7)

— (229) 2,111

Costs related to relocation of home office (7)

— — 1,019 264 —

Hong Kong office (8)

Legal Settlement (9)

— — 1,200 — —

ADJUSTED EBITDA $ 56,026 $ 22,739 $ 81,840

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7.6 % 4.3 % 13.8 %

(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year.

Fiscal year 2020 was a 53-week year with the extra operating week (the " 53rd week ") falling in our fiscal fourth quarter 2020.

Fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016 each contained 52 weeks.

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

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

As a result of adoption of the new lease accounting standard on December 27, 2018, these lease costs may also include certain additional lease components, such as common area maintenance costs and property taxes, that were previously not included in lease expense for prior periods.

For fiscal 2020, this amount included a $0.9 million reduction in Occupancy and related expenses due to the closing of our Shack in Penn Station .

(4) For fiscal year 2020, this amount includes a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

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

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

(7) Represents costs incurred in connection with our relocation to a new home office.

(8) Represents costs associated with establishing our first international office in Hong Kong.

(2) For fiscal 2020, this amount includes a $0.9 million reduction in Occupancy and related expenses related to the closing of the Company's Shack in Penn Station.

(3) For fiscal 2020, this amount includes a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

(4) Expense incurred to establish an accrual related to the settlement of a legal matter.

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

(11) Calculated as a percentage of total revenue, which was $522.9 million, $594.5 million, $459.3 million, $358.8 million, and $268.5 million for fiscal 2020, fiscal 2019, fiscal 2018, fiscal 2017, and fiscal 2016, respectively.

Refer to Note 17, Commitments and Contingencies, in the accompanying 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 8, Debt, in the accompanying Consolidated Financial Statements, for additional information.

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

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

(8) Represents costs associated with establishing our first international regional office in Hong Kong.

(9) Represents incremental expenses incurred related to an inventory adjustment and certain team member-related expenses.

(10) Calculated as a percentage of total revenue, which was $739.9 million, $522.9 million and $594.5 million for fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Shake Shack Inc.

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(in thousands, except per share amounts) 2021 2020 2019

2019 2018 2017 2016

Net income (loss) attributable to Shake Shack Inc.

3 unchanged sentences

Executive transition costs (2)

150 126 340 664 —

Project Concrete (3)

— (229) 2,111

Costs related to relocation of home office (5)

— — 1,019 264 —

Other (income) loss related to the adjustment of liabilities under tax receivable agreement 1,147 (808) (78) (1,362) (688)

Other income related to the remeasurement of liabilities under tax receivable agreement resulting from the enactment of the TCJA — — — (125,859) —

Remeasurement of deferred tax assets — — 3,794 138,636 (1,526)

Hong Kong office (6)

Legal settlement (4)

Debt offering related costs (5)

Other Income (loss) related to the adjustment of liabilities under tax receivable agreement

(2) 1,147 (808)

Asset impairment charge (6)

7,644 — — — —

Reduction in Occupancy and related expenses due to Shack closure (7)

(897) — — — —

Revolving Credit Facility amendments related costs (8)

Hong Kong office (9)

Tax effect of change in tax basis related to the adoption of new accounting standards (10)

— 1,161 (311) — —

Income tax (expense) benefit (11)

Impact to income tax benefit (10)

6,175 15,089 446

3 unchanged sentences

2,927 3,096 5,921

Dilutive effect of stock options — — — 555 —

Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted 42,012 40,225 38,172

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0.18 0.57 0.09

Dilutive impact of stock options — — — (0.01) —

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ (0.06) $ (0.56) $ 0.72

(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year.

Fiscal year 2020 was a 53-week year with the extra operating week (the " 53rd week ") falling in our fiscal fourth quarter 2020.

Fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016 each contained 52 weeks.

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

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

(5) Represents costs incurred in connection with our relocation to a new home office.

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(6) Represents costs associated with establishing our first international office in Hong Kong.

(4) Expense incurred to establish an accrual related to the settlement of a legal matter.

Refer to Note 17, Commitments and Contingencies, in the accompanying 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 8, Debt, in the accompanying Consolidated Financial Statements, for additional information.

(6) For fiscal year 2020, this amount includes a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

(9) For fiscal year 2020, this amount included a reduction of $0.9 million in Occupancy and related expenses due to the closure of our Shack in Penn Station.

(10) Represents the tax effect of change in tax basis related to the adoption of the new lease accounting standard in fiscal 2019 and the adoption of the new revenue recognition standard in fiscal 2018.

(11) For fiscal 2020, fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 40.2%, 6.1%, 22.2%, 38.5% and 39.7%, respectively, which include provisions for U.S.

(7) For fiscal 2020, this amount includes a $0.9 million reduction in Occupancy and related expenses related to the closing of the Company's Shack in Penn Station.

(8) 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.

(9) Represents costs associated with establishing our first international regional office in Hong Kong.

(10) For fiscal 2021, fiscal 2020 and fiscal 2019, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 83.5%, 40.2% and 6.1%, respectively, which 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.

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

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

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

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(11) Represents incremental expenses incurred related to an inventory adjustment and certain team member-related expenses.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts.

Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information.

As of December 29, 2021, we maintained a cash and cash equivalents balance of $302.4 million and a short-term investments balance of $80.0 million within Marketable securities.

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Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items.

Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investments in our digital and corporate infrastructure.

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

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The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.

COVID-19 Update

In response to the uncertain market conditions resulting from the COVID-19 pandemic, we have taken the following actions in fiscal 2020.

COVID-19 Pandemic Update

In response to the uncertain market conditions resulting from the COVID-19 pandemic, we have taken the following actions in fiscal 2020 and fiscal 2021.

• 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.

• On April 17, 2020, we announced an ATM Program, under which we may offer and sell shares of our Class A common stock having an aggregate price of up to $75.0 million from time to time.

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The proceeds were used to purchase newly-issued LLC Interests.

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• On April 21, 2020, we completed an underwritten offering of 3,416,070 shares of our Class A common stock, resulting in $135.9 million of proceeds, net of underwriting discounts and commissions.

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• In May 2020, we entered into an amendment to our Revolving Credit Facility that provides for a number of enhanced modifications to reflect the current and ongoing impact from COVID-19.

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.

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 8, Debt, in the accompanying condensed consolidated financial statements, for additional information.

As of December 29, 2021, we were in compliance with all covenants.

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We believe our existing cash and cash equivalents and marketable securities balances, combined with the actions we have taken in response to COVID-19, 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.

• In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”) and received $243.8 million of proceeds, net of discounts as noted above.

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

Summary of Cash Flows

The following table and discussion presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities.

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

(in thousands) 2021 2020

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Cash and cash equivalents at end of period $ 302,406 $ 146,873

(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year.

Fiscal year 2020 was a 53-week year with the extra operating week (the " 53rd week ") falling in our fiscal fourth quarter.

Fiscal 2019 contained 52 weeks.

Operating Activities

For fiscal 2020, net cash provided by operating activities was $37.4 million compared to $89.9 million for fiscal 2019, a decrease of $52.5 million.

The decrease was primarily due to a decline in net income of $69.7 million, and change in operating assets and liabilities of $11.2 million, partially offset by the impact of non-cash charges of $28.4 million.

The $11.2 million change in our operating asset and liability balances was primarily driven by Accounts receivable being a source of cash of $1.0 million in fiscal 2020, driven by timing of cash receipts of open receivables, as compared to a source of cash of $10.7 million in fiscal 2019;

Accrued expenses being a source of cash of $2.2 million in fiscal 2020, primarily driven by higher accruals associated with incremental payroll costs for our hourly team members, and to a lesser extent, the timing of accruals, compared to a source of cash of $9.9 million in fiscal 2019;

partially offset by Other assets being a use of cash of $2.9 million in fiscal 2020, driven by increased assets relating to cloud-software investments, compared to a use of cash of $8.2 million in fiscal 2019.

For fiscal 2021, net cash provided by operating activities was $58.4 million compared to $37.4 million for fiscal 2020, an increase of $21.0 million.

The increase was primarily due to a decrease in net loss of $35.4 million partially offset by an increase in the impact of non-cash charges of $1.1 million and an increase in operating assets and liabilities of $15.5 million.

The $15.5 million change in our operating asset and liability balances was primarily driven by an increase in settlement of payables.

Investing Activities

For fiscal 2020, net cash used in investing activities was $69.4 million compared to $80.7 million for fiscal 2019, a decrease of $11.3 million.

This decrease was primarily due to a decrease of $37.5 million in capital expenditures in fiscal 2020, partially offset by increased purchases of marketable securities of $19.2 million.

For fiscal 2021, net cash used in investing activities was $144.9 million compared to $69.4 million for fiscal 2020, an increase of $75.5 million.

This increase was primarily due to an increase of $32.5 million in capital expenditures in fiscal 2021 to support our real estate development and digital initiatives and increased purchases of marketable securities of $27.0 million.

Financing Activities

For fiscal 2021, net cash provided by financing activities was $242.0 million compared to $141.8 million for fiscal 2020, an increase of $100.2 million.

This increase was primarily due to $145.0 million in net cash proceeds from the issuance of Class A common stock, partially offset by increased payments made under the Tax Receivable Agreement.

Cash Flows - Fiscal 2019 Compared to Fiscal 2018

The comparison of fiscal 2019 to fiscal 2018 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 25, 2019, filed on February 24, 2020.

Revolving Credit Facility

In August 2019, we terminated our previous revolving credit facility and entered into a new revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $50.0 million, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100.0 million, to be made available subject to satisfaction of

This increase was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, net of discount and a reduction in payments made under the Tax Receivable Agreement in fiscal 2021 compared to fiscal 2020, partially offset by $145.7 million in net cash proceeds from the issuance of Class A common stock related to the equity offering in April 2020.

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certain conditions.

The Revolving Credit Facility will mature and all amounts outstanding will be due and payable in August 2024.

Revolving Credit Facility

In August 2019, we entered into a revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $50.0 million, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100.0 million, to be made available subject to satisfaction of certain conditions.

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

Borrowings under the Revolving Credit Facility will bear interest at either:

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, provides for modified financial covenant compliance requirements for a period of time.

The First Amendment requires us to maintain minimum liquidity of $25.0 million through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bear interest at either:

(i) LIBOR plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

To the extent the LIBOR reference rate is no longer available, the administrative agent, in consultation with us, will determine a replacement rate which will be generally in accordance with similar transactions in which it serves as administrative agent.

In March 2021, the Company entered into a second amendment to the Revolving Credit Facility (“Second Amendment”).

The Second Amendment modified the applicable covenants and restrictions in the Revolving Credit Facility to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith.

In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment;

(ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 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, the Company entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) as Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A.

The Third Amendment appoints JPMorgan Bank, N.A.

as administrative agent under the Revolving Credit Facility.

In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026.

As of December 29, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors.

The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries (with certain exceptions).

The Revolving Credit Facility requires 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 First Amendment to the Revolving Credit Facility described below.

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;

The Revolving Credit Facility requires the Company to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios.

The Company is not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above.

make investments;

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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 December 30, 2020 we were in compliance with all covenants.

(i) LIBOR plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

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

CONTRACTUAL OBLIGATIONS

The following table sets forth certain contractual obligations as of December 30, 2020 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods.

(in thousands) Total Less than

Operating lease obligations (1)

$ 496,307 $ 45,961 $ 108,169 $ 107,446 $ 234,731

Financing lease obligations (1)

5,983 2,169 2,711 931 172

Liabilities under tax receivable agreement (2)

232,954 — 52,809 28,382 151,763

Purchase obligations 106,299 58,919 18,292 5,510 23,578

TOTAL $ 841,543 $ 107,049 $ 181,981 $ 142,269 $ 410,244

(1) See Note 10, Leases, to the consolidated financial statements included in Item 8 for further discussion of our operating and financing leases.

(2) See Notes 15, Income Taxes, and Note 18, Commitments and Contingencies, to the consolidated financial statements for further discussion of our Tax Receivable Agreement and related liabilities.

Purchase obligations include all legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, future minimum lease payments under non-cancelable operating leases without a possession date, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts.

and prohibits the Company, with certain exceptions, from engaging in any line of business not related to its current line of business.

As of December 29, 2021, the Company was in compliance with all covenants.

As of December 29, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $0.1 million, and was included in Other assets on the Consolidated Balance Sheets.

Total interest expense related to the Revolving Credit Facility was $0.5 million, $0.5 million and nil, respectively, for fiscal 2021, fiscal 2020 and fiscal 2019.

Interest expense for fiscal 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility.

Convertible Notes

In March 2021, the Company issued $225.0 million aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Company granted an option to the initial purchasers to purchase up to an additional $25.0 million aggregate principal

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Liabilities under Tax Receivable Agreement include amounts to be paid to the non-controlling interest holders, estimated over the next five years, assuming we will have sufficient taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

The above table excludes non-cash obligations for deferred lease costs and deferred property incentives.

In addition, other unrecorded obligations that have been excluded from the contractual obligations table include contingent rent payments, property taxes, insurance payments and common area maintenance costs.

amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250.0 million aggregate principal amount of Convertible Notes.

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

Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances:

(1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day;

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

(3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption;

and (4) upon the occurrence of specified corporate events as set forth in the Indenture.

On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

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

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

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

In addition, if Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require it to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert the Convertible Notes in connection with such a corporate event or convert the Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc.

entered into an intercompany note with SSE Holdings (“Intercompany Note”).

SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028.

Shake Shack Inc.

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

and the aggregate number of outstanding shares of common stock.

As of December 29, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $243.5 million, net of unamortized discount and debt issuance costs of $6.5 million.

As of December 29, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method.

Total amortization expense was $0.9 million and was included in Interest expense in the Consolidated Statements of Income (Loss).

In connection with the issuance of

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the Convertible Notes, the Company also incurred consulting and advisory fees of $0.2 million as of December 29, 2021 and was included in General and administrative expenses in the Consolidated Statements of Income (Loss).

At December 29, 2021, the fair value of the Convertible Notes was approximately $206.0 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

Material contractual obligations arising in the normal course of business primarily consist of operating and finance lease obligations, long-term debt, liabilities under Tax Receivable Agreement and purchase obligations.

The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods.

Refer to Note 9, Leases, in the accompanying Consolidated Financial Statements included in Item 8 for additional information relating to our operating and financing leases and Note 8, Debt, in the accompanying Consolidated Financial Statements included in Item 8 for additional information related to our long-term debt.

Liabilities under Tax Receivable Agreement include amounts to be paid to the non-controlling interest holders, assuming we will have sufficient taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

Refer to Note 14, Income Taxes, and Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information relating to our Tax Receivable Agreement and related liabilities.

Purchase obligations include all 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.

The majority of our purchase obligations are due within the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

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We assess potential impairments to our long-lived assets, which includes property and equipment and operating lease assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset.

Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows

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expected to be generated by the asset.

The evaluation is performed at the lowest level of identifiable cash flows, which is primarily at the individual Shack level.

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Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.

On December 27, 2018 we adopted ASU 2016-02, Leases (Topic 842) , using a modified retrospective approach.

Refer to Note 10, Leases, for further details.

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 2038.

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All of our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases.

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We make judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as financing or operating, as well as the amount of straight-lined rent expense in a particular period.

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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.

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Self-Insurance Liabilities

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Actual distributed shares are calculated upon conclusion of the service and performance periods.

For stock option awards, the grant-date fair value of the awards is determined using the Black-Scholes

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option pricing model and involves several assumptions, including the expected term of the option, expected volatility and risk-free interest rate.

For stock option awards, the grant-date fair value of the awards is determined using the Black-Scholes option pricing model and involves several assumptions, including the expected term of the option, expected volatility and risk-free interest rate.

We have limited historical data of our own to utilize in determining our assumptions.

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Forfeitures are recognized as they occur for all equity awards.

We record valuation allowances against our deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

In making such determination, we consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of operation.

We routinely evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets will be recovered based on all available positive and negative evidence.

In determining the provision for income taxes for financial statement purposes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities.

We evaluate the carrying value of our deferred tax assets on a quarterly basis.

In completing this evaluation, we consider all available positive and negative evidence.

Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies.

Estimating future taxable income is inherently uncertain and requires judgment.

In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected Shack openings, revenue growth, and operating margins, among others.

As of December 30, 2020, we had $287.0 million of deferred tax assets, net of valuation allowances.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years.

As of December 29, 2021, we are in a three-year cumulative loss position.

This is considered significant evidence that is difficult to overcome.

However, the three-year cumulative loss position is not solely determinative, and, accordingly, management considers all available positive and negative evidence in our analysis.

Although we are in a three-year cumulative loss position as of December 29, 2021, we have a recent history of earnings prior to the onset of the COVID-19 pandemic.

We expect to return to profitability as the effects of the pandemic subside and we begin to generate sufficient taxable income to utilize our deferred tax assets.

We have recorded a valuation allowance against the capital loss resulting from the portion of the basis difference in our investment in SSE Holdings that will only reverse upon the eventual sale of our interest in SSE Holdings as well as certain state tax credits and foreign tax credits that are not expected to be utilized prior to expiration.

As of December 29, 2021, we had $298.7 million of net deferred tax assets, net of valuation allowances.

We expect to realize future tax benefits related to the utilization of these assets.

However, since future financial results may differ from previous estimates, periodic adjustments to our valuation allowance may be necessary.

If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.

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Liabilities Under Tax Receivable Agreement

As described in Note 15 to the consolidated financial statements included in Item 8, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 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.

As described in Note 14, in the accompanying Consolidated Financial Statements included in Item 8, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 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.

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.

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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-K

Item 7. Management’s Discussion and Analysis