What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-18 · 206 added, 329 removed, 361 unchanged (60% of the section changed)

12 unchanged sentences

Form 10-K | 55

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

Our fine dining heritage and commitment to community building, hospitality and the sourcing of premium ingredients is what we call "fine casual." Fine casual couples the ease, value and convenience of fast casual concepts with the high standards of excellence grounded in our fine dining heritage — thoughtful ingredient sourcing and preparation, hospitality and quality.

Shake Shack serves modern, fun and elevated versions of American classics using only the best ingredients.

We are known for our made-to-order Angus beef burgers, crispy chicken, hand-spun milkshakes, house-made lemonades, beer, wine, and more.

Our fine dining roots and commitment to community building, hospitality and the sourcing of premium ingredients is what we call "fine casual." Fine casual couples the ease, value and convenience of fast casual concepts with the high standards of excellence grounded in our fine dining roots — thoughtful ingredient sourcing and preparation, hospitality and quality.

Our mission is to Stand For Something Good in all aspects of our business, including the exceptional team we hire and train, the premium ingredients making up our menu, our community engagement and the design of our Shacks.

1 unchanged sentence

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

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 2021 compared to fiscal 2020 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 29, 2021, filed on February 18, 2022.

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 unit volume" is 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 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.

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

"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.

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.

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

Same-Shack sales percentage reflects the change in year-over-year Shack sales for the comparable Shack base.

"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.

2 unchanged sentences

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

We closed the fiscal fourth quarter and fiscal year ended December 28, 2022 with a strong finish.

Despite continued macro economic challenges, we opened a total of 35 Shacks system-wide during the fiscal fourth quarter, including 22 Company-operated Shacks.

As of December 28, 2022 there were 436 Shacks open globally.

Macroeconomic uncertainty remains, however momentum in the quarter headed in a positive direction with continued return to office and increased travel demand increasing our revenue year-over-year.

Overall, we were pleased with the strength of our recent sales and margin performance, supported by early positive reception to our October pricing and growth of in-Shack traffic.

Same-Shack sales for the fiscal fourth quarter ended December 28, 2022 increased 5.1% compared to the same period last year, with urban Shacks increasing 8.1% and suburban Shacks increasing 2.5%.

This increase was driven by a 6% increase in price mix primarily due to menu price increases partially offset by a 0.9% decrease in guest traffic.

Shake Shack Inc.

Form 10-K | 56

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 28, 2022 increased 7.8% compared to the same period last year, with urban Shacks increasing 14.0% and suburban Shacks increasing 2.7%.

This increase was due to a 4.9% increase in guest traffic due to the return of in-Shack dining as well as an increase in price mix of 2.9%.

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.

For the purpose of calculating same-Shack sales growth for the fiscal fourth quarter and fiscal year ended December 28, 2022, Shack sales for 179 Shacks were included in the comparable Shack base.

Average weekly sales were $76,000 in the fiscal fourth quarter ended December 28, 2022, compared to $74,000 in the same period last year, driven by higher menu prices, the opening of 22 net new domestic Company-operated Shacks and the continued growth in urban and suburban Shacks.

Average weekly sales were $73,000 for the fiscal year ended December 28, 2022 compared to $71,000 for the same period last year, driven by the opening of 36 net new domestic Company-operated Shacks.

Shack system-wide sales increased 15.8% to $364.1 million for the fiscal fourth quarter ended December 28, 2022, versus the same period last year.

1 unchanged sentence

Average unit volume for domestic Company-operated Shacks was $3.8 million for the fiscal year ended December 28, 2022 compared to $3.7 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 for the fiscal fourth quarter and fiscal year ended December 28, 2022 decreased 6.0% and 9.4% respectively, compared to the same periods last year due to guests returning in-Shack.

Digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 36.2% of Shack sales during the fiscal fourth quarter ended December 28, 2022.

Digital sales retention was approximately 74% in fiscal December 2022 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.

During the fiscal fourth quarter of 2022, our new purchasers in Company-owned app and web channels grew 6.7% versus the fiscal third quarter of 2022, to 4.8 million total new purchasers since mid-March of 2020.

Shake Shack Inc.

2 unchanged sentences

During fiscal 2022, we opened 36 new domestic Company-operated Shacks and 33 new licensed Shacks.

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

There were two permanent international licensed Shack closures and no permanent domestic Company-operated Shack closures in fiscal 2022.

Below are Shacks opened during the fourth quarter of 2022.

Location Type Opening Date

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.

Mexico City, MX — Mitikah International Licensed 9/29/2022

Phelps, NY — Junius Ponds Travel Plaza Domestic Licensed 10/6/2022

Beverly Hills, CA — Beverly Hills Domestic Company-operated 10/7/2022

Bishan, Singapore — Junction 8 International Licensed 10/13/2022

Manila, Philippines — Mall of Asia International Licensed 10/21/2022

Jamaica, NY — Jamaica Ave Domestic Company-operated 10/24/2022

Boca Raton, FL — Town Center at Boca Domestic Company-operated 10/26/2022

Osaka, Japan — Universal Studios Japan International Licensed 10/27/2022

Hingham, MA — Derby Street Shoppes Domestic Company-operated 10/28/2022

Indianapolis, IN — Indianapolis International Airport Domestic Licensed 11/1/2022

Orlando, FL — Orlando International Airport Domestic Licensed 11/1/2022

Sterling Heights, MI — Sterling Heights Domestic Company-operated 11/4/2022

Nanjing, China — Nanjing, MixC International Licensed 11/5/2022

Los Angeles, CA — Silverlake Domestic Company-operated 11/7/2022

Baton Rouge, LA — Baton Rouge Domestic Company-operated 11/14/2022

Brookfield, WI — Brookfield Domestic Company-operated 11/17/2022

Roseville, MN — Rosedale Center Domestic Company-operated 11/18/2022

Suzhou, China — Suzhou Center International Licensed 11/19/2022

Edison, NJ — Menlo Park Domestic Company-operated 11/26/2022

Jersey City, NJ — Newport Centre Domestic Company-operated 11/30/2022

Doha, Qatar — Doha City Center International Licensed 11/30/2022

Bucheon, South Korea — Bucheon International Licensed 12/2/2022

Fort Worth, TX — Westbend Domestic Company-operated 12/3/2022

Plano, TX — Park and Preston Domestic Company-operated 12/5/2022

Boston, MA — Prudential Center Domestic Company-operated 12/5/2022

Baltimore, MD — Canton Domestic Company-operated 12/14/2022

San Jose, CA — Westfield Oakridge Domestic Company-operated 12/15/2022

Atlanta, GA — West Midtown Domestic Company-operated 12/20/2022

San Francisco, CA — Stonestown Galleria Domestic Company-operated 12/22/2022

Chapel Hill, NC — Chapel Hill Domestic Company-operated 12/22/2022

Beijing, China — Hopson One International Licensed 12/22/2022

Shanghai, China — QingPu Outlets International Licensed 12/23/2022

Canoga Park, CA — Westfield Topanga Domestic Company-operated 12/27/2022

Brooklyn, NY — Kings Plaza Domestic Company-operated 12/27/2022

Springfield, PA — Springfield Domestic Company-operated 12/27/2022

Shake Shack Inc.

17 unchanged sentences

LOSS FROM OPERATIONS (26,894) (3.0) % (15,853) (2.1) %

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

Other income, net 4,127 0.5 % 95 — %

Interest expense (1,518) (0.2) % (1,577) (0.2) %

8 unchanged sentences

Form 10-K | 59

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our domestic Company-operated Shacks.

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 for the comparable Shack base, which we define as the number of domestic Company-operated Shacks open for 24 months or longer.

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our domestic Company-operated Shacks and gift card breakage income.

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

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Shack sales for the fiscal year ended December 28, 2022 increased 21.6% to $869.3 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.

The increase was primarily due to increased guest traffic, particularly at our New York City locations, and increased menu prices as well as the opening of 36 new domestic Company-operated Shacks during the fiscal year.

Licensing Revenue

7 unchanged sentences

Licensing revenue for the fiscal year ended December 28, 2022 increased 25.3% to $31.2 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.

The increase was primarily due to 31 net new licensed Shacks opened during fiscal 2022, which contributed approximately $2.8 million to Licensing revenue, as well as higher sales at existing licensed Shacks, particularly domestic airports.

Food and Paper Costs

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

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

Shake Shack Inc.

Form 10-K | 58

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

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Food and paper costs for the fiscal year ended December 28, 2022 increased 19.8% to $261.6 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.

The increase was primarily due to the opening of 36 net new domestic Company-operated Shacks during fiscal 2022 as well as continued inflation in commodities such as dairy, paper and chicken.

As a percentage of Shack sales, the decrease in Food and paper costs for fiscal 2022 was primarily due to menu price increases partially offset by higher commodity costs.

However, beef costs declined during fiscal 2022.

Shake Shack Inc.

Form 10-K | 60

Labor and Related Expenses

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

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

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

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

4 unchanged sentences

Percentage change compared to prior year 19.6 %

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.

Labor and related expenses for the fiscal year ended December 28, 2022 increased 19.6% to $257.4 million versus the prior year.

The increase was primarily due to the opening of 36 net new domestic Company-operated Shacks during fiscal 2022 as well as increased wages and salaries for our Shack teams.

As a percentage of Shack sales, Labor and related expenses declined from 30.1% in fiscal 2021 to 29.6% in fiscal 2022.

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.

Form 10-K | 59

This decrease was primarily due to sales leverage, partially offset by more managers per Shack and increased wages and salaries.

Other Operating Expenses

6 unchanged sentences

Other operating expenses for the fiscal year ended December 28, 2022 increased 26.8% to $130.9 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.

The increase was primarily due to the opening of 36 net new domestic Company-operated Shacks during fiscal 2022, increased facilities costs, mainly utilities and cleaning, as well as increased transaction costs and repairs and maintenance.

As a percentage of Shack sales, Other operating expenses increased from 14.4% in fiscal 2021 to 15.1% in fiscal 2022.

This increase was primarily due to increased facilities costs primarily related to higher costs of cleaning and utility services as well as increased marketing expense, partially offset by sales leverage and delivery mix.

Occupancy and Related Expenses

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

Shake Shack Inc.

Form 10-K | 61

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Occupancy and related expenses for the fiscal year ended December 28, 2022 increased 15.7% to $68.5 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.

The increase was primarily due to the opening of 36 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 2022 was primarily due to sales leverage partially offset by increases in variable rent from higher sales.

General and Administrative Expenses

5 unchanged sentences

Percentage change compared to prior year 38.1 %

Shake Shack Inc.

Form 10-K | 60

General and administrative expenses for the fiscal year ended December 28, 2022 increased 38.1% to $118.8 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.

The increase was primarily due to an increase in wages and other team costs to support our Shack growth, an accrual of $6.7 million related to legal matters as well as investments in marketing and technology initiatives.

As a percentage of Total revenue, the increase in General and administrative expenses for fiscal 2022 was primarily due to the aforementioned increase in wages and other team costs to support our Shack growth, investment spend and legal accrual.

Depreciation and Amortization Expense

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

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

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Depreciation and amortization expense for the fiscal year ended December 28, 2022 increased 23.4% to $72.8 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.

The increase was primarily due to incremental depreciation of capital expenditures related to the opening of 36 net new domestic Company-operated Shacks during fiscal 2022 as well as additional depreciation related to the home office expansion and technology projects placed in service.

As a percentage of Total revenue, the increase in Depreciation and amortization expense for fiscal 2022 was primarily due to the aforementioned new Shack openings as well as the additional depreciation related to the home office expansion and technology projects placed into service, partially offset by accelerated depreciation expense related to the closure of the Company's Shack in New York City's Penn Station in fiscal 2021.

Shake Shack Inc.

Form 10-K | 62

Pre-Opening Costs

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.

Pre-opening costs consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for our opening training team and other supporting team members, marketing expenses, legal fees and inventory costs incurred prior to the opening of a Shack.

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

Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of domestic Company-operated Shack openings and the specific pre-opening costs incurred for each domestic Company-operated Shack.

Additionally, domestic Company-operated Shack openings in new geographic market areas may initially experience higher pre-opening costs than our established geographic market areas, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

Additionally, domestic Company-operated Shack openings in new geographic markets may initially experience higher pre-opening costs than our established geographic markets, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Pre-opening costs for the fiscal year ended December 28, 2022 increased 13.2% to $15.1 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.

Form 10-K | 61

The increase was due to increased occupancy expense primarily related to the timing of Shack openings throughout the year and increased wages and travel related costs for our Shack teams, partially offset by a decrease in legal fees related to professional services.

Impairment and Loss on Disposal of Assets

Impairment and loss on disposal of assets include impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets.

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

Impairment and loss on disposal of assets consist of impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets.

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

(dollar amounts in thousands) 2022 2021

3 unchanged sentences

Percentage change compared to prior year 48.6 %

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 marketable securities.

Impairment and loss on disposal of assets for the fiscal year ended December 28, 2022 increased 48.6% to $2.4 million versus the prior year.

The increase was primarily due to the number of Shacks maturing in our base as well as the non-cash impairment charge of $0.1 million during fiscal 2022 related to one Shack.

Other Income, Net

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

(dollar amounts in thousands) 2022 2021

Other income (expense), net

Other income, net

Percentage of Total revenue 0.5 % — %

1 unchanged sentence

Percentage change compared to prior year 4,244.2 %

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.

Shake Shack Inc.

Form 10-K | 63

Other income, net for the fiscal year ended December 28, 2022 increased from $0.1 million to $4.1 million versus the prior year.

The increase was primarily due to an increase in dividend income of $3.7 million related to an increase in interest rates.

Interest Expense

6 unchanged sentences

Percentage change compared to prior year (3.7) %

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.

Shake Shack Inc.

Form 10-K | 62

Interest expense for the fiscal year ended December 28, 2022 decreased 3.7% to $1.5 million versus the prior year.

The decrease was primarily due to sponsorship credits received from our banking partners partially offset by an increase in amortization expense related to our Convertible Notes issued in March 2021.

Income Tax Expense (Benefit)

6 unchanged sentences

We are subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc.

We are also subject to withholding taxes in foreign jurisdictions.

6 unchanged sentences

Our effective income tax rates for fiscal 2022 and fiscal 2021 were (6.9)% and 41.7%, respectively.

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.

The decrease in our effective income tax rate from fiscal 2021 to fiscal 2022 was primarily driven by additional expense related to an increase in valuation allowance, increase in foreign tax expense and net expense related to equity-based compensation, partially offset by higher tax credits.

Net Loss Attributable to Non-controlling Interests

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

Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Consolidated Statements of Income (Loss), representing the portion of net income (loss) attributable to the other members of SSE Holdings.

Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Consolidated Statements of Loss, representing the portion of net loss attributable to the other members of SSE Holdings.

The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis.

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

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

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

and the non-controlling interest holders.

Shake Shack Inc.

Form 10-K | 64

(dollar amounts in thousands) 2022 2021

4 unchanged sentences

Percentage change compared to prior year 28.8 %

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.

Net loss attributable to non-controlling interests for the fiscal year ended December 28, 2022 increased 28.8% to $1.9 million versus the prior year.

The increase was primarily due to a decline in net results compared to fiscal 2021 partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.9% and 7.0% for fiscal 2022 and fiscal 2021, 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

Shake Shack Inc.

Form 10-K | 63

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

Shack-Level Operating Profit

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

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

How This Measure Is Useful

9 unchanged sentences

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 Income (loss) from Operations, the most directly comparable GAAP financial measure, is as follows.

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

Shake Shack Inc.

Form 10-K | 65

(dollar amounts in thousands) 2022 2021 2020

Income (loss) from operations (1)

Loss from operations (1)

$ (26,894) $ (15,853) $ (43,876)

11 unchanged sentences

17.4% 16.7% 14.1%

Shake Shack Inc.

Form 10-K | 64

(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.

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

(2) Fiscal 2022 included a non-cash impairment charge of $0.1 million related to one Shack and fiscal 2020 included a non-cash impairment charge of $7.6 million related to two Shacks and our home office.

(3) For fiscal 2022, Shack-level operating profit margin included a $1.3 million cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales.

(4) As a percentage of Shack sales.

EBITDA and Adjusted EBITDA

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

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

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

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

How These Measures Are Useful

7 unchanged sentences

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

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

A reconciliation of EBITDA and adjusted EBITDA to Net loss, the most directly comparable GAAP measure, is as follows.

Shake Shack Inc.

1 unchanged sentence

(in thousands) 2022 2021 2020

Net income (loss)

$ (25,967) $ (10,111) $ (45,534)

7 unchanged sentences

Deferred lease costs (2)

(2,247) 245 92

Impairment and loss on disposal of assets (3)

2,425 1,632 10,151

Legal Settlement (4)

Legal settlements (4)

Gift card breakage cumulative catch-up adjustment (1,281) — —

Debt offering related costs (5)

2 unchanged sentences

Project Concrete (6)

— (229) 2,111

Hong Kong office (8)

ADJUSTED EBITDA $ 70,496 $ 56,026 $ 22,739

2 unchanged sentences

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

(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.

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

Fiscal 2020, included a $0.9 million reduction in Occupancy and related expenses related to the closing of the Company's Shack in New York City's Penn Station.

(3) Fiscal 2022, included a non-cash impairment charge of $0.1 million related to one Shack.

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

(4) Expenses incurred to establish accruals related to the settlements of legal matters.

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

1 unchanged sentence

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.

(6) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete completed in fiscal 2019.

(7) 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.

(8) Calculated as a percentage of Total revenue, which was $900.5 million, $739.9 million and $522.9 million, respectively, for fiscal 2022, fiscal 2021 and fiscal 2020.

Shake Shack Inc.

Form 10-K | 67

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

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

Adjusted Pro Forma Net Loss and Adjusted Pro Forma Loss Per Fully Exchanged and Diluted Share

Adjusted pro forma net loss represents Net loss attributable to Shake Shack Inc.

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

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

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

How These Measures Are Useful

When used in conjunction with GAAP financial measures, adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors.

By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in Net income (loss) attributable to Shake Shack Inc.

When used in conjunction with GAAP financial measures, adjusted pro forma net loss and adjusted pro forma loss per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors.

driven by increases in our ownership of SSE Holdings, which are unrelated to our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

Adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share may differ from similarly titled measures used by other companies due to different methods of calculation.

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

While these measures are useful in evaluating our performance, they do not account for the earnings attributable to the non-controlling interest holders and therefore do not provide a complete understanding of the Net income (loss) attributable to Shake Shack Inc.

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

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

Adjusted pro forma net loss and adjusted pro forma loss per fully exchanged and diluted share may differ from similarly titled measures used by other companies due to different methods of calculation.

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

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

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

Shake Shack Inc.

1 unchanged sentence

(in thousands, except per share amounts) 2022 2021 2020

Net income (loss) attributable to Shake Shack Inc.

Net loss attributable to Shake Shack Inc.

$ (24,091) $ (8,655) $ (42,158)

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

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

(1,876) (1,456) (3,376)

Legal settlements (2)

Gift card breakage cumulative catch-up adjustment (1,281) — —

Asset impairment charge (3)

Executive transition costs 34 179 150

Project Concrete (3)

— (229) 2,111

Legal settlement (4)

Debt offering related costs (4)

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

(2) 1,147 (808)

Asset impairment charge (6)

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

Revolving Credit Facility amendments related costs (5)

Hong Kong office (9)

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

Impact to income tax benefit (10)

Reduction in Occupancy and related expenses due to Shack closure (6)

Project Concrete (7)

Tax impact of above adjustments (9)

7,498 6,175 15,089

Adjusted pro forma net income (loss) $ (2,645) $ (22,345) $ 27,363

Adjusted pro forma net loss $ (12,907) $ (2,645) $ (22,345)

Weighted average shares of Class A common stock outstanding—diluted 39,237 39,085 37,129

2 unchanged sentences

Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted 42,129 42,012 40,225

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

Adjusted pro forma loss per fully exchanged share—diluted $ (0.31) $ (0.06) $ (0.56)

2022 2021 2020

Earnings (loss) per share of Class A common stock—diluted $ (0.22) $ (1.14) $ 0.61

Loss per share of Class A common stock—diluted $ (0.61) $ (0.22) $ (1.14)

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

2 unchanged sentences

0.31 0.18 0.57

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

(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.

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

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

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

Adjusted pro forma loss per fully exchanged share—diluted $ (0.31) $ (0.06) $ (0.56)

(2) Expenses incurred to establish accruals related to the settlements of legal matters.

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

(3) Fiscal 2022 included a non-cash impairment charge of $0.1 million related to one Shack.

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

(4) 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.

(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.

(5) 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.

(6) Fiscal 2020 includes a $0.9 million reduction in Occupancy and related expenses related to the closing of the Company's Shack in New York City's Penn Station.

(7) Represents consulting and advisory fees related to our enterprise-wide system upgrade initiative called Project Concrete completed in fiscal 2019.

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

(9) For fiscal 2022, fiscal 2021 and fiscal 2020, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 31.1%, 83.5% and 40.2%, 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.

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

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

Shake Shack Inc.

Form 10-K | 69

(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

1 unchanged sentence

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

As of December 28, 2022, we maintained a Cash and cash equivalents balance of $230.5 million and a short-term investments balance of $80.7 million within Marketable securities.

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

Refer to Note 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.

On June 7, 2021, we filed a Registration Statement on Form S-3 with the SEC which permits us to issue a combination of securities described in the prospectus in one or more offerings from time to time.

7 unchanged sentences

Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments.

Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year.

1 unchanged sentence

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 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.

On April 21, 2020, we completed the sale of 233,467 shares of our Class A common stock pursuant to the ATM Program and received $9.8 million of proceeds, net of commissions.

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

Shake Shack Inc.

Form 10-K | 69

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

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

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

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

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

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

• 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

3 unchanged sentences

Net cash used in investing activities (143,424) (144,890)

Net cash provided by financing activities 242,021 141,821

Increase in cash and cash equivalents 155,533 109,774

Net cash provided by (used in) financing activities (5,202) 242,021

Increase (decrease) in cash and cash equivalents (71,885) 155,533

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

2 unchanged sentences

For fiscal 2022, net cash provided by operating activities was $76.7 million compared to $58.4 million for fiscal 2021, an increase of $18.3 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 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 $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.

The increase was primarily due to an $18.5 million increase in net results after excluding non-cash charges, as well as changes in working capital partially offset by an increase in payments on lease liabilities.

Shake Shack Inc.

Form 10-K | 70

Investing Activities

For fiscal 2022, net cash used in investing activities was $143.4 million compared to $144.9 million for fiscal 2021, a decrease of $1.5 million.

This decrease was primarily due to a decrease in net purchases of marketable securities of $42.5 million partially offset by an increase of $41.1 million in capital expenditures to support our real estate development, which includes 21 Shacks under construction as of December 28, 2022 compared to 12 under construction as of December 29, 2021.

Financing Activities

For fiscal 2022, net cash used in financing activities was $5.2 million compared to net cash provided by financing activities of $242.0 million for fiscal 2021, a decrease of $247.2 million.

This decrease was primarily due to $243.8 million in net cash proceeds received in fiscal 2021 from the issuance of the Convertible Notes, net of discount.

Convertible Notes

In March 2021, we issued $250.0 million aggregate principal amount of 0% Convertible Senior Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

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

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

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

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.

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

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

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.

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.

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.

Under the Revolving Credit Facility, outstanding borrowings bear interest at either:

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

As of December 28, 2022 and December 29, 2021, no amounts were outstanding under the Revolving Credit Facility.

1 unchanged sentence

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

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

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

In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit the Company's ability to incur debt;

make investments;

engage in mergers, consolidations, liquidations or acquisitions;

dispose of assets;

make distributions on or repurchase equity securities;

engage in transactions with affiliates;

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

As of 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

Shake Shack Inc.

Form 10-K | 71

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

Shake Shack Inc.

Form 10-K | 72

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.

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants.

As of December 28, 2022, we were in compliance with all covenants.

Contractual Obligations

1 unchanged sentence

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.

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

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.

Refer to Note 14, Income Taxes, and Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements included in Part II, Item 8, for additional information relating to our Tax Receivable Agreement and related liabilities.

Shake Shack Inc.

Form 10-K | 71

software acquisition/license commitments and service contracts.

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

OFF-BALANCE SHEET ARRANGEMENTS

Except for operating leases entered into in the normal course of business where we have not yet taken physical possession of the leased property, certain letters of credit entered into as security under the terms of several of our leases and the unrecorded contractual obligations set forth above, we did not have any off-balance sheet arrangements as of December 29, 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Except for operating leases entered into in the normal course of business where we have not yet taken physical possession of the leased property, certain letters of credit entered into as security under the terms of several of our leases and the unrecorded contractual obligations set forth above, we did not have any other off-balance sheet arrangements as of December 28, 2022.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S.

1 unchanged sentence

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

The critical accounting policies and estimates described below are those that materially affect or have the greatest potential impact on our Consolidated Financial Statements, and involve difficult, subjective or complex judgments made by management.

Because of the uncertainty inherent in these matters, actual results may differ from those estimates we use in applying our critical accounting policies and estimates.

The following discussion should be read in conjunction with the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

The critical accounting estimates described below are those that materially affect or have the greatest potential impact on our Consolidated Financial Statements, and involve difficult, subjective or complex judgments made by management.

Because of the uncertainty inherent in these matters, actual results may differ from those estimates we use in applying our critical accounting estimates.

The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Valuation of Long-Lived Assets

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

Shake Shack Inc.

Form 10-K | 73

expected to be generated by the asset.

We assess potential impairments to our long-lived assets, which includes property and equipment and operating lease assets, at least annually or 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.

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

Significant judgment is involved in determining the assumptions used in estimating future cash flows, including projected sales growth and operating margins.

Significant judgment is involved in determining the assumptions used in estimating future cash flows, including projected sales growth, operating margins, economic conditions and changes in the operating environment.

Changes in these assumptions could have a significant impact on the recoverability of the asset and may result in additional impairment charges.

If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions.

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.

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.

Upon the possession of a leased asset, we determine its classification as an operating or financing lease.

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

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.

Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options.

Renewal options are typically not included in the lease term as it is not reasonably certain at commencement date that we would exercise the options to extend the lease.

Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds.

When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period.

Fixed minimum rent payments are recognized on a straight-line basis over the lease term starting on the date we take possession of the leased property.

Lease expense incurred before a Shack opens is recorded in Pre-opening costs.

Once a Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in Occupancy and related expenses on the Consolidated Statements of Income (Loss).

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Consolidated Statements of Income (Loss).

We currently lease all of our domestic Company-operated Shacks, the home office, and certain equipment under various non-cancelable lease agreements.

Determining the probable term for each lease requires judgement by management and can impact the classification and accounting for a lease as financing or operating, as well as the period for straight-lined rent expense and the depreciation period for lease hold improvements.

We calculate operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date.

We measure the lease liability by discounting the future fixed contractual payments included in the lease agreement, using our incremental borrowing rate (“IBR”).

There are no explicit rates provided in our leases.

The IBR is derived from the average of the yield curves obtained from using the notching method and the recovery rate method.

The most significant assumption in calculating the incremental borrowing rate is our credit rating.

We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own.

For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term.

For finance leases and impaired operating leases, the asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability.

For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Consolidated Balance Sheets.

Variable lease cost for both operating and finance leases, if any, is recognized as incurred.

We expend cash for leasehold improvements to build out and equip our leased premises.

Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements.

If obtained, landlord incentives usually take the form of up-front cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof.

In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property.

We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

We use an incremental borrowing rate (“IBR”) in determining the present value of future lease payments as there are no explicit rates provided in the leases.

The IBR is an estimate based on several factors, including financial market conditions, comparable company and credit analysis as well as management judgement.

If the IBR was changed, our operating lease assets and lease liabilities could differ materially.

Shake Shack Inc.

Form 10-K | 72

Self-Insurance Liabilities

We are self-insured for our employee medical and dental plans and we recognize a liability that represents our estimated cost of claims incurred but not reported as of the balance sheet date.

Our estimated liability is based on a number of assumptions and factors, which requires significant judgment including historical claims experience, severity factors, litigation costs, inflation and other actuarial assumptions.

Our history of claims experience is short and our significant growth rate could affect the accuracy of our estimates.

If a greater amount of claims are reported, or if medical costs increase beyond our expectations, our liabilities may not be sufficient and we could recognize additional expense.

Equity-Based Compensation

Equity-based compensation expense is measured based on the grant-date fair value of those awards.

For awards with graded-vesting features and service conditions only, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award.

For awards with graded-vesting features and a combination of service and performance conditions, compensation expense is recognized using a graded-vesting attribution method over the vesting period based on the most probable outcome of the performance conditions.

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 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.

As such, for stock options granted in fiscal 2021 and 2020, we based our volatility assumption on a combined weighted average of our own historical data and that of a selected peer group.

The weighted average volatility used in determining the grant date fair value of awards granted in fiscal 2021 and fiscal 2020 was 45.4% and 42.3%, respectively.

Forfeitures are recognized as they occur for all equity awards.

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.

11 unchanged sentences

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.

We have recorded a valuation allowance against certain state tax credits and foreign tax credits that are not expected to be utilized prior to expiration.

As of December 28, 2022, we had $300.5 million of net deferred tax assets, net of valuation allowances.

2 unchanged sentences

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.

Shake Shack Inc.

Form 10-K | 75

Liabilities Under Tax Receivable Agreement

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.

As described in Note 14, in the accompanying Consolidated Financial Statements included in Part II, 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.

12 unchanged sentences

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