What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-04 · 199 added, 127 removed, 610 unchanged (35% of the section changed)

40 unchanged sentences

Preferred stock, no par value—10,000,000 shares authorized;

none issued and outstanding as of June 28, 2023 and December 28, 2022.

none issued and outstanding as of September 27, 2023 and December 28, 2022.

Class A common stock, $0.001 par value—200,000,000 shares authorized;

39,466,268 and

39,284,998 shares issued and outstanding as of June 28, 2023 and December 28, 2022, respectively.

39,284,998 shares issued and outstanding as of September 27, 2023 and December 28, 2022, respectively.

Class B common stock, $0.001 par value—35,000,000 shares authorized;

2,834,513 and

2,869,513 shares issued and outstanding as of June 28, 2023 and December 28, 2022, respectively.

2,869,513 shares issued and outstanding as of September 27, 2023 and December 28, 2022, respectively.

Additional paid-in capital 423,811 415,611

12 unchanged sentences

(in thousands, except per share amounts)

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Shack sales $ 264,980 $ 219,501 $ 771,044 $ 639,346

31 unchanged sentences

(in thousands)

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Net income (loss) $ 8,136 $ ( 2,311 ) $ 13,737 $ ( 14,896 )

6 unchanged sentences

$ 7,628 $ ( 2,024 ) $ 13,038 $ ( 13,376 )

(1) Net of tax expense of $ 0 for the thirteen and twenty-six weeks ended June 28, 2023 and June 29, 2022.

(1) Net of tax expense of $ 0 for the thirteen and thirty-nine weeks ended September 27, 2023 and September 28, 2022.

See accompanying Notes to Condensed Consolidated Financial Statements.

4 unchanged sentences

(in thousands, except share amounts)

For the Thirteen Weeks Ended June 28, 2023 and June 29, 2022

For the Thirteen Weeks Ended September 27, 2023 and September 28, 2022

Common Stock Class B

3 unchanged sentences

Shares Amount Shares Amount

BALANCE, MARCH 29, 2023 39,404,905 $ 39 2,844,513 $ 3 $ 417,451 $ ( 22,071 ) $ ( 4 ) $ 24,487 $ 419,905

BALANCE, JUNE 28, 2023 39,449,246 $ 39 2,844,513 $ 3 $ 421,356 $ ( 15,123 ) $ ( 4 ) $ 25,088 $ 431,359

Net income — — — — — 7,627 — 509 8,136

6 unchanged sentences

Distributions paid to non-controlling interest holders — — — — — — — ( 79 ) ( 79 )

BALANCE, SEPTEMBER 27, 2023 39,466,268 $ 39 2,834,513 $ 3 $ 423,811 $ ( 7,496 ) $ ( 3 ) $ 25,644 $ 441,998

BALANCE, JUNE 29, 2022 39,266,670 $ 39 2,871,513 $ 3 $ 410,520 $ ( 7,796 ) $ ( 1 ) $ 24,871 $ 427,636

BALANCE, MARCH 30, 2022 39,218,290 $ 39 2,911,587 $ 3 $ 406,981 $ ( 6,608 ) $ — $ 24,844 $ 425,259

Net loss — — — — — ( 2,024 ) — ( 287 ) ( 2,311 )

6 unchanged sentences

Distributions paid to non-controlling interest holders — — — — — — — ( 65 ) ( 65 )

BALANCE, JUNE 29, 2022 39,266,670 $ 39 2,871,513 $ 3 $ 410,520 $ ( 7,796 ) $ ( 1 ) $ 24,871 $ 427,636

BALANCE, SEPTEMBER 28, 2022 39,279,699 $ 39 2,869,513 $ 3 $ 413,274 $ ( 9,820 ) $ ( 1 ) $ 24,757 $ 428,252

6 | Shake Shack Inc.

For the Twenty-Six Weeks Ended June 28, 2023 and June 29, 2022

For the Thirty-Nine Weeks Ended September 27, 2023 and September 28, 2022

Common Stock Class B

12 unchanged sentences

Distributions paid to non-controlling interest holders — — — — — — — ( 131 ) ( 131 )

BALANCE, JUNE 28, 2023 39,449,246 $ 39 2,844,513 $ 3 $ 421,356 $ ( 15,123 ) $ ( 4 ) $ 25,088 $ 431,359

BALANCE, SEPTEMBER 27, 2023 39,466,268 $ 39 2,834,513 $ 3 $ 423,811 $ ( 7,496 ) $ ( 3 ) $ 25,644 $ 441,998

BALANCE, DECEMBER 29, 2021 39,142,397 $ 39 2,921,587 $ 3 $ 405,940 $ 3,554 $ 1 $ 26,063 $ 435,600

7 unchanged sentences

Distributions paid to non-controlling interest holders — — — — — — — ( 389 ) ( 389 )

BALANCE, JUNE 29, 2022 39,266,670 $ 39 2,871,513 $ 3 $ 410,520 $ ( 7,796 ) $ ( 1 ) $ 24,871 $ 427,636

BALANCE, SEPTEMBER 28, 2022 39,279,699 $ 39 2,869,513 $ 3 $ 413,274 $ ( 9,820 ) $ ( 1 ) $ 24,757 $ 428,252

See accompanying Notes to Condensed Consolidated Financial Statements.

4 unchanged sentences

(in thousands)

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

2023 September 28

OPERATING ACTIVITIES

63 unchanged sentences

As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

As of June 28, 2023 the Company owned 93.3 % of SSE Holdings.

As of September 27, 2023 the Company owned 93.3 % of SSE Holdings.

Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc.

1 unchanged sentence

The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve burgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine and more.

As of June 28, 2023, there were 471 Shacks in operation system-wide, of which 270 were domestic Company-operated Shacks, 35 were domestic licensed Shacks and 166 were international licensed Shacks.

As of September 27, 2023, there were 495 Shacks in operation system-wide, of which 280 were domestic Company-operated Shacks, 39 were domestic licensed Shacks and 176 were international licensed Shacks.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The Company has elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the thirteen and twenty-six weeks ended June 28, 2023.

The Company has elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the thirteen and thirty-nine weeks ended September 27, 2023.

These reclassifications had no effect on previously reported Net Loss.

For the thirteen and twenty-six weeks ended June 29, 2022, the Company reclassified $ 412 and $ 478 , respectively from Other operating expenses to General and administrative expenses in the accompanying Condensed Consolidated Statements of Income (Loss).

For the thirteen and thirty-nine weeks ended September 28, 2022, the Company reclassified $ 286 and $ 764 , respectively from Other operating expenses to General and administrative expenses in the accompanying Condensed Consolidated Statements of Income (Loss).

SSE Holdings is considered a variable interest entity.

3 unchanged sentences

The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement.

As of June 28, 2023 and December 28, 2022, the net assets of SSE Holdings were $ 373,388 and $ 362,571 , respectively.

As of September 27, 2023 and December 28, 2022, the net assets of SSE Holdings were $ 384,222 and $ 362,571 , respectively.

The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement.

7 unchanged sentences

Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

The Company has not adopted any Accounting Standards Updates (“ASUs”) during the thirteen and twenty-six weeks ended June 28, 2023.

Recently Issued Accounting Pronouncements

14 unchanged sentences

The gift card breakage rate is determined from historical gift card redemption patterns.

Gift card breakage income of $ 72 and $ 178 , respectively, was recognized during the thirteen and twenty-six weeks ended June 28, 2023, and $ 59 and $ 1,368 , respectively was recognized during the thirteen and twenty-six weeks ended June 29, 2022.

The twenty-six weeks ended June 29, 2022 included a cumulative catch-up adjustment of $ 1,281 .

Gift card breakage income for the thirteen weeks ended September 27, 2023 and September 28, 2022 was $ 60 and $ 47 , respectively.

Gift card breakage income for the thirty-nine weeks ended September 27, 2023 and September 28, 2022 was $ 238 and $ 1,415 , respectively.

The thirty-nine weeks ended September 28, 2022 included a cumulative catch-up adjustment of $ 1,281 .

Gift card breakage income is included in Shack sales in the Condensed Consolidated Statements of Income (Loss).

5 unchanged sentences

The transaction price is then allocated equally to each Shack expected to open.

The performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack, therefore

The performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack, therefore revenue is recognized on a straight-line basis over the license term.

Generally, payment for the initial territory fee is received upon execution of the license agreement and payment for the Shack opening fees is received either in advance of or upon

Shake Shack Inc.

Form 10-Q | 11

revenue is recognized on a straight-line basis over the license term.

Generally, payment for the initial territory fee is received upon execution of the license agreement and payment for the Shack opening fees is received either in advance of or upon opening the related Shack.

opening the related Shack.

These payments are initially deferred and recognized in revenue as the performance obligations are satisfied.

1 unchanged sentence

Revenue disaggregated by type was as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Shack sales $ 264,980 $ 219,501 $ 771,044 $ 639,346

3 unchanged sentences

Total revenue $ 276,207 $ 227,814 $ 801,290 $ 661,957

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of June 28, 2023 was $ 23,787 .

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of September 27, 2023 was $ 23,608 .

The Company expects to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years.

9 unchanged sentences

Revenue recognized that was included in the respective liability balances at the beginning of the period was as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Gift card liability (1)

1 unchanged sentence

Deferred revenue 311 234 829 638

(1) For the twenty-six weeks ended June 29, 2022, amount includes the cumulative catch-up adjustment of $ 1,281 for gift card breakage income.

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

FAIR VALUE MEASUREMENTS

10 unchanged sentences

The Company's held-to-maturity securities were as follows:

June 28, 2023

September 27, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Treasuries $ 94,957 $ 256 $ — $ 95,213

As of June 28, 2023, the contractual maturities of held-to-maturity securities were less than 12 months.

As of September 27, 2023, the contractual maturities of held-to-maturity securities were less than 12 months.

Any expected credit losses would not be material to the Condensed Consolidated Statements of Income (Loss).

A summary of other income (expense) from investments was as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Income from investments $ 1,225 $ 290 $ 1,846 $ 502

Realized gain on sale of equity securities — — 81 —

Unrealized loss on equity securities — ( 161 ) — ( 561 )

Unrealized gain (loss) on equity securities — 161 — ( 400 )

Total $ 1,225 $ 451 $ 1,927 $ 102

2 unchanged sentences

The Company performs its impairment analysis at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

There were no impairment charges recognized during the thirteen and twenty-six weeks ended June 28, 2023 and June 29, 2022.

There were no impairment charges recognized during the thirteen and thirty-nine weeks ended September 27, 2023 and September 28, 2022.

SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Prepaid expenses and other current assets were as follows:

2023 December 28

Prepaid expenses

$ 6,689 $ 3,815

Tenant allowance receivables

12,128 10,121

Prepaid expenses and other current assets

$ 19,762 $ 14,699

Shake Shack Inc.

Form 10-Q | 13

The components of Other current liabilities were as follows:

6 unchanged sentences

Other current liabilities $ 17,522 $ 19,552

Shake Shack Inc.

Form 10-Q | 13

The components of Other long-term liabilities were as follows:

14 unchanged sentences

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.

The fair value of the Convertible Notes was approximately $ 199,063 and $ 162,500 , respectively, as of June 28, 2023 and December 28, 2022, 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.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

The fair value of the Convertible Notes was approximately $ 181,408 and $ 162,500 , respectively, as of September 27, 2023 and December 28, 2022, 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.

14 | Shake Shack Inc.

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amortization expense on Convertible Notes Interest expense $ 262 $ 262 $ 786 $ 786

3 unchanged sentences

Long-term debt $ 245,375 $ 244,589

14 | Shake Shack Inc.

Revolving Credit Facility

The Company maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $ 50,000 with the ability to increase available borrowings up to an additional $ 100,000 , subject to satisfaction of certain conditions.

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 June 28, 2023 and December 28, 2022, no amounts were outstanding under the Revolving Credit Facility.

After the Balance Sheet date, the Company entered into a fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modifies the benchmark interest rate to either:

(i) the base rate plus applicable margin or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin.

The Revolving Credit Facility has a maturity date of March 5, 2026.

During the thirteen weeks ended September 27, 2023, the Company entered into the fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modifies the benchmark interest rate to either:

(i) the base rate plus applicable margin ranging from 0.0 % to 1.5 % or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin ranging from 1.0 % to 2.5 %, in each case depending on the net lease adjusted leverage ratio.

As of September 27, 2023 and December 28, 2022, no amounts were outstanding under the Revolving Credit Facility.

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

1 unchanged sentence

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

As of June 28, 2023, the Company was in compliance with all covenants.

As of September 27, 2023, the Company was in compliance with all covenants.

The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $ 15,000 .

As of June 28, 2023 and December 28, 2022, the Company has outstanding letters of credit of $ 1,863 in connection with the Revolving Credit Facility.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

As of September 27, 2023, the Company had outstanding letters of credit of $ 3,348 in connection with the Revolving Credit Facility.

The Company had outstanding letters of credit of $ 1,863 in connection with the Revolving Credit Facility as of December 28, 2022.

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Interest expense on Revolving Credit Facility Interest expense $ 14 $ 28 $ 60 $ 101

Classification June 28

Classification September 27

2023 December 28

2 unchanged sentences

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2044.

The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract.

The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in

Shake Shack Inc.

Form 10-Q | 15

the contract.

The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset.

6 unchanged sentences

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.

Shake Shack Inc.

Form 10-Q | 15

For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term within the Condensed Consolidated Statements of Income (Loss) in the following line items.

17 unchanged sentences

The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset.

16 | Shake Shack Inc.

A summary of operating and finance lease assets and lease liabilities were as follows:

Classification June 28

Classification September 27

2023 December 28

9 unchanged sentences

Total lease liabilities $ 522,430 $ 475,920

16 | Shake Shack Inc.

The components of lease expense were as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Operating lease cost Occupancy and related expenses

9 unchanged sentences

Total lease cost $ 22,970 $ 20,134 $ 66,115 $ 57,014

As of June 28, 2023, future minimum lease payments for operating and finance leases consisted of the following:

Shake Shack Inc.

Form 10-Q | 17

As of September 27, 2023, future minimum lease payments for operating and finance leases consisted of the following:

Operating Leases Finance Leases

8 unchanged sentences

Total lease liabilities $ 498,852 $ 11,450

(1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of June 28, 2023.

As of June 28, 2023 the Company had additional operating lease commitments of $ 132,871 for non-cancelable leases without a possession date, which commence in 2023 or later.

(1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of September 27, 2023.

As of September 27, 2023 the Company had additional operating lease commitments of $ 129,245 for non-cancelable leases without a possession date, which commence in 2023 or later.

These lease commitments are materially consistent with the leases that have been executed thus far.

7 unchanged sentences

Finance leases 5.4 % 4.0 %

Shake Shack Inc.

Form 10-Q | 17

Supplemental cash flow information related to leases was as follows:

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

2023 September 28

Cash paid for amounts included in the measurement of lease liabilities:

8 unchanged sentences

The Company reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

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

18 | Shake Shack Inc.

Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis.

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

2 unchanged sentences

The following table summarizes the ownership interest in SSE Holdings:

June 28, 2023 December 28, 2022

September 27, 2023 December 28, 2022

LLC Interests Ownership % LLC Interests Ownership %

4 unchanged sentences

The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) to the non-controlling interest holders.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Non-controlling interest holders' weighted average ownership percentages 6.7 % 6.8 % 6.7 % 6.9 %

18 | Shake Shack Inc.

The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Net income (loss) attributable to Shake Shack Inc.

$ 7,627 $ ( 2,024 ) $ 13,041 $ ( 13,374 )

Other comprehensive loss:

Unrealized loss on foreign currency translation adjustment — ( 1 ) ( 4 ) ( 2 )

Other comprehensive income (loss):

Unrealized gain (loss) on foreign currency translation adjustment 1 — ( 3 ) ( 2 )

Transfers (to) from non-controlling interests:

Increase in additional paid-in capital as a result of the redemption of LLC Interests 71 7 265 313

Increase (decrease) in additional paid-in capital as a result of activity under its stock compensation plan and the related income tax effects 145 ( 332 ) ( 2,554 ) ( 2,608 )

Decrease in additional paid-in capital as a result of activity under its stock compensation plan and the related income tax effects ( 469 ) ( 182 ) ( 3,023 ) ( 2,790 )

Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.

$ 7,230 $ ( 2,199 ) $ 10,280 $ ( 15,853 )

Shake Shack Inc.

Form 10-Q | 19

The following table summarizes the LLC Interests activity:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

LLC Interests activity under the Company's stock compensation plan

11 unchanged sentences

A summary of equity-based compensation expense by award type was as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Performance stock units $ 391 $ 1,053 $ 2,450 $ 3,476

2 unchanged sentences

Total income tax benefit recognized related to equity-based compensation $ 105 $ 107 $ 305 $ 224

Shake Shack Inc.

Form 10-Q | 19

Equity-based compensation expense recognized was as follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

General and administrative expenses $ 3,163 $ 3,245 $ 10,254 $ 9,390

1 unchanged sentence

Equity-based compensation expense $ 3,486 $ 3,515 $ 11,220 $ 10,155

20 | Shake Shack Inc.

Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings.

7 unchanged sentences

The Company is also subject to withholding taxes in foreign jurisdictions.

The effective income tax rates for the thirteen weeks ended June 28, 2023 and June 29, 2022 were 4.6 % and ( 118.6 )%, respectively.

The increase was primarily driven by the change in pre-tax income, and the impact of permanent differences and discrete expense on pre-tax income for the period compared to pre-tax loss for the same period last year.

The effective income tax rates for the thirteen weeks ended September 27, 2023 and September 28, 2022 were 6.1 % and 39.5 %, respectively.

The decrease was primarily driven by the change in pre-tax income and the impact of permanent differences and discrete expense on pre-tax income for the period compared to pre-tax loss for the same period last year.

The Company's ownership interest in SSE Holdings is directly related to its share of the taxable income (loss) of SSE Holdings.

The weighted-average ownership interest in SSE Holdings was 93.3 % and 93.1 % for the thirteen weeks ended June 28, 2023 and June 29, 2022, respectively.

The effective income tax rates for the twenty-six weeks ended June 28, 2023 and June 29, 2022 were 17.8 % and 22.2 %, respectively.

The decrease was primarily driven by the change in pre-tax income and the effect of permanent differences, primarily tax credits, on pre-tax income for the period compared to pre-tax loss in the same period last year, as well as a decrease in expense due to tax benefits related to certain windfalls in equity based compensation.

The weighted-average ownership interest in SSE Holdings was 93.3 % and 93.2 % for the thirteen weeks ended September 27, 2023 and September 28, 2022, respectively.

The effective income tax rates for the thirty-nine weeks ended September 27, 2023 and September 28, 2022 were 11.3 % and 25.5 %, respectively.

The decrease was primarily driven by the change in pre-tax income and the effect of permanent differences, primarily tax credits, on pre-tax income for the period compared to pre-tax loss for the same period last year, as well as a decrease in expense due to tax benefits related to certain windfalls in equity-based compensation.

The decrease was partially offset by an increase in the Company's ownership interest in SSE Holdings which increased its share of the taxable income (loss) of SSE Holdings.

The Company's weighted-average ownership interest in SSE Holdings was 93.3 % and 93.1 % for the twenty-six weeks ended June 28, 2023 and June 29, 2022, respectively.

The Company's weighted-average ownership interest in SSE Holdings was 93.3 % and 93.1 % for the thirty-nine weeks ended September 27, 2023 and September 28, 2022, respectively.

Deferred Tax Assets and Liabilities

During the twenty-six weeks ended June 28, 2023, the Company acquired an aggregate of 164,248 LLC Interests in connection with the redemption of LLC Interests, and activity relating to its stock compensation plan.

During the thirty-nine weeks ended September 27, 2023, the Company acquired an aggregate of 181,270 LLC Interests in connection with the redemption of LLC Interests and activity relating to its stock compensation plan.

The Company recognized a deferred tax asset in the amount of $ 48 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests.

As of June 28, 2023, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $ 87,606 .

During the twenty-six weeks ended June 28, 2023, the Company also recognized $ 129 of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments.

As of September 27, 2023, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $ 83,023 .

During the thirty-nine weeks ended September 27, 2023, the Company also recognized $ 200 of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments.

Refer to "Tax Receivable Agreement," herein for additional information.

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized.

As of June 28, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets relating to certain state tax credits and net operating losses and certain foreign tax credits) are more likely than not to be realized.

As of September 27, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets relating to certain state tax credits and net operating losses and certain foreign tax credits) are more likely than not to be realized.

As such, no additional valuation allowance was recognized.

20 | Shake Shack Inc.

Tax Receivable Agreement

5 unchanged sentences

They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On February 4, 2015, the Company entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments").

Shake Shack Inc.

Form 10-Q | 21

benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments").

The Company expects to benefit from the remaining 15 % of any tax benefits that may actually realize.

1 unchanged sentence

The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests.

During the twenty-six weeks ended June 28, 2023, the Company acquired an aggregate of 25,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement.

During the thirty-nine weeks ended September 27, 2023, the Company acquired an aggregate of 35,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement.

The Company recognized an additional liability in the amount of $ 721 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on estimates of future taxable income.

During the twenty-six weeks ended June 28, 2023 and June 29, 2022, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

As of June 28, 2023, the total amount of TRA Payments due under the Tax Receivable Agreement, was $ 235,361 .

During the thirty-nine weeks ended September 27, 2023 and September 28, 2022, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

As of September 27, 2023, the total amount of TRA Payments due under the Tax Receivable Agreement, was $ 235,614 .

Refer to Note 13, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement.

4 unchanged sentences

by the weighted average number of shares of Class A common stock outstanding, adjusted to give effect to potentially dilutive securities.

Shake Shack Inc.

Form 10-Q | 21

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts):

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Net income (loss) attributable to Shake Shack Inc.—basic $ 7,627 $ ( 2,024 ) $ 13,041 $ ( 13,374 )

11 unchanged sentences

Earnings (loss) per share of Class A common stock—diluted $ 0.19 $ ( 0.05 ) $ 0.31 $ ( 0.34 )

22 | Shake Shack Inc.

The effect of potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive.

4 unchanged sentences

The following table presents potentially dilutive securities excluded from the computations of diluted earnings (loss) per share of Class A common stock:

Thirteen Weeks Ended Twenty-Six Weeks Ended

Thirteen Weeks Ended Thirty-Nine Weeks Ended

2023 September 28

2022 September 27

2023 September 28

Stock options — 138,306 (2) — 138,306 (2)

4 unchanged sentences

(1) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.

22 | Shake Shack Inc.

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

1 unchanged sentence

The following table sets forth supplemental cash flow information:

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

2023 September 28

Cash paid for:

6 unchanged sentences

Establishment of liabilities under tax receivable agreement 721 847

Shake Shack Inc.

Form 10-Q | 23

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

Certain leases require the Company to obtain letters of credit.

As of June 28, 2023, the Company held two letters of credit, one for $ 130 which expires in February 2026 and the second for $ 603 , which expires in August 2023 and renews automatically for one-year periods through January 2034.

As of September 27, 2023, the Company held two letters of credit, one for $ 130 which expires in February 2026 and the second for $ 603 , which expires in August 2023 and renews automatically for one-year periods through January 2034.

Purchase Commitments

4 unchanged sentences

The Company is subject to various legal proceedings, claims and liabilities, involving employees and guests alike, which arise in the ordinary course of business and are generally covered by insurance.

As of June 28, 2023, the amount of the ultimate liability with respect to these matters was not material.

As of September 27, 2023, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note 10, Income Taxes, the Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions.

The Company is not obligated to make any payments

Shake Shack Inc.

Form 10-Q | 23

under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized.

The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized.

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

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

During the twenty-six weeks ended June 28, 2023 and June 29, 2022, the Company recognized liabilities totaling $ 468 and $ 817 , respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

As of June 28, 2023 and December 28, 2022, the total obligations under the Tax Receivable Agreement were $ 235,361 and $ 234,893 , respectively.

There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred during the twenty-six weeks ended June 28, 2023.

During the thirty-nine weeks ended September 27, 2023 and September 28, 2022, the Company recognized liabilities totaling $ 721 and $ 847 , respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

As of September 27, 2023 and December 28, 2022, the total obligations under the Tax Receivable Agreement were $ 235,614 and $ 234,893 , respectively.

RELATED PARTY TRANSACTIONS

2 unchanged sentences

As a result, Union Square Hospitality Group, LLC and its subsidiary, set forth below, are considered related parties.

24 | Shake Shack Inc.

Hudson Yards Sports and Entertainment

4 unchanged sentences

HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amounts received from HYC Licensing revenue $ 419 $ 180 $ 728 $ 402

Classification June 28

Classification September 27

2023 December 28

2 unchanged sentences

The Chairman of the Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which Shake Shack has a license agreement and pays license fees to operate the Madison Square Park Shack.

No amounts were due to MSP Conservancy as of June 28, 2023 and December 28, 2022.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

No amounts were due to MSP Conservancy as of September 27, 2023 and December 28, 2022.

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amounts paid to MSP Conservancy Occupancy and related expenses $ 224 $ 383 $ 672 $ 859

24 | Shake Shack Inc.

The Chairman of the Board of Directors serves as a director of Olo, Inc.

(formerly known as "Mobo Systems, Inc."), a platform the Company uses in connection with its mobile ordering application.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amounts paid to Olo, Inc.

Other operating expenses $ 156 $ 110 $ 423 $ 316

Classification June 28

Classification September 27

2023 December 28

5 unchanged sentences

The Company currently uses certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with its kiosk technology, sales for certain off-site events and the processing of a limited amount of sales at certain locations.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

Shake Shack Inc.

Form 10-Q | 25

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amounts paid to Block, Inc.

Other operating expenses $ 2,520 $ 1,092 $ 6,105 $ 2,952

Classification June 28

Classification September 27

2023 December 28

5 unchanged sentences

Refer to Note 10, Income Taxes, for additional information.

No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the twenty-six weeks ended June 28, 2023 and June 29, 2022.

Classification June 28

No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the thirty-nine weeks ended September 27, 2023 and September 28, 2022.

Classification September 27

2023 December 28

3 unchanged sentences

Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members.

No tax distributions were payable to non-controlling interest holders as of June 28, 2023 and December 28, 2022, respectively.

Thirteen Weeks Ended Twenty-Six Weeks Ended

Classification June 28

No tax distributions were payable to non-controlling interest holders as of September 27, 2023 and December 28, 2022, respectively.

Thirteen Weeks Ended Thirty-Nine Weeks Ended

Classification September 27

2023 September 28

2022 September 27

2023 September 28

Amounts paid to non-controlling interest holders Non-controlling interests $ 79 $ 65 $ 131 $ 389

Shake Shack Inc.

Form 10-Q | 25

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

What changed 10-Q

Item 1. Financial Statements