What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-23 · 202 added, 202 removed, 365 unchanged (53% of the section changed)

1 unchanged sentence

This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein.

All statements other than statements of historical fact are forward-looking statements.

All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about the Company's growth, strategic plan, and liquidity.

Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business.

You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.

These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "likely," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," the negatives thereof and other similar expressions.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors" and in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations".

You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors," in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Item 7A "Quantitative and Qualitative Disclosures About Market Risk."

The forward-looking statements included in this Form 10-K are made only as of the date hereof.

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If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Restatement of Previously Issued Consolidated Financial Statements

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement of the Company’s previously issued Consolidated Financial Statements for the fiscal year ended December 28, 2022.

The restatement was related to incorrect accounting for the deferred tax asset associated with the Company's investment in SSE Holdings, LLC primarily due to incorrect accounting for state tax depreciation.

The error led to an overstatement of income tax expense and an understatement of deferred tax assets during the impacted period.

The error did not impact total revenue or loss before income taxes for the fiscal year ended December 28, 2022.

Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the accompanying Consolidated Financial Statements included in Part II, Item 8 for additional information.

Shake Shack Inc.

Form 10-K | 54

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

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

We are known for our made-to-order 100% 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.

With our fine-dining roots and a commitment to crafting uplifting experiences, Shake Shack has become a cult-brand and created a new category, fine-casual.

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

Stand For Something Good is a call to action for all of our stakeholders — our team, guests, communities, suppliers and investors — and we actively invite them all to share in this philosophy with us.

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"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 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 open 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 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.

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

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

“System-wide sales” is an operating measure and consists of sales from the Company's domestic Company-operated Shacks, domestic licensed Shacks and international licensed Shacks.

The Company does not recognize the sales from licensed Shacks as revenue.

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

Recent Business Trends

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.

Fiscal 2023 was a year of milestones at Shake Shack as we surpassed 500 Shacks system-wide, crossed $1 billion in Shack sales, and expanded Shack-level operating profit margin.

The thirteen weeks ended December 27, 2023 ended on a high note as we realized positive traffic through the success of our marketing strategies while we continued to expand Shack-level operating profit margin.

During the thirteen weeks ended December 27, 2023, we opened a total of 24 Shacks system-wide, including 15 Company-operated Shacks.

As of December 27, 2023 there were 518 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.

Same-Shack sales for the thirteen weeks ended December 27, 2023 increased 2.8% compared to the same period last year, with suburban Shacks increasing 5.1% and urban Shacks increasing 0.4%.

This increase was driven by a 1.4% increase in price mix primarily due to menu price increases and a 1.4% increase in guest traffic.

Same-Shack sales for the fifty-two weeks ended December 27, 2023 increased 4.4% compared to the same period last year wholly driven by an increase in price mix, with suburban Shacks increasing 5.2% and urban Shacks increasing 3.5%.

For the purpose of calculating same-Shack sales growth for the thirteen and fifty-two weeks ended December 27, 2023, Shack sales for 209 Shacks were included in the comparable Shack base.

Shake Shack Inc.

Form 10-K | 55

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%.

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.

Shack system-wide sales increased 22.7% to $1,378.5 million for the fiscal year ended December 28, 2022, versus the same period last year.

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 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 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.

Average weekly sales were $76,000 for the thirteen weeks ended December 27, 2023, which was flat compared to the same period last year, driven by higher menu prices, partially offset by menu mix and the performance of the 2022 class of Shacks.

Average weekly sales were $75,000 for the fifty-two weeks ended December 27, 2023 compared to $73,000 for the same period last year, driven by higher menu prices and the opening of 41 new domestic Company-operated Shacks.

System-wide sales increased 21.4% to $442.1 million for the thirteen weeks ended December 27, 2023, versus the same period last year.

System-wide sales increased 23.5% to $1,702.1 million for the fifty-two weeks ended December 27, 2023, versus the same period last year.

Average unit volume for domestic Company-operated Shacks was $3.9 million for the fifty-two weeks ended December 27, 2023 compared to $3.8 million in the same period last year.

Digital sales for the thirteen and fifty-two weeks ended December 27, 2023 increased 15.9% and 6.9% respectively, compared to the same periods last year.

Digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 35.0% of Shack sales during the thirteen weeks ended December 27, 2023.

Shake Shack Inc.

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During fiscal 2023, we opened 41 new domestic Company-operated Shacks and 44 new licensed Shacks.

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

There were three permanent international licensed Shack closures and no permanent domestic Company-operated Shack closures in fiscal 2023.

Below are Shacks opened during the fourth quarter of 2023.

Location Type Opening Date

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

Puebla, Mexico — Angelópolis International Licensed 9/28/2023

Round Rock, TX — Round Rock Domestic Company-operated 10/2/2023

Seattle, WA — Westfield Southcenter Domestic Company-operated 10/2/2023

Tigard, OR — Bridgeport Village Domestic Company-operated 10/15/2023

Guadalajara, Mexico — Guadalajara Airport International Licensed 10/19/2023

Hainan, China — Haikou International Licensed 10/24/2023

Seoul, South Korea — Mokdong International Licensed 10/25/2023

Salem, NH — Tuscan Village Domestic Company-operated 10/29/2023

Raleigh, NC — Village District Domestic Company-operated 11/8/2023

Colorado Springs, CO — Interquest Domestic Company-operated 11/8/2023

Tianjin, China — Joy City International Licensed 11/9/2023

Grand Prairie, TX — Grand Prairie Domestic Company-operated 11/15/2023

Querétaro, Mexico — Querétaro Drive Thru International Licensed 11/29/2023

Bangkok, Thailand — EmSphere International Licensed 12/2/2023

Cedar Park, TX — Cedar Park Domestic Company-operated 12/4/2023

Liberty Township, OH — Liberty Center Domestic Company-operated 12/6/2023

Sentosa, Singapore — Sentosa International Licensed 12/9/2023

North Las Vegas, NV — Craig Road Domestic Company-operated 12/13/2023

Ogden, UT — Riverdale Road Domestic Company-operated 12/13/2023

Oxford, United Kingdom — Cornmarket Street International Licensed 12/18/2023

Saint Louis, MO — Des Peres Domestic Company-operated 12/20/2023

Webster, TX — Baybrook Domestic Company-operated 12/20/2023

Nashville, TX — Nashville Tanger Outlets Domestic Company-operated 12/26/2023

Studio City, CA — Studio City Domestic Company-operated 12/27/2023

Shake Shack Inc.

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The following table summarizes our results of operations for fiscal 2023 and fiscal 2022:

(As Restated)

(dollar amounts in thousands) 2023 2022

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Other operating expenses (2)

149,449 14.3 % 129,650 14.9 %

Occupancy and related expenses 79,846 7.6 % 68,508 7.9 %

General and administrative expenses (2)

129,542 11.9 % 120,009 13.3 %

Depreciation and amortization expense 91,242 8.4 % 72,796 8.1 %

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TOTAL EXPENSES 1,081,612 99.5 % 927,380 103.0 %

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

INCOME (LOSS) FROM OPERATIONS 5,921 0.5 % (26,894) (3.0) %

Other income, net 12,776 1.2 % 4,127 0.5 %

Interest expense (1,717) (0.2) % (1,518) (0.2) %

LOSS BEFORE INCOME TAXES (24,285) (2.7) % (17,335) (2.3) %

Income tax expense (benefit) 1,682 0.2 % (7,224) (1.0) %

NET LOSS (25,967) (2.9) % (10,111) (1.4) %

Net loss attributable to non-controlling interests (1,876) (0.2) % (1,456) (0.2) %

NET LOSS ATTRIBUTABLE TO SHAKE SHACK INC.

INCOME (LOSS) BEFORE INCOME TAXES 16,980 1.6 % (24,285) (2.7) %

Income tax benefit (4,010) (0.4) % (1,180) (0.1) %

NET INCOME (LOSS) 20,990 1.9 % (23,105) (2.6) %

Net income (loss) attributable to non-controlling interests 726 0.1 % (1,876) (0.2) %

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

$ 20,264 1.9 % $ (21,229) (2.4) %

(1) As a percentage of Shack sales.

(2) The Company elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the fifty-two weeks ended December 27, 2023.

These reclassifications had no effect on previously reported Net Income (Loss).

For the fifty-two weeks ended December 28, 2022, the Company reclassified $1,219 from Other operating expenses to General and administrative expenses in the accompanying Consolidated Financial Statements.

Shake Shack Inc.

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Shack sales for the fiscal year ended December 27, 2023 increased 20.4% to $1,046.8 million versus the prior 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.

The increase was primarily due to the class of 2022 being open for a full year, which contributed $72.2 million and the opening of 41 new domestic Company-operated Shacks during the fiscal year, which contributed $71.0 million, as well as increased menu prices.

Licensing Revenue

Licensing revenue is comprised of license fees, opening fees for certain licensed Shacks and territory fees.

Licensing revenue is comprised of license fees and opening and territory fees for certain licensed Shacks.

License fees are calculated as a percentage of sales and territory fees are payments for the exclusive right to develop Shacks in a specific geographic area.

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Licensing revenue for the fiscal year ended December 27, 2023 increased 30.4% to $40.7 million versus the prior year.

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.

The increase was primarily due to 41 net new licensed Shacks opened during fiscal 2023, which contributed approximately $4.0 million, 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, channel mix and fluctuations in commodity costs, as well as geographic scale and proximity.

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

(dollar amounts in thousands) 2023 2022

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Food and paper costs for the fiscal year ended December 27, 2023 increased 16.6% to $305.0 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 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.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023, which contributed approximately $19.0 million, as well as increased commodity costs particularly in beef and fries.

Shake Shack Inc.

Form 10-K | 59

As a percentage of Shack sales, the decrease in Food and paper costs for fiscal 2023 was primarily due to menu price increases partially offset by higher commodity costs, as mentioned above.

Labor and Related Expenses

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Labor and related expenses for the fiscal year ended December 27, 2023 increased 18.2% to $304.3 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 was primarily due to sales leverage, partially offset by more managers per Shack and increased wages and salaries.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023 as well as openings from the fiscal 2022 class of Shacks weighted to the fourth quarter of 2022.

As a percentage of Shack sales, the decrease in Labor and related expenses for fiscal 2023 was primarily due to sales leverage and labor efficiencies, partially offset by the opening of 41 new domestic Company-operated Shacks during fiscal 2023 and increased wages and salaries at remaining Shacks.

Other Operating Expenses

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Other operating expenses for the fiscal year ended December 27, 2023 increased 15.3% to $149.4 million versus the prior year.

The increase was primarily due to the opening of 36 net new domestic Company-operated Shacks during fiscal 2022, 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.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023, increased facilities costs, mainly utilities, as well as increased transaction costs associated with higher sales.

As a percentage of Shack sales, the decrease in Other operating expenses for fiscal 2023 was primarily due to sales leverage, lower delivery commissions due to a shift in channel mix and decreased repair and maintenance expenses.

Occupancy and Related Expenses

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Occupancy and related expenses for the fiscal year ended December 27, 2023 increased 16.5% to $79.8 million versus the prior year.

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.

The increase was primarily due to the openings from the fiscal 2022 class of Shacks weighted to the fourth quarter of 2022, which contributed approximately $5.0 million, as well as the opening of 41 new domestic Company-operated Shacks during fiscal 2023.

As a percentage of Shack sales, the decrease in Occupancy and related expenses for fiscal 2023 was primarily due to sales leverage and lower base rent.

General and Administrative Expenses

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General and administrative expenses for the fiscal year ended December 27, 2023 increased 7.9% to $129.5 million versus the prior year.

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.

The increase was primarily due to an increase in wages and other team costs to support our Shack growth, professional fees related to a non-recurring matter of $3.4 million, as well as investments in marketing and technology initiatives, partially offset by lower legal expenses compared to the prior year period.

As a percentage of Total revenue, the decrease in General and administrative expenses for fiscal 2023 was primarily due to sales leverage partially offset by the aforementioned items.

Depreciation and Amortization Expense

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Depreciation and amortization expense for the fiscal year ended December 27, 2023 increased 25.3% to $91.2 million versus the prior year.

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.

The increase was primarily due to incremental depreciation of capital expenditures related to the class of 2022 Shacks being open for a full year and the opening of 41 new domestic Company-operated Shacks during fiscal 2023, as well as additional depreciation related to technology projects placed in service.

Shake Shack Inc.

Form 10-K | 61

As a percentage of Total revenue, the increase in Depreciation and amortization expense for fiscal 2023 was primarily due to the aforementioned items.

Pre-Opening Costs

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Pre-opening costs for the fiscal year ended December 27, 2023 increased 27.8% to $19.2 million versus the prior year.

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.

The increase was due to increased wages and benefits for our Shack teams related to the timing of Shack openings throughout the year as well as legal costs compared to the prior year period.

Impairment and Loss on Disposal of Assets

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.

Impairment and loss on disposal of assets primarily consists 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.

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Impairment and loss on disposal of assets for the fiscal year ended December 27, 2023 increased 24.0% to $3.0 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.

The increase was primarily due to increases in disposal of home office assets and abandoned construction projects, and the number of Shacks maturing in our base in the current year compared to the prior year.

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.

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

Shake Shack Inc.

Form 10-K | 62

(dollar amounts in thousands) 2023 2022

Other income, net

$ 12,776 $ 4,127

Percentage of Total revenue 1.2 % 0.5 %

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Percentage change compared to prior year 209.6 %

Shake Shack Inc.

Form 10-K | 63

Other income, net for the fiscal year ended December 27, 2023 increased from $4.1 million to $12.8 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.

The increase was primarily due to an increase in dividend income generated by Cash and cash equivalents of $6.2 million, related to higher interest rates in fiscal 2023.

Interest Expense

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Percentage change compared to prior year 13.1 %

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)

Interest expense for the fiscal year ended December 27, 2023 increased 13.1% to $1.7 million versus the prior year.

The increase was primarily due to increased finance lease charges partially offset by a decrease in various sales tax audit assessment charges.

Income Tax Benefit

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

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We are also subject to withholding taxes in foreign jurisdictions.

(As Restated)

(dollar amounts in thousands) 2023 2022

Income tax expense (benefit)

Income tax benefit

$ (4,010) $ (1,180)

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Percentage change compared to prior year 239.8 %

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

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

Our effective income tax rate for the fiscal year ended December 27, 2023 decreased to (23.6)% from 4.9% in the prior year.

The decrease in our effective income tax rate was primarily driven by additional benefit related to a decrease in valuation allowance and higher tax credits, partially offset by an increase in foreign tax expense and the revaluation of deferred tax assets as a result of a reduction in certain state income tax rates.

Shake Shack Inc.

Form 10-K | 63

Net Income (Loss) Attributable to Non-controlling Interests

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

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.

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.

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 loss and other comprehensive loss to Shake Shack Inc.

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

and the non-controlling interest holders.

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(dollar amounts in thousands) 2023 2022

Net loss attributable to non-controlling interests

Net income (loss) attributable to non-controlling interests

$ 726 $ (1,876)

Percentage of Total revenue 0.1 % (0.2) %

Dollar change compared to prior year $ (420)

Percentage change compared to prior year 28.8 %

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.

Net income (loss) attributable to non-controlling interests for the fiscal year ended December 27, 2023 improved to income of $0.7 million from a loss of $1.9 million in the prior year.

The improvement was primarily due to an increase in net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.7% and 6.9%, respectively for fiscal 2023 and fiscal 2022.

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

Shack-Level Operating Profit

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.

Shack-level operating profit, also referred to as restaurant profit, is defined as Shack sales less Shack-level operating expenses which include Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.

How This Measure Is Useful

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

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Limitations of the Usefulness of this Measure

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

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

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

(dollar amounts in thousands) 2023 2022 2021

Loss from operations (1)

Income (loss) from operations

$ 5,921 $ (26,894) $ (15,853)

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General and administrative expenses (1)

129,542 120,009 87,196

Depreciation and amortization expense 91,242 72,796 58,991

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19.9% 17.5% 16.8%

(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.

(1) The Company has elected to reclassify certain marketing expenses from Other operating expenses to General and administrative expenses in the accompanying Consolidated Financial Statements for prior periods to be comparable with the classification for the fifty-two weeks ended December 27, 2023.

(2) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(3) For the fifty-two weeks ended December 28, 2022, Shack-level operating profit margin includes a $1,281 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 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.

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

Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, 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.

During the fiscal year ended December 27, 2023, the Company revised its definition of Adjusted EBITDA to exclude deferred lease costs and executive transition costs as adjustments to the measure.

The Company believes excluding both of these items improves the usefulness of Adjusted EBITDA as these items are characteristic of the Company’s ongoing operations and such presentation is consistent with other companies in the restaurant industry.

Previously reported periods have been revised to conform to the current period presentation.

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How These Measures Are Useful

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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 loss, the most directly comparable GAAP measure, is as follows.

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(in thousands) 2022 2021 2020

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

(As Restated) (As Restated)

(dollar amounts in thousands)

2023 2022 2021

Net income (loss)

$ 20,990 $ (23,105) $ (6,017)

Depreciation and amortization expense 91,242 72,796 58,991

Interest expense, net 1,518 1,577 815

Interest (income) expense, net

(726) 1,518 1,577

Income tax expense (benefit) (4,010) (1,180) (11,318)

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1,798 1,500 1,245

Deferred lease costs (2)

(2,247) 245 92

Impairment and loss on disposal of assets (1)

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Legal settlements (2)

619 6,710 560

CEO transition costs

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

Debt offering related costs (3)

Executive transition costs 34 179 150

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

Project Concrete (6)

Other income related to adjustment of liabilities under tax receivable agreement — — (2)

Adjusted EBITDA $ 131,816 $ 72,709 $ 55,602

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12.1% 8.1% 7.5%

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

(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.

(1) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(2) Refer to Note 18, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information.

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Refer to Note 9, Debt, in the accompanying Consolidated Financial Statements, for additional information.

(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.

(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.

(4) Related to professional fees for a non-recurring matter.

(5) Calculated as a percentage of Total revenue, which was $1,087.5 million, $900.5 million and $739.9 million, respectively, for the fifty-two weeks ended December 27, 2023, December 28, 2022 and December 29, 2021.

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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.

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.

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 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.

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.

During the fiscal year ended December 27, 2023 , the Company revised its definition of Adjusted Pro Forma Net Income to exclude executive transition costs as an adjustment to the measure.

Previously reported periods have been revised to conform to the current period presentation.

See "EBITDA and Adjusted EBITDA" above for additional information.

How These Measures Are Useful

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.

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 loss attributable to Shake Shack Inc.

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.

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 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.

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 loss attributable to Shake Shack Inc.

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.

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.

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.

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(As Restated) (As Restated)

(in thousands, except per share amounts) 2023 2022 2021

Net loss attributable to Shake Shack Inc.

Net income (loss) attributable to Shake Shack Inc.

$ 20,264 $ (21,229) $ (4,561)

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

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

726 (1,876) (1,456)

Legal settlements (2)

619 6,710 560

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

Asset impairment charge (3)

Executive transition costs 34 179 150

CEO transition costs

Debt offering related costs (4)

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

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

Revolving Credit Facility amendments related costs (5)

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

Project Concrete (7)

Tax impact of above adjustments (7)

(9,254) 4,636 2,081

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

Adjusted pro forma net income (loss) $ 16,158 $ (12,941) $ (2,824)

Weighted average shares of Class A common stock outstanding—diluted 43,899 39,237 39,085

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Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted 43,899 42,129 42,012

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

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.37 $ (0.31) $ (0.07)

(As Restated) (As Restated)

2023 2022 2021

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

Earnings (loss) per share of Class A common stock—diluted $ 0.48 $ (0.54) $ (0.12)

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

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(0.11) 0.24 0.07

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

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

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.37 $ (0.31) $ (0.07)

For the thirteen and fifty-two weeks ended December 27, 2023, this exchange is included in weighted-average shares of Class A common stock outstanding-diluted and therefore no additional share and per share adjustments are required.

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

Refer to Note 18, 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.

(3) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

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

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(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.

(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.

(6) Related to professional fees for a non-recurring matter.

(7) For the fifty-two weeks ended December 27, 2023, December 28, 2022 and December 29, 2021, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 24.5%, 31.0% and 83.5%, 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.

(8) 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.

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

Shake Shack Inc.

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

We believe our existing cash and cash equivalents balances and cash from operations 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.

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Summary of Cash Flows

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

(As Restated)

(in thousands) 2023 2022

1 unchanged sentence

Net cash used in investing activities (132,320) (143,424)

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

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

Net cash used in financing activities (5,684) (5,202)

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents (5,868) (71,885)

Cash and cash equivalents at beginning of period 230,521 302,406

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For fiscal 2023, net cash provided by operating activities was $132.1 million compared to $76.7 million for fiscal 2022, an increase of $55.4 million.

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.

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This increase was primarily due to an $69.2 million increase in net results after excluding non-cash charges, partially offset by changes in working capital of $20.0 million.

The changes in working capital included the timing and payments of legal settlements and a decrease in the construction in progress accruals due to the timing of shack openings this period compared to the same period last year.

Investing Activities

For fiscal 2023, net cash used in investing activities was $132.3 million compared to $143.4 million for fiscal 2022, a decrease of $11.1 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.

This decrease was primarily due to net proceeds from marketable securities activity of $14.5 million partially offset by an increase of $3.6 million in capital expenditures to support our real estate development.

The marketable securities activity was the result of the sale of equity securities of $81.5 million and the maturities of held-to-maturity securities of $27.0 million partially offset by purchase of held-to-maturity securities of $94.0 million.

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.

For fiscal 2023, net cash used in financing activities was $5.7 million compared to $5.2 million for fiscal 2022, an increase of $0.5 million.

This increase was primarily due to an increase in withholding taxes related to the vesting of equity awards, partially offset by an increase in proceeds from stock option exercises and a decrease in distributions paid to non-controlling interest holders.

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.

In March 2021, we issue d $250.0 million aggregate principal amount of 0% C onvertible 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.

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

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.

In June 2023, the Company entered into the fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modified 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

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depending on the net lease adjusted leverage ratio.

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

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Contractual Obligations

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

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

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

Refer to Note 9, Debt and Note 10, 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.

Liabilities under the 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 15, Income Taxes, and Note 18, 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.

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,

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software acquisition/license commitments and service contracts.

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

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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.

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Valuation of Long-Lived Assets

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.

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

The recoverability evaluation is first performed at the market service area level ("MSA").

If the carrying value of the MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks within the identified MSA.

An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack.

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.

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

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

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

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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.

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This is considered significant evidence that is difficult to overcome.

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

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

Although we are in a three-year cumulative loss position as of December 27, 2023, we have a recent history of earnings prior to the onset of the COVID-19 pandemic.

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

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

Additionally, we have returned to a profitable pre-tax earnings position for the year ended December 27, 2023 and are forecasted to continue this trajectory.

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

As of December 27, 2023, we had $326.2 million of net deferred tax assets, net of valuation allowances.

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

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

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

Based upon the weight of the positive and negative evidence, we determined that the positive evidence outweighs the negative evidence to support the conclusion that future taxable income should be included in the evaluation of the need for a valuation allowance.

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Liabilities Under Tax Receivable Agreement

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.

As described in Note 15 to the Consolidated Financial Statements included in Item 8, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis