Shake Shack Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") 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 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," "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-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 27, 2023 ("2023 Form 10-K"). 26 | Shake Shack Inc. Form 10-Q Table of Contents The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. 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. The following discussion should be read in conjunction with our 2023 Form 10-K and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years. OVERVIEW 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. 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. This commitment drives our integration into the local communities in which we operate and fosters a deep and lasting connection with our guests. The following definitions apply to these terms as used herein: "Average weekly sales" is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales. "Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of 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. “System-wide sales” is an operating measure and consists of sales from Company-operated Shacks and 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 licensed Shacks, as well as certain up-front fees, such as territory fees and opening fees. Key Operating Metrics Same-Shack sales for the thirteen weeks ended June 26, 2024 increased 4.0% compared to the same period last year, driven by a 4.8% increase in price mix partially offset by a 0.8% decline in guest traffic. Same-Shack sales for the twenty-six weeks ended June 26, 2024 increased 2.8% compared to the same period last year, driven by a 4.2% increase in price mix partially offset by a 1.4% decline in guest traffic. For the purpose of calculating same-Shack sales for the thirteen and twenty-six weeks ended June 26, 2024, Shack sales for 228 Shacks were included in the comparable Shack base. Average weekly sales were $77,000 and $75,000, respectively, for the thirteen and twenty-six weeks ended June 26, 2024, which were flat compared to the same periods last year, primarily driven by higher menu prices, partially offset by a decline in guest traffic and menu mix. System-wide sales for the thirteen weeks ended June 26, 2024 increased 13.5% to $483.7 million compared to the same period last year. System-wide sales for the twenty-six weeks ended June 26, 2024 increased 12.9% to $927.0 million compared to the same period last year. Digital sales for the thirteen weeks ended June 26, 2024 increased 20.9% to $105.1 million compared to the same period last year. Digital sales for the twenty-six weeks ended June 26, 2024 increased 18.1% to $208.3 million compared to the same Shake Shack Inc. Form 10-Q | 27 Table of Contents period last year. Digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 34.4% and 35.5%, respectively, of Shack sales during the thirteen and twenty-six weeks ended June 26, 2024. Development Highlights During the thirteen weeks ended June 26, 2024, we opened 12 new Company-operated Shacks and 11 new licensed Shacks. There was one permanent licensed Shack closure in the second quarter of 2024. The following table presents the Shacks opened during the thirteen weeks ended June 26, 2024: Location Type Opening Date New York, NY — Penn Station Company-operated 3/28/2024 Dubai, UAE — Mirdif City Centre Licensed 4/5/2024 Scottsdale, AZ — Salt River Company-operated 4/10/2024 Kuala Lumpur, Malaysia — The Exchange TRX Licensed 4/10/2024 Tokyo, Japan — Joule Shibuya Licensed 4/13/2024 Newington, CT — Newington Company-operated 4/24/2024 Deerfield, IL — Deerfield Company-operated 4/25/2024 Foshan, China — Lingnan Tiandi Licensed 4/29/2024 Costa Mesa, CA — Costa Mesa Company-operated 5/8/2024 Shanghai, China — Kerry Parkside Licensed 5/11/2024 Pittsburgh, PA — The Terminal Company-operated 5/19/2024 Stamford, CT — Stamford Company-operated 5/22/2024 Wellesley, MA — Wellesley Company-operated 5/29/2024 Midlothian, VA — Midlothian Company-operated 5/29/2024 Secaucus, NJ — Secaucus Company-operated 6/9/2024 London, United Kingdom — St. Pancras Station Licensed 6/11/2024 Pasay, Philippines — NAIA Terminal 3 Licensed 6/11/2024 Mexico City, Mexico — Interlomas Licensed 6/12/2024 Toronto, Canada — Yonge and Dundas Licensed 6/13/2024 Seoul, South Korea — Dogok Licensed 6/14/2024 Bellevue, WA — Bellevue Square Company-operated 6/17/2024 Freehold, NJ — Freehold Company-operated 6/23/2024 Sloatsburg, NY — Ramapo Travel Plaza Licensed 6/26/2024 As of June 26, 2024, there were 547 Shacks in operation system-wide, of which 311 were Company-operated Shacks and 236 were licensed Shacks. 28 | Shake Shack Inc. Form 10-Q RESULTS OF OPERATIONS The following table summarizes our results of operations for the thirteen and twenty-six weeks ended June 26, 2024 and June 28, 2023: Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Shack sales $ 305,480 96.5 % $ 261,810 96.3 % $ 586,032 96.5 % $ 506,064 96.4 % Licensing revenue 11,016 3.5 % 9,995 3.7 % 20,968 3.5 % 19,019 3.6 % TOTAL REVENUE 316,496 100.0 % 271,805 100.0 % 607,000 100.0 % 525,083 100.0 % Shack-level operating expenses (1) : Food and paper costs 85,053 27.8 % 75,800 29.0 % 165,306 28.2 % 147,572 29.2 % Labor and related expenses 86,614 28.4 % 75,158 28.7 % 168,123 28.7 % 149,422 29.5 % Other operating expenses 43,953 14.4 % 36,109 13.8 % 85,809 14.6 % 71,045 14.0 % Occupancy and related expenses 23,226 7.6 % 19,801 7.6 % 45,414 7.7 % 38,384 7.6 % General and administrative expenses 36,313 11.5 % 31,476 11.6 % 72,257 11.9 % 62,787 12.0 % Depreciation and amortization expense 25,496 8.1 % 22,252 8.2 % 50,937 8.4 % 43,574 8.3 % Pre-opening costs 4,014 1.3 % 5,577 2.1 % 6,767 1.1 % 9,134 1.7 % Impairment and loss on disposal of assets 1,045 0.3 % 884 0.3 % 1,571 0.3 % 1,606 0.3 % TOTAL EXPENSES 305,714 96.6 % 267,057 98.3 % 596,184 98.2 % 523,524 99.7 % INCOME FROM OPERATIONS 10,782 3.4 % 4,748 1.7 % 10,816 1.8 % 1,559 0.3 % Other income, net 3,300 1.0 % 3,227 1.2 % 6,506 1.1 % 6,064 1.2 % Interest expense (527) (0.2) % (405) (0.1) % (1,035) (0.2) % (808) (0.2) % INCOME BEFORE INCOME TAXES 13,555 4.3 % 7,570 2.8 % 16,287 2.7 % 6,815 1.3 % Income tax expense 3,173 1.0 % 347 0.1 % 3,691 0.6 % 1,214 0.2 % NET INCOME 10,382 3.3 % 7,223 2.7 % 12,596 2.1 % 5,601 1.1 % Less: Net income attributable to non-controlling interests 714 0.2 % 275 0.1 % 888 0.1 % 187 — % NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC. $ 9,668 3.1 % $ 6,948 2.6 % $ 11,708 1.9 % $ 5,414 1.0 % (1) As a percentage of Shack sales. Shack Sales Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our Company-operated Shacks and gift card breakage income. Shack sales in any period are directly influenced by the number of operating weeks in such period and the total number of open Shacks. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Shack sales $ 305,480 $ 261,810 $ 586,032 $ 506,064 Percentage of Total revenue 96.5 % 96.3 % 96.5 % 96.4 % Dollar change compared to prior year $ 43,670 $ 79,968 Percentage change compared to prior year 16.7 % 15.8 % Shack sales for the thirteen weeks ended June 26, 2024 increased 16.7% to $305.5 million versus the same period last year. The increase was primarily due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024, which contributed $32.1 million, as well as increased menu prices, which contributed $18.3 million, partially offset by menu mix, mainly related to strategic investments in marketing. Shake Shack Inc. Form 10-Q | 29 Table of Contents Shack sales for the twenty-six weeks ended June 26, 2024 increased 15.8% to $586.0 million versus the same period last year. The increase was primarily due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024, which contributed $57.0 million, as well as increased menu prices, which contributed $22.0 million. Licensing Revenue Licensing revenue is comprised of license fees and opening fees 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. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Licensing revenue $ 11,016 $ 9,995 $ 20,968 $ 19,019 Percentage of Total revenue 3.5 % 3.7 % 3.5 % 3.6 % Dollar change compared to prior year $ 1,021 $ 1,949 Percentage change compared to prior year 10.2 % 10.2 % Licensing revenue for the thirteen weeks ended June 26, 2024 increased 10.2% to $11.0 million versus the same period last year. Licensing revenue for the twenty-six weeks ended June 26, 2024 increased 10.2% to $21.0 million versus the same period last year. The increases in Licensing revenue for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to the opening of 35 net new licensed Shacks between June 28, 2023 and June 26, 2024, which contributed $1.3 million and $2.4 million, respectively, as well as higher sales at existing domestic licensed Shacks, partially offset by a decline in sales in China. Food and Paper Costs Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of Food and paper costs are variable by nature, change with sales volume, impacted by menu mix, channel mix and fluctuations in commodity costs, as well as geographic scale and proximity. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Food and paper costs $ 85,053 $ 75,800 $ 165,306 $ 147,572 Percentage of Shack sales 27.8 % 29.0 % 28.2 % 29.2 % Dollar change compared to prior year $ 9,253 $ 17,734 Percentage change compared to prior year 12.2 % 12.0 % Food and paper costs for the thirteen weeks ended June 26, 2024 increased 12.2% to $85.1 million versus the same period last year. Food and paper costs for the twenty-six weeks ended June 26, 2024 increased 12.0% to $165.3 million versus the same period last year. The increases for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024, which contributed approximately $9.4 million and $17.3 million, respectively. As a percentage of Shack sales, the decreases in Food and paper costs for the thirteen and twenty-six weeks ended June 26, 2024 were primarily driven by menu price increases partially offset by increases in certain commodity costs, mainly beef and increases in marketing promotions. 30 | Shake Shack Inc. Form 10-Q Table of Contents Labor and Related Expenses Labor and related expenses include Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers' compensation expense and medical benefits. As we expect with other variable expense items, labor costs should grow as our Shack sales grow. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our Company-operated Shacks. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Labor and related expenses $ 86,614 $ 75,158 $ 168,123 $ 149,422 Percentage of Shack sales 28.4 % 28.7 % 28.7 % 29.5 % Dollar change compared to prior year $ 11,456 $ 18,701 Percentage change compared to prior year 15.2 % 12.5 % Labor and related expenses for the thirteen weeks ended June 26, 2024 increased 15.2% to $86.6 million versus the same period last year. Labor and related expenses for the twenty-six weeks ended June 26, 2024 increased 12.5% to $168.1 million versus the same period last year. The increases for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024. As a percentage of Shack sales, the decreases in Labor and related expenses for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to labor efficiencies and sales leverage partially offset by increased wages and incremental expenses from the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024. Other Operating Expenses Other operating expenses consist of delivery commissions, Shack-level marketing expenses, repairs and maintenance, utilities and other operating expenses incidental to operating our Company-operated Shacks, such as non-perishable supplies, credit card fees and property insurance. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Other operating expenses $ 43,953 $ 36,109 $ 85,809 $ 71,045 Percentage of Shack sales 14.4 % 13.8 % 14.6 % 14.0 % Dollar change compared to prior year $ 7,844 $ 14,764 Percentage change compared to prior year 21.7 % 20.8 % Other operating expenses for the thirteen weeks ended June 26, 2024 increased 21.7% to $44.0 million versus the same period last year. Other operating expenses for the twenty-six weeks ended June 26, 2024 increased 20.8% to $85.8 million versus the same period last year. The increases for the thirteen and twenty-six weeks ended June 26, 2024 were primarily driven by increased transaction costs associated with higher sales and higher facilities costs, mainly professional services and utilities, due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024 as well as increased marketing spend. As a percentage of Shack sales, the increases in Other operating expenses for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to increases in marketing spend and delivery commissions associated with higher delivery sales. Shake Shack Inc. Form 10-Q | 31 Table of Contents Occupancy and Related Expenses Occupancy and related expenses consist of Shack-level occupancy expenses (including rent, common area expenses and certain local taxes), and exclude occupancy expenses associated with unopened Shacks, which are recorded separately in Pre-opening costs. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Occupancy and related expenses $ 23,226 $ 19,801 $ 45,414 $ 38,384 Percentage of Shack sales 7.6 % 7.6 % 7.7 % 7.6 % Dollar change compared to prior year $ 3,425 $ 7,030 Percentage change compared to prior year 17.3 % 18.3 % Occupancy and related expenses for the thirteen weeks ended June 26, 2024 increased 17.3% to $23.2 million versus the same period last year. Occupancy and related expenses for the twenty-six weeks ended June 26, 2024 increased 18.3% to $45.4 million versus the same period last year. The increases for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024. As a percentage of Shack sales, Occupancy and related expenses was flat for the thirteen weeks ended June 26, 2024 primarily driven by higher base rent offset by sales leverage. As a percentage of Shack sales, the increase in Occupancy and related expenses for the twenty-six weeks ended June 26, 2024 was primarily due to higher base rent and variable rent. General and Administrative Expenses General and administrative expenses consist of costs associated with corporate and administrative functions that support Shack development and operations, as well as equity-based compensation expense. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 General and administrative expenses $ 36,313 $ 31,476 $ 72,257 $ 62,787 Percentage of Total revenue 11.5 % 11.6 % 11.9 % 12.0 % Dollar change compared to prior year $ 4,837 $ 9,470 Percentage change compared to prior year 15.4 % 15.1 % General and administrative expenses for the thirteen weeks ended June 26, 2024 increased 15.4% to $36.3 million versus the same period last year. General and administrative expenses for the twenty-six weeks ended June 26, 2024 increased 15.1% to $72.3 million versus the same period last year. The increase in General and administrative expenses for the thirteen weeks ended June 26, 2024 was primarily due to increased investments in marketing as well as increases in wages and other team costs to support our Shack growth. The increase in General and administrative expenses for the twenty-six weeks ended June 26, 2024 was primarily due to the aforementioned items as well as costs related to the prior restatement of prior periods included in the fiscal 2023 Form 10-K and investments in technology initiatives. As a percentage of Total revenue, the decreases in General and administrative expenses for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to sales leverage partially offset by the aforementioned items. 32 | Shake Shack Inc. Form 10-Q Table of Contents Depreciation and Amortization Expense Depreciation and amortization expense primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Depreciation and amortization expense $ 25,496 $ 22,252 $ 50,937 $ 43,574 Percentage of Total revenue 8.1 % 8.2 % 8.4 % 8.3 % Dollar change compared to prior year $ 3,244 $ 7,363 Percentage change compared to prior year 14.6 % 16.9 % Depreciation and amortization expense for the thirteen weeks ended June 26, 2024 increased 14.6% to $25.5 million versus the same period last year. Depreciation and amortization expense for the twenty-six weeks ended June 26, 2024 increased 16.9% to $50.9 million versus the same period last year. The increases in Depreciation and amortization expense for the thirteen and twenty-six weeks ended June 26, 2024 were predominantly due to incremental depreciation of capital expenditures related to the opening of 41 new Company-operated Shacks and technology projects placed into service between June 28, 2023 and June 26, 2024. Pre-Opening Costs Pre-opening costs consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for our opening training team and other supporting team members, marketing expenses, legal fees and inventory costs incurred prior to the opening of a Shack. All such costs incurred prior to the opening of a Company-operated Shack are expensed in the period in which the expense was incurred. Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of Company-operated Shack openings and the specific pre-opening costs incurred for each Company-operated Shack. Additionally, Company-operated Shack openings in new geographic markets may initially experience higher pre-opening costs than our established geographic markets, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Pre-opening costs $ 4,014 $ 5,577 $ 6,767 $ 9,134 Percentage of Total revenue 1.3 % 2.1 % 1.1 % 1.7 % Dollar change compared to prior year $ (1,563) $ (2,367) Percentage change compared to prior year (28.0) % (25.9) % Pre-opening costs for the thirteen weeks ended June 26, 2024 decreased 28.0% to $4.0 million versus the same period last year. Pre-opening costs for the twenty-six weeks ended June 26, 2024 decreased 25.9% to $6.8 million versus the same period last year. The decreases in Pre-opening costs for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to reductions in wages and team costs as we standardize the training process for unopened Shacks. Impairment and Loss on Disposal of 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. Shake Shack Inc. Form 10-Q | 33 Table of Contents Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Impairment and loss on disposal of assets $ 1,045 $ 884 $ 1,571 $ 1,606 Percentage of Total revenue 0.3 % 0.3 % 0.3 % 0.3 % Dollar change compared to prior year $ 161 $ (35) Percentage change compared to prior year 18.2 % (2.2) % Impairment and loss on disposal of assets for the thirteen weeks ended June 26, 2024 increased 18.2% to $1.0 million versus the same period last year. The increase was primarily due to an increase in abandoned construction projects, partially offset by decreases in costs of disposed assets at our Shacks and home office. Impairment and loss on disposal of assets for the twenty-six weeks ended June 26, 2024 decreased 2.2% to $1.6 million versus the same period last year. The decrease was primarily due to decreases in costs of disposed assets at our home office and at our Shacks, partially offset by an increase in the cost of abandoned projects. Other Income, Net 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. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Other income, net $ 3,300 $ 3,227 $ 6,506 $ 6,064 Percentage of Total revenue 1.0 % 1.2 % 1.1 % 1.2 % Dollar change compared to prior year $ 73 $ 442 Percentage change compared to prior year 2.3 % 7.3 % Other income, net for the thirteen weeks ended June 26, 2024 increased to $3.3 million from $3.2 million. Other income, net for the twenty-six weeks ended June 26, 2024 increased to $6.5 million from $6.1 million. The increases in Other income, net for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to an increase in interest income from investments. Interest Expense Interest expense generally consists of interest on the current portion of our liabilities under the Tax Receivable Agreement, imputed interest related to our financing equipment leases, amortization of deferred financing costs, interest and fees on our Revolving Credit Facility and amortization of debt issuance costs. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Interest expense $ (527) $ (405) $ (1,035) $ (808) Percentage of Total revenue (0.2) % (0.1) % (0.2) % (0.2) % Dollar change compared to prior year $ (122) $ (227) Percentage change compared to prior year 30.1 % 28.1 % Interest expense for the thirteen weeks ended June 26, 2024 increased 30.1% to $0.5 million versus the same period last year. Interest expense for the twenty-six weeks ended June 26, 2024 increased 28.1% to $1.0 million versus the same period last year. The increases in Interest expense for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to increased finance lease charges from the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024. 34 | Shake Shack Inc. Form 10-Q Table of Contents Income Tax Expense We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by us. We are also subject to withholding taxes in foreign jurisdictions. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Income tax expense $ 3,173 $ 347 $ 3,691 $ 1,214 Percentage of Total revenue 1.0 % 0.1 % 0.6 % 0.2 % Dollar change compared to prior year $ 2,826 $ 2,477 Percentage change compared to prior year 814.4 % 204.0 % Our effective income tax rates for the thirteen weeks ended June 26, 2024 and June 28, 2023 were 23.4% and 4.6%, respectively. Our effective income tax rates for the twenty-six weeks ended June 26, 2024 and June 28, 2023 were 22.7% and 17.8%, respectively. The increases were primarily driven by increases in pre-tax income compared to the same periods last year. The Company's ownership interest in SSE Holdings is directly related to its share of the taxable income of SSE Holdings. Our weighted average ownership interest in SSE Holdings was 93.7% and 93.3%, respectively, for the thirteen weeks ended June 26, 2024 and June 28, 2023, and 93.5% and 93.3%, respectively, for the twenty-six weeks ended June 26, 2024 and June 28, 2023. These increases in the Company's ownership interest in SSE Holdings LLC increased its share of the taxable income of SSE Holdings. Net Income 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 Condensed Consolidated Statements of Income, representing the portion of net income attributable to the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income to Shake Shack Inc. and the non-controlling interest holders. Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Net income attributable to non-controlling interests $ 714 $ 275 $ 888 $ 187 Percentage of Total revenue 0.2 % 0.1 % 0.1 % — % Net income attributable to non-controlling interests for the thirteen weeks ended June 26, 2024 increased to $0.7 million from $0.3 million in the same period last year. Net income attributable to non-controlling interests for the twenty-six weeks ended June 26, 2024 increased to $0.9 million from $0.2 million in the same period last year. The increases in Net income attributable to non-controlling interests for the thirteen and twenty-six weeks ended June 26, 2024 were primarily due to increases in net results compared to the same periods last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.3% and 6.5%, respectively, for the thirteen and twenty-six weeks ended June 26, 2024 and 6.7% for the thirteen and twenty-six weeks ended June 28, 2023. Shake Shack Inc. Form 10-Q | 35 Table of Contents NON-GAAP FINANCIAL MEASURES To supplement the Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following non-GAAP financial measures: Restaurant-level profit, Restaurant-level profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures"). Restaurant-Level Profit Restaurant-level profit, formerly referred to as Shack-level operating 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 When used in conjunction with GAAP financial measures, Restaurant-level profit and Restaurant-level profit margin are supplemental measures of operating performance that we believe are useful measures to evaluate the performance and profitability of our Shacks. Additionally, Restaurant-level profit and Restaurant-level profit margin are key metrics used internally by our management to develop internal budgets and forecasts, as well as assess the performance of our Shacks relative to budget and against prior periods. It is also used to evaluate team member compensation as it serves as a metric in certain of our performance-based team member bonus arrangements. We believe the presentation of Restaurant-level profit and Restaurant-level profit margin provides investors with a supplemental view of our operating performance that can provide meaningful insights to the underlying operating performance of our Shacks, as these measures depict the operating results that are directly impacted by our Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our Shacks. 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. Limitations of the Usefulness of this Measure Restaurant-level profit and Restaurant-level profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Restaurant-level profit and Restaurant-level profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Restaurant-level profit excludes certain costs, such as General and administrative expenses and Pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our Shacks. Therefore, this measure may not provide a complete understanding of the operating results of our Company as a whole and Restaurant-level profit and Restaurant-level profit margin should be reviewed in conjunction with our GAAP financial results. A reconciliation of Restaurant-level profit to Income from operations, the most directly comparable GAAP financial measure, is as follows. 36 | Shake Shack Inc. Form 10-Q Table of Contents Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Income from operations $ 10,782 $ 4,748 $ 10,816 $ 1,559 Less: Licensing revenue 11,016 9,995 20,968 19,019 Add: General and administrative expenses 36,313 31,476 72,257 62,787 Depreciation and amortization expense 25,496 22,252 50,937 43,574 Pre-opening costs 4,014 5,577 6,767 9,134 Impairment and loss on disposal of assets 1,045 884 1,571 1,606 Adjustment: Employee benefit charges (1) 445 — 445 — Restaurant-level profit $ 67,079 $ 54,942 $ 121,825 $ 99,641 Total revenue $ 316,496 $ 271,805 $ 607,000 $ 525,083 Less: Licensing revenue 11,016 9,995 20,968 19,019 Shack sales $ 305,480 $ 261,810 $ 586,032 $ 506,064 Restaurant-level profit margin (2) 22.0 % 21.0 % 20.8 % 19.7 % (1) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses. (2) As a percentage of Shack sales. EBITDA and Adjusted EBITDA EBITDA is defined as Net income before Interest expense (net of interest income), Income tax expense 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. How These Measures Are Useful When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that we believe are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by our management to develop internal budgets and forecasts and also serves as a metric in our performance-based equity incentive programs and certain of our bonus arrangements. We believe presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance. Limitations of the Usefulness of These Measures EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of our performance and should be reviewed in conjunction with our GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to Net income, the most directly comparable GAAP measure, is as follows. Shake Shack Inc. Form 10-Q | 37 Table of Contents Thirteen Weeks Ended Twenty-Six Weeks Ended (dollar amounts in thousands) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Net income $ 10,382 $ 7,223 $ 12,596 $ 5,601 Depreciation and amortization expense 25,496 22,252 50,937 43,574 Interest expense, net 395 278 368 681 Income tax expense 3,173 347 3,691 1,214 EBITDA 39,446 30,100 67,592 51,070 Equity-based compensation 3,739 3,932 7,381 7,734 Amortization of cloud-based software implementation costs 530 441 1,048 880 Impairment and loss on disposal of assets 1,045 884 1,571 1,606 Restatement costs (1) 208 — 1,599 — CEO transition costs 109 — 588 — Employee benefit charges (2) 445 — 445 — Legal settlements (3) — — — 1,004 Other (4) 1,687 1,693 2,870 2,321 Adjusted EBITDA $ 47,209 $ 37,050 $ 83,094 $ 64,615 Adjusted EBITDA margin (5) 14.9 % 13.6 % 13.7 % 12.3 % (1) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K. (2) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses. (3) Expenses incurred to establish accruals related to the settlements of legal matters. (4) Expenses incurred for professional fees related to non-recurring matters. (5) Calculated as a percentage of Total revenue, which was $316.5 million and $607.0 million for the thirteen and twenty-six weeks ended June 26, 2024, respectively, and $271.8 million and $525.1 million for the thirteen and twenty-six weeks ended June 28, 2023, respectively. Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share Adjusted pro forma net income represents Net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that we do not believe are directly related to our core operations and may not be indicative of our recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards. How These Measures Are Useful When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in Net income attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance. Limitations of the Usefulness of These Measures Adjusted pro forma net income and adjusted pro forma earnings 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 and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to Net income and earnings per share, as determined under GAAP. While these measures are useful in evaluating our performance, they do not account for the earnings attributable to the non-controlling interest holders and therefore do not provide a complete understanding of the Net income attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results. A 38 | Shake Shack Inc. Form 10-Q Table of Contents reconciliation of adjusted pro forma net income to Net income attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below. Thirteen Weeks Ended Twenty-Six Weeks Ended (in thousands, except per share amounts) June 26 2024 June 28 2023 June 26 2024 June 28 2023 Numerator: Net income attributable to Shake Shack Inc. $ 9,668 $ 6,948 $ 11,708 $ 5,414 Adjustments: Reallocation of Net income attributable to non-controlling interests from the assumed exchange of LLC Interests (1) 714 275 888 187 Restatement costs (2) 208 — 1,599 — CEO transition costs 109 — 588 — Employee benefit charges (3) 445 — 445 — Legal settlements — — — 1,004 Other (4) 1,687 1,693 2,870 2,321 Tax impact of above adjustments (5) (685) (1,036) (329) (1,336) Adjusted pro forma net income $ 12,146 $ 7,880 $ 17,769 $ 7,590 Denominator: Weighted average shares of Class A common stock outstanding—diluted 41,480 43,886 41,369 43,837 Adjustments: Assumed exchange of LLC Interests for shares of Class A common stock (1) 2,693 — 2,761 — Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted 44,173 43,886 44,130 43,837 Adjusted pro forma earnings per fully exchanged share—diluted $ 0.27 $ 0.18 $ 0.40 $ 0.17 Thirteen Weeks Ended Twenty-Six Weeks Ended June 26 2024 June 28 2023 June 26 2024 June 28 2023 Earnings per share of Class A common stock—diluted $ 0.23 $ 0.16 $ 0.28 $ 0.13 Assumed exchange of LLC Interests for shares of Class A common stock (1) 0.01 — 0.01 — Non-GAAP adjustments (6) 0.03 0.02 0.11 0.04 Adjusted pro forma earnings per fully exchanged share—diluted $ 0.27 $ 0.18 $ 0.40 $ 0.17 (1) Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests. Refer to Note 11, Earnings (Loss) per Share, in the accompanying Condensed Consolidated Financial Statements , for additional information. (2) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K. (3) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses. (4) Expenses incurred for professional fees related to non-recurring matters. (5) Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 24.1% and 18.4% for the thirteen and twenty-six weeks ended June 26, 2024, respectively, and 14.9% and 25.1% for the thirteen and twenty-six weeks ended June 28, 2023, respectively. Amounts include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportioned to each applicable state, local and foreign jurisdiction. (6) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted pro forma net income above, for additional information. Shake Shack Inc. Form 10-Q | 39 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility. As of June 26, 2024, we maintained a Cash and cash equivalents balance of $301.8 million and a short-term investments balance of $2.6 million in Marketable securities. In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information. On June 6, 2024, we filed a Registration Statement on Form S-3 with the SEC which permits us to issue a combination of securities described in the prospectus in one or more offerings from time to time. To date, we have not experienced difficulty accessing the capital markets; however, future volatility in the capital markets may affect our ability to access those markets or increase the costs associated with issuing debt or equity instruments. Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investments in our corporate technology infrastructure to support our home office, Shake Shack locations, and digital strategy. In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of June 26, 2024, such obligations totaled $246.9 million. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related payments under the Tax Receivable Agreement. Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The amount of such payments are also limited to the extent we utilize the related deferred tax assets. 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. Summary of Cash Flows The following table presents a summary of our cash flows from operating, investing and financing activities. Twenty-Six Weeks Ended (in thousands) June 26 2024 June 28 2023 Net cash provided by operating activities $ 84,210 $ 62,191 Net cash provided by (used in) investing activities 428 (85,415) Net cash used in financing activities (7,452) (3,596) Effect of exchange rate changes on cash and cash equivalents (1) (4) Net increase (decrease) in Cash and cash equivalents 77,185 (26,824) Cash and cash equivalents at beginning of period 224,653 230,521 Cash and cash equivalents at end of period $ 301,838 $ 203,697 40 | Shake Shack Inc. Form 10-Q Table of Contents Operating Activities For the twenty-six weeks ended June 26, 2024, net cash provided by operating activities was $84.2 million compared to $62.2 million for the twenty-six weeks ended June 28, 2023, an increase of $22.0 million. The increase was primarily driven by a $17.3 million improvement in net results after excluding non-cash charges as well as changes in working capital of $4.7 million. The changes in working capital included an increase in liabilities related to marketing promotions and a change in the timing and payments related to accruals, partially offset by an increase in payments on lease liabilities due to the opening of 41 new Company-operated Shacks between June 28, 2023 and June 26, 2024 and higher base rent. Investing Activities For the twenty-six weeks ended June 26, 2024, net cash provided by investing activities was $0.4 million compared to net cash used in investing activities of $85.4 million for the twenty-six weeks ended June 28, 2023, an increase of $85.8 million. The increase was primarily due to a net increase in marketable securities activity as a result of maturities of held-to-maturity marketable securities in the current year of $66.4 million, partially offset by the purchase of held-to-maturity marketable securities of $91.4 million and the sale of equity securities of $81.5 million in the prior year. Financing Activities For the twenty-six weeks ended June 26, 2024, net cash used in financing activities was $7.5 million compared to $3.6 million for the twenty-six weeks ended June 28, 2023, an increase of $3.9 million. This increase was primarily due to an increase in withholding taxes related to net settled equity awards. Convertible Notes In March 2021, we issued $250.0 million aggregate principal amount of 0% Convertible Senior Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at our election. Refer to Note 6, Debt, in the accompanying Condensed Consolidated Financial Statements, for additional information. Revolving Credit Facility In August 2019, we entered into a Revolving Credit Facility, which matures in March 2026 and permits borrowings up to $50.0 million, with the ability to increase available borrowings up to an additional $100.0 million, subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million. In 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 depending on the net lease adjusted leverage ratio. As of June 26, 2024 and December 27, 2023, no amounts were outstanding under the Revolving Credit Facility. The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries, with certain exceptions. The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of June 26, 2024, we were in compliance with all covenants. 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 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 6, Debt and Note 7, Leases, in the accompanying Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information relating to our long-term debt and operating and financing leases. Shake Shack Inc. Form 10-Q | 41 Table of Contents 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 10, Income Taxes, in the accompanying Condensed Consolidated Financial Statements included in Part I, Item 1, for additional information relating to our Tax Receivable Agreement and related liabilities. Purchase obligations include all legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. The majority of our purchase obligations are due within the next 12 months. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the Condensed Consolidated Financial Statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 27, 2023. Recently Issued Accounting Pronouncements Refer to Note 2, Summary of Significant Accounting Policies under Part I, Item 1 of this Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 27, 2023.