Shake Shack Inc. 10-Q

Item 1. Financial Statements (Unaudited). Page Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income (Loss) 4 Condensed Consolidated Statements of Comprehensive Income (Loss) 5 Condensed Consolidated Statements of Stockholders' Equity 6 Condensed Consolidated Statements of Cash Flows 8 Notes to Condensed Consolidated Financial Statements 9 2 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share amounts) September 25 2024 December 27 2023 ASSETS Current assets: Cash and cash equivalents $ 310,865 $ 224,653 Marketable securities — 68,561 Accounts receivable, net 16,743 16,847 Inventories 5,146 5,404 Prepaid expenses and other current assets 21,262 18,967 Total current assets 354,016 334,432 Property and equipment, net of accumulated depreciation of $ 442,383 and $ 376,760 , respectively 544,902 530,995 Operating lease assets 419,586 398,296 Deferred income taxes, net 344,479 326,208 Other assets 12,436 15,926 TOTAL ASSETS $ 1,675,419 $ 1,605,857 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,765 $ 22,273 Accrued expenses 65,822 54,742 Accrued wages and related liabilities 21,961 20,945 Operating lease liabilities, current 55,227 49,004 Other current liabilities 17,058 17,103 Total current liabilities 175,833 164,067 Long-term debt 246,422 245,636 Long-term operating lease liabilities 499,228 464,533 Liabilities under tax receivable agreement, net of current portion 247,824 235,613 Other long-term liabilities 27,057 26,638 Total liabilities 1,196,364 1,136,487 Commitments and contingencies (Note 13) Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of September 25, 2024 and December 27, 2023. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 40,027,089 and 39,474,315 shares issued and outstanding as of September 25, 2024 and December 27, 2023, respectively. 40 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,456,158 and 2,834,513 shares issued and outstanding as of September 25, 2024 and December 27, 2023, respectively. 2 3 Additional paid-in capital 437,788 426,601 Retained earnings 18,274 16,777 Accumulated other comprehensive loss ( 2 ) ( 3 ) Total stockholders' equity attributable to Shake Shack Inc. 456,102 443,417 Non-controlling interests 22,953 25,953 Total equity 479,055 469,370 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,675,419 $ 1,605,857 See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 3 Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands, except per share amounts) Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Shack sales $ 304,897 $ 264,980 $ 890,929 $ 771,044 Licensing revenue 12,027 11,227 32,995 30,246 TOTAL REVENUE 316,924 276,207 923,924 801,290 Shack-level operating expenses: Food and paper costs 86,056 77,180 251,362 224,752 Labor and related expenses 85,523 76,233 253,646 225,655 Other operating expenses 45,564 37,307 131,373 108,352 Occupancy and related expenses 23,608 20,300 69,022 58,684 General and administrative expenses 35,691 30,939 107,948 93,726 Depreciation and amortization expense 25,722 23,130 76,659 66,704 Pre-opening costs 3,662 4,969 10,429 14,103 Impairments, loss on disposal of assets, and Shack closures 29,086 492 30,657 2,098 TOTAL EXPENSES 334,912 270,550 931,096 794,074 INCOME (LOSS) FROM OPERATIONS ( 17,988 ) 5,657 ( 7,172 ) 7,216 Other income, net 3,504 3,441 10,010 9,505 Interest expense ( 498 ) ( 433 ) ( 1,533 ) ( 1,241 ) INCOME (LOSS) BEFORE INCOME TAXES ( 14,982 ) 8,665 1,305 15,480 Income tax expense (benefit) ( 3,873 ) 529 ( 182 ) 1,743 NET INCOME (LOSS) ( 11,109 ) 8,136 1,487 13,737 Less: Net income (loss) attributable to non-controlling interests ( 898 ) 509 ( 10 ) 696 NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ ( 10,211 ) $ 7,627 $ 1,497 $ 13,041 Earnings (Loss) per share of Class A common stock: Basic $ ( 0.26 ) $ 0.19 $ 0.04 $ 0.33 Diluted $ ( 0.26 ) $ 0.19 $ 0.03 $ 0.31 Weighted-average shares of Class A common stock outstanding: Basic 40,010 39,460 39,758 39,402 Diluted 40,010 43,978 44,163 43,884 See accompanying Notes to Condensed Consolidated Financial Statements. 4 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Net income (loss) $ ( 11,109 ) $ 8,136 $ 1,487 $ 13,737 Other comprehensive income (loss), net of tax (1) : Change in foreign currency translation adjustment 2 1 1 ( 3 ) OTHER COMPREHENSIVE INCOME (LOSS) 2 1 1 ( 3 ) COMPREHENSIVE INCOME (LOSS) ( 11,107 ) 8,137 1,488 13,734 Less: Comprehensive income (loss) attributable to non-controlling interests ( 898 ) 509 ( 10 ) 696 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ ( 10,209 ) $ 7,628 $ 1,498 $ 13,038 (1) Net of tax expense of $ 0 for the thirteen and thirty-nine weeks ended September 25, 2024 and September 27, 2023. See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 5 Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands, except share amounts) For the Thirteen Weeks Ended September 25, 2024 and September 27, 2023 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE, JUNE 26, 2024 39,966,973 $ 40 2,487,936 $ 2 $ 433,877 $ 28,485 $ ( 4 ) $ 23,965 $ 486,365 Net loss — — — — — ( 10,211 ) — ( 898 ) ( 11,109 ) Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — 2 — 2 Equity-based compensation — — — — 4,261 — — — 4,261 Activity under stock compensation plans 28,338 — — — ( 213 ) — — 251 38 Redemption of LLC Interests 31,778 — ( 31,778 ) — 302 — — ( 302 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 439 ) — — — ( 439 ) Distributions paid to non-controlling interest holders — — — — — — — ( 63 ) ( 63 ) BALANCE, SEPTEMBER 25, 2024 40,027,089 $ 40 2,456,158 $ 2 $ 437,788 $ 18,274 $ ( 2 ) $ 22,953 $ 479,055 BALANCE, JUNE 28, 2023 39,449,246 $ 39 2,844,513 $ 3 $ 421,394 $ 1,927 $ ( 4 ) $ 25,088 $ 448,447 Net income — — — — — 7,627 — 509 8,136 Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — 1 — 1 Equity-based compensation — — — — 3,563 — — — 3,563 Activity under stock compensation plans 7,022 — — — ( 469 ) — — 197 ( 272 ) Redemption of LLC Interests 10,000 — ( 10,000 ) — 71 — — ( 71 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 710 ) — — — ( 710 ) Distributions paid to non-controlling interest holders — — — — — — — ( 79 ) ( 79 ) BALANCE, SEPTEMBER 27, 2023 39,466,268 $ 39 2,834,513 $ 3 $ 423,849 $ 9,554 $ ( 3 ) $ 25,644 $ 459,086 6 | Shake Shack Inc. Form 10-Q Table of Contents For the Thirty-Nine Weeks Ended September 25, 2024 and September 27, 2023 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE, DECEMBER 27, 2023 39,474,315 $ 39 2,834,513 $ 3 $ 426,601 $ 16,777 $ ( 3 ) $ 25,953 $ 469,370 Net income (loss) — — — — — 1,497 — ( 10 ) 1,487 Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — 1 — 1 Equity-based compensation — — — — 11,819 — — — 11,819 Activity under stock compensation plans 174,419 1 — — ( 6,110 ) — — 758 ( 5,351 ) Redemption of LLC Interests 378,355 — ( 378,355 ) ( 1 ) 3,541 — — ( 3,540 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 1,937 — — — 1,937 Distributions paid to non-controlling interest holders — — — — — — — ( 208 ) ( 208 ) BALANCE, SEPTEMBER 25, 2024 40,027,089 $ 40 2,456,158 $ 2 $ 437,788 $ 18,274 $ ( 2 ) $ 22,953 $ 479,055 BALANCE, DECEMBER 28, 2022 39,284,998 $ 39 2,869,513 $ 3 $ 415,649 $ ( 3,487 ) $ — $ 24,632 $ 436,836 Net income — — — — — 13,041 — 696 13,737 Other comprehensive loss: Net change in foreign currency translation adjustment — — — — — — ( 3 ) — ( 3 ) Equity-based compensation — — — — 11,438 — — — 11,438 Activity under stock compensation plans 146,270 — — — ( 3,023 ) — — 712 ( 2,311 ) Redemption of LLC Interests 35,000 — ( 35,000 ) — 265 — — ( 265 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 480 ) — — — ( 480 ) Distributions paid to non-controlling interest holders — — — — — — — ( 131 ) ( 131 ) BALANCE, SEPTEMBER 27, 2023 39,466,268 $ 39 2,834,513 $ 3 $ 423,849 $ 9,554 $ ( 3 ) $ 25,644 $ 459,086 See accompanying Notes to Condensed Consolidated Financial Statements. Shake Shack Inc. Form 10-Q | 7 Table of Contents SHAKE SHACK INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Thirty-Nine Weeks Ended September 25 2024 September 27 2023 OPERATING ACTIVITIES Net income (including amounts attributable to non-controlling interests) $ 1,487 $ 13,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 76,659 66,704 Amortization of debt issuance costs 786 786 Amortization of cloud computing assets 1,577 1,320 Non-cash operating lease cost 57,484 49,775 Equity-based compensation 11,539 11,220 Deferred income taxes ( 4,122 ) 7,092 Non-cash interest ( 123 ) 94 Gain on sale of equity securities — ( 81 ) Net amortization of discount on held-to-maturity securities ( 440 ) ( 939 ) Impairments, loss on disposal of assets, and Shack closures 28,703 2,098 Changes in operating assets and liabilities: Accounts receivable 104 ( 12 ) Inventories 258 ( 424 ) Prepaid expenses and other current assets ( 3,781 ) ( 3,056 ) Other assets ( 2,489 ) ( 4,750 ) Accounts payable ( 3,907 ) ( 5,064 ) Accrued expenses 10,123 ( 6,424 ) Accrued wages and related liabilities 1,016 555 Other current liabilities ( 1,385 ) ( 2,757 ) Operating lease liabilities ( 49,159 ) ( 41,725 ) Other long-term liabilities 1,742 2,442 NET CASH PROVIDED BY OPERATING ACTIVITIES 126,072 90,591 INVESTING ACTIVITIES Purchases of property and equipment ( 100,801 ) ( 113,033 ) Purchases of held-to-maturity securities — ( 94,019 ) Maturities of held-to-maturity marketable securities 69,420 — Purchases of equity securities — ( 690 ) Sales of equity securities — 81,478 NET CASH USED IN INVESTING ACTIVITIES ( 31,381 ) ( 126,264 ) FINANCING ACTIVITIES Payments on principal of finance leases ( 2,921 ) ( 2,383 ) Distributions paid to non-controlling interest holders ( 208 ) ( 131 ) Net proceeds from stock option exercises 795 631 Employee withholding taxes related to net settled equity awards ( 6,146 ) ( 2,942 ) NET CASH USED IN FINANCING ACTIVITIES ( 8,480 ) ( 4,825 ) Effect of exchange rate changes on cash and cash equivalents 1 ( 3 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,212 ( 40,501 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 224,653 230,521 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 310,865 $ 190,020 See accompanying Notes to Condensed Consolidated Financial Statements. 8 | Shake Shack Inc. Form 10-Q Table of Contents SHAKE SHACK INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) Page Note 1 Nature of Operations 10 Note 2 Summary of Significant Accounting Policies 10 Note 3 Revenue 11 Note 4 Fair Value Measurements 12 Note 5 Supplemental Balance Sheet Information 13 Note 6 Debt 14 Note 7 Leases 15 Note 8 Non-Controlling Interests 17 Note 9 Equity-Based Compensation 19 Note 10 Income Taxes 20 Note 11 Earnings (Loss) Per Share 22 Note 12 Supplemental Cash Flow Information 23 Note 13 Commitments and Contingencies 24 Note 14 Related Party Transactions 24 Shake Shack Inc. Form 10-Q | 9 Table of Contents NOTE 1: NATURE OF OPERATIONS Shake Shack Inc. was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings"). Shake Shack Inc. is the sole managing member of SSE Holdings and, as sole managing member, the Company operates and controls all of the business and affairs of SSE Holdings. As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of September 25, 2024 the Company owned 94.2 % of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings. The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve burgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine and more. As of September 25, 2024, there were 552 Shacks in operation system-wide, of which 310 were Company-operated Shacks and 242 were licensed Shacks. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in its Annual Report on Form 10-K for the fiscal year ended December 27, 2023 ("2023 Form 10-K"). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These interim Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes thereto included in its 2023 Form 10-K. In the Company's opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year. SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as the Company has the majority economic interest in SSE Holdings and, as the sole managing member, has decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, the Company consolidates SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of September 25, 2024 and December 27, 2023, the net assets of SSE Holdings were $ 398,182 and $ 388,250 , respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. Fiscal Year The Company operates on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2024 contains 52 weeks and ends on December 25, 2024. Fiscal 2023 contained 52 weeks and ended on December 27, 2023. Unless otherwise stated, references to years in this report relate to fiscal years. Use of Estimates The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. 10 | Shake Shack Inc. Form 10-Q Table of Contents Recently Issued Accounting Pronouncements The Company reviewed all recently issued accounting pronouncements and concluded that they were not applicable or not expected to have a significant impact on its Condensed Consolidated Financial Statements. NOTE 3: REVENUE Revenue Recognition Shack Sales Revenue from Shack sales is recognized when payment is tendered at the point of sale, net of discounts as the performance obligation has been satisfied at that time. Sales tax collected from guests is excluded from Shack sales and the obligation is included in Other current liabilities on the Condensed Consolidated Balance Sheets until the taxes are remitted to the appropriate taxing authorities. Delivery services are fulfilled by third-party delivery partners whether ordered through the Shack app, website (collectively, "Company-owned platforms") or through third-party delivery platforms. Revenue from orders through Company-owned platforms includes delivery fees and is recognized when the delivery partner transfers the order to the guest as the Company controls the delivery. For these sales, the Company receives payment directly from the guest at the time of sale. Revenue from orders through third-party delivery platforms is recognized when the order is transferred to the third-party delivery partner and excludes delivery fees collected by the delivery partner as the Company does not control the delivery. The Company receives payment from the delivery partner subsequent to the transfer of the order and the payment terms are short-term in nature. For all delivery sales, the Company is considered the principal and recognizes revenue on a gross basis. The Company sells gift cards which do not have expiration dates. Revenue from gift cards is recognized when gift cards are redeemed by the guest or, in the event a gift card is not expected to be redeemed, in proportion to actual redemptions of gift cards ("gift card breakage"). The gift card breakage rate is determined from historical gift card redemption patterns. Gift card breakage income for the thirteen weeks ended September 25, 2024 and September 27, 2023 was $ 73 and $ 60 , respectively. Gift card breakage income for the thirty-nine weeks ended September 25, 2024 and September 27, 2023 was $ 317 and $ 238 , respectively. Gift card breakage income is included in Shack sales on the Condensed Consolidated Statements of Income (Loss). Licensing Revenue Licensing revenue includes initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant good or service transferred to the licensee and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the license and considered one performance obligation per Shack. The Company determines the transaction price for each contract, which requires judgement as the transaction price is comprised of the initial territory fee and an estimate of the total Shack opening fees based on the estimated number of Shacks the Company expects the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack, therefore revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial territory fee is received upon execution of the license agreement and payment for the Shack opening fees is received either in advance of or upon opening the related Shack. These payments are initially deferred and recognized in revenue as the performance obligations are satisfied. Revenue from sales-based royalties is recognized as the related sales occur. Shake Shack Inc. Form 10-Q | 11 Table of Contents Revenue disaggregated by type was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Shack sales $ 304,897 $ 264,980 $ 890,929 $ 771,044 Licensing revenue: Sales-based royalties 11,567 10,898 31,824 29,388 Initial territory and opening fees 460 329 1,171 858 Total revenue $ 316,924 $ 276,207 $ 923,924 $ 801,290 The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of September 25, 2024 was $ 22,518 . The Company expects to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from five to twenty years . This amount excludes any variable consideration related to sales-based royalties. Contract Balances Contract liabilities and receivables from contracts with customers were as follows: September 25 2024 December 27 2023 Shack sales receivables $ 8,465 $ 9,884 Licensing receivables, net of allowance for doubtful accounts 5,748 4,610 Gift card liability 1,937 2,603 Deferred revenue, current 1,330 1,192 Deferred revenue, long-term 16,605 17,157 Revenue recognized that was included in the respective liability balances at the beginning of the period was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Gift card liability $ 109 $ 83 $ 696 $ 560 Deferred revenue 445 311 1,147 829 NOTE 4: FAIR VALUE MEASUREMENTS Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying values of the Company's Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses approximate fair value due to the short-term nature of these financial instruments. The Company's marketable securities were as follows: September 25 2024 December 27 2023 Held-to-maturity securities $ — $ 68,561 The Company classified its held-to-maturity securities as Level 1 within the fair value hierarchy. Refer to Note 6, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments. 12 | Shake Shack Inc. Form 10-Q Table of Contents A summary of other income (expense) from marketable securities was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Income from marketable securities $ 15 $ 1,225 $ 640 $ 1,846 Realized gain on sale of equity securities — — — 81 Total $ 15 $ 1,225 $ 640 $ 1,927 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Assets and liabilities measured at fair value on a non-recurring basis include long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. The Company performs its impairment analysis at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges recognized during the thirteen and thirty-nine weeks ended September 27, 2023. On August 27, 2024, the Company determined to close and executed the closure of nine underperforming Company-operated Shacks in California, Ohio and Texas as these Shacks were not projected to provide acceptable returns in the foreseeable future, in part due to changes in the trade area and the negative impact on other Shacks within their proximity by cannibalizing sales. The total expenses related to the identified Shack closures were $ 28,157 for the thirteen and thirty-nine weeks ended September 25, 2024, of which $ 26,394 was impairment expense, related to right-of-use assets, and property, plant and equipment, and $ 1,763 was miscellaneous Shack closure expense. The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales, profitability, and sublease income. Subsequent to the balance sheet date, the Company continues working with the landlords to negotiate lease terminations for the nine Shack closures. NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION The components of Prepaid expenses and other current assets were as follows: September 25 2024 December 27 2023 Prepaid expenses $ 9,252 $ 5,641 Tenant allowance receivables 11,070 12,136 Other 940 1,190 Prepaid expenses and other current assets $ 21,262 $ 18,967 The components of Other current liabilities were as follows: September 25 2024 December 27 2023 Sales tax payable $ 5,971 $ 6,076 Current portion of financing equipment lease liabilities 3,878 3,435 Gift card liability 1,937 2,603 Other 5,272 4,989 Other current liabilities $ 17,058 $ 17,103 Shake Shack Inc. Form 10-Q | 13 Table of Contents NOTE 6: DEBT Convertible Notes The Company's $ 250,000 aggregate principal amount of 0 % Convertible Senior Notes due 2028 (“Convertible Notes”) will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election. The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $ 0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances. The Convertible Notes had an initial conversion rate of 5.8679 shares of Class A common stock per one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 170.42 per share of Class A common stock. The fair value of the Convertible Notes was approximately $ 234,820 and $ 205,000 , respectively, as of September 25, 2024 and December 27, 2023, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy. Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Amortization expense on Convertible Notes Interest expense $ 262 $ 262 $ 786 $ 786 September 25 2024 December 27 2023 Convertible Notes $ 250,000 $ 250,000 Discount and debt issuance costs, net of amortization ( 3,578 ) ( 4,364 ) Long-term debt $ 246,422 $ 245,636 Revolving Credit Facility The Company maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $ 50,000 with the ability to increase available borrowings up to an additional $ 100,000 , subject to satisfaction of certain conditions. The Revolving Credit Facility has a maturity date of March 5, 2026. 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 14 | Shake Shack Inc. Form 10-Q Table of Contents dependent upon the net lease adjusted leverage ratio. As of September 25, 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 the Company to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of September 25, 2024, the Company was in compliance with all covenants. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $ 15,000 . As of September 25, 2024 and December 27, 2023, the Company had outstanding letters of credit of $ 3,894 and $ 3,147 , respectively, in connection with the Revolving Credit Facility. Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Interest expense on Revolving Credit Facility Interest expense $ 17 $ 14 $ 51 $ 60 Classification September 25 2024 December 27 2023 Unamortized deferred financing costs on Revolving Credit Facility Other assets $ 28 $ 42 NOTE 7: LEASES Nature of Leases Shake Shack currently leases all of its Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2045. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met, the Company has identified a lease within the contract, and therefore a right of use asset and lease liability are recorded on the Condensed Consolidated Balance Sheets. Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating leases and most equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term on the Condensed Consolidated Statements of Income (Loss) in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. Shake Shack Inc. Form 10-Q | 15 Table of Contents For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Condensed Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term. The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings. The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset. A summary of operating and finance right-of-use assets and lease liabilities were as follows: Classification September 25 2024 December 27 2023 Operating leases Operating lease assets $ 419,586 $ 398,296 Finance leases Property and equipment, net 12,038 11,801 Total right-of-use assets $ 431,624 $ 410,097 Operating leases: Operating lease liabilities, current $ 55,227 $ 49,004 Long-term operating lease liabilities 499,228 464,533 Finance leases: Other current liabilities 3,878 3,435 Other long-term liabilities 8,676 8,721 Total lease liabilities $ 567,009 $ 525,693 The components of lease expense were as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Operating lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses $ 19,829 $ 17,177 $ 57,484 $ 49,775 Finance lease cost: Amortization of right-of-use assets Depreciation and amortization expense 1,051 936 3,094 2,376 Interest on lease liabilities Interest expense 191 163 578 305 Variable lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses 5,355 4,488 16,084 12,940 Short-term lease cost Occupancy and related expenses 213 206 619 719 Total lease cost $ 26,639 $ 22,970 $ 77,859 $ 66,115 16 | Shake Shack Inc. Form 10-Q Table of Contents As of September 25, 2024, future minimum lease payments for operating and finance leases consisted of the following: Operating Leases Finance Leases 2024 (1) $ 11,498 $ 1,189 2025 86,337 4,393 2026 90,086 3,652 2027 85,184 2,930 2028 80,863 1,586 Thereafter 363,001 247 Total minimum payments 716,969 13,997 Less: imputed interest 173,584 1,443 Total lease liabilities $ 543,385 $ 12,554 (1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of September 25, 2024. As of September 25, 2024, the Company had additional operating lease commitments of $ 140,515 for non-cancelable leases without a possession date, which commence in 2024 or later. The terms of these lease commitments are materially consistent with leases recognized on the Condensed Consolidated Balance Sheets. A summary of lease terms and discount rates for operating and finance leases were as follows: September 25 2024 December 27 2023 Weighted average remaining lease term (years): Operating leases 8.8 8.9 Finance leases 4.5 4.7 Weighted average discount rate: Operating leases 6.2 % 6.2 % Finance leases 5.7 % 5.6 % Supplemental cash flow information related to leases was as follows: Thirty-Nine Weeks Ended September 25 2024 September 27 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 61,208 $ 52,913 Operating cash flows from finance leases 578 305 Financing cash flows from finance leases 2,921 2,383 Right-of-use assets obtained in exchange for lease obligations: Operating leases 67,115 60,560 Finance leases 3,610 7,379 NOTE 8: NON-CONTROLLING INTERESTS Shake Shack is the primary beneficiary and sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. The Company reports a non-controlling interest representing the economic interest held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of SSE Holdings, LLC membership interests ("LLC Interests") may, Shake Shack Inc. Form 10-Q | 17 Table of Contents 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, the Company will receive a corresponding number of LLC Interests, increasing the total ownership interest in SSE Holdings. Changes in the ownership interest in SSE Holdings while the Company retains its controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital. The following table summarizes the ownership interest in SSE Holdings: September 25, 2024 December 27, 2023 LLC Interests Ownership % LLC Interests Ownership % Number of LLC Interests held by Shake Shack Inc. 40,027,089 94.2 % 39,474,315 93.3 % Number of LLC Interests held by non-controlling interest holders 2,456,158 5.8 % 2,834,513 6.7 % Total LLC Interests outstanding 42,483,247 100.0 % 42,308,828 100.0 % The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) to the non-controlling interest holders and were as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Non-controlling interest holders' weighted average ownership percentages 5.8 % 6.7 % 6.3 % 6.7 % The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Net income (loss) attributable to Shake Shack Inc. $ ( 10,211 ) $ 7,627 $ 1,497 $ 13,041 Other comprehensive income (loss): Unrealized holding gain (loss) on foreign currency translation adjustment 2 1 1 ( 3 ) Transfers (to) from non-controlling interests: Increase in additional paid-in capital as a result of the redemption of LLC Interests 302 71 3,541 265 Decrease in additional paid-in capital as a result of activity under stock compensation plan ( 213 ) ( 469 ) ( 6,110 ) ( 3,023 ) Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc. $ ( 10,120 ) $ 7,230 $ ( 1,071 ) $ 10,280 18 | Shake Shack Inc. Form 10-Q Table of Contents The following table summarizes the LLC Interests activity: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 LLC Interests activity under the Company's stock compensation plan Number of LLC Interests received by Shake Shack Inc. 28,338 7,022 174,419 146,270 Redemption and acquisition of LLC Interests Number of LLC Interests redeemed by non-controlling interest holders 31,778 10,000 378,355 35,000 Number of LLC Interests received by Shake Shack Inc. 31,778 10,000 378,355 35,000 Issuance of Class A common stock Shares of Class A common stock issued in connection with redemptions of LLC Interests 31,778 10,000 378,355 35,000 Cancellation of Class B common stock Shares of Class B common stock surrendered and canceled 31,778 10,000 378,355 35,000 NOTE 9: EQUITY-BASED COMPENSATION A summary of equity-based compensation expense by award type was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Performance stock units $ 990 $ 391 $ 1,268 $ 2,450 Restricted stock units 3,169 3,095 10,272 8,770 Equity-based compensation expense $ 4,159 $ 3,486 $ 11,540 $ 11,220 Total income tax benefit recognized related to equity-based compensation $ 102 $ 105 $ 319 $ 305 Equity-based compensation expense recognized was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 General and administrative expenses $ 3,726 $ 3,163 $ 10,359 $ 10,254 Labor and related expenses 433 323 1,181 966 Equity-based compensation expense $ 4,159 $ 3,486 $ 11,540 $ 11,220 Shake Shack Inc. Form 10-Q | 19 Table of Contents NOTE 10: INCOME TAXES Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates 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 the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. The Company is also subject to withholding taxes in foreign jurisdictions. Effective Income Tax Rates The following table presents the Company’s effective income tax rates: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Effective income tax rates 25.9 % 6.1 % ( 13.9 ) % 11.3 % The increase in the effective income tax rate for the thirteen weeks ended September 25, 2024 was primarily driven by a decline in pre-tax income and consistent non-deductible expenses, which together contributed to the higher effective rate. The decrease in the effective income tax rate for the thirty-nine weeks ended September 25, 2024 was primarily driven by a decline in pre-tax income and higher tax credits applied against our estimated income tax liability, leading to a year-to-date tax benefit. The Company's weighted average ownership interest in SSE Holdings was as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Shake Shack's weighted average ownership percentages 94.2 % 93.3 % 93.7 % 93.3 % Deferred Tax Assets and Liabilities The Company acquires LLC Interests in connection with the redemption of LLC Interests and activity relating to its stock compensation plan and recognizes deferred tax assets associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. The following table summarizes the LLC Interests acquired by the Company: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 LLC Interests activity under the Company's stock compensation plan 28,338 7,022 174,419 146,270 LLC Interests activity from redemptions of LLC Interests 31,778 10,000 378,355 35,000 Total LLC Interests acquired by the Company 60,116 17,022 552,774 181,270 20 | Shake Shack Inc. Form 10-Q Table of Contents Deferred tax assets related to the basis difference in the Company's investment in SSE Holdings were as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Deferred tax assets recognized upon acquisition of LLC Interests $ 284 $ ( 525 ) $ 10,861 $ 48 September 25 2024 December 27 2023 Total deferred tax assets related to the acquisition of LLC Interests $ 108,324 $ 90,419 The Company also recognizes deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. Refer to "Tax Receivable Agreement," herein for additional information. Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Deferred tax assets recognized under the Tax Receivable Agreement $ 225 $ 71 $ 3,288 $ 200 The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of September 25, 2024, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets relating to certain state tax credits and net operating losses) are more likely than not to be realized. As such, no additional valuation allowance was recognized. Tax Receivable Agreement On February 4, 2015, the Company entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15 % of any tax benefits that may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company. The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that would otherwise be paid in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. 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. There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred during the thirty-nine weeks ended September 25, 2024 and September 27, 2023. Shake Shack Inc. Form 10-Q | 21 Table of Contents A summary of obligations under the Tax Receivable Agreement were as follows: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Additional liabilities recognized under the Tax Receivable Agreement $ 946 $ 253 $ 12,211 $ 721 September 25 2024 December 27 2023 Total obligations under the Tax Receivable Agreement $ 247,824 $ 235,613 During the thirty-nine weeks ended September 25, 2024 and September 27, 2023, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement. NOTE 11: EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding, adjusted to give effect to potentially dilutive securities. The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts): Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Numerator: Net income (loss) attributable to Shake Shack Inc.—basic $ ( 10,211 ) $ 7,627 $ 1,497 $ 13,041 Reallocation of net income (loss) attributable to non-controlling interests from the assumed conversion of Class B shares — 509 ( 10 ) 696 Net income (loss) attributable to Shake Shack Inc.—diluted $ ( 10,211 ) $ 8,136 $ 1,487 $ 13,737 Denominator: Weighted average shares of Class A common stock outstanding—basic 40,010 39,460 39,758 39,402 Effect of dilutive securities: Stock options — 74 62 77 Performance stock units — 11 47 11 Restricted stock units — 129 166 82 Convertible Notes — 1,467 1,467 1,467 Shares of Class B common stock — 2,837 2,663 2,845 Weighted average shares of Class A common stock outstanding—diluted 40,010 43,978 44,163 43,884 Earnings (loss) per share of Class A common stock—basic $ ( 0.26 ) $ 0.19 $ 0.04 $ 0.33 Earnings (loss) per share of Class A common stock—diluted $ ( 0.26 ) $ 0.19 $ 0.03 $ 0.31 The effect of potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. Refer to Note 6, Debt, for additional information. 22 | Shake Shack Inc. Form 10-Q Table of Contents Shares of Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of Class B common stock outstanding for the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. The following table presents potentially dilutive securities excluded from the computations of diluted earnings (loss) per share of Class A common stock: Thirteen Weeks Ended Thirty-Nine Weeks Ended September 25 2024 September 27 2023 September 25 2024 September 27 2023 Stock options 52,050 (2) — — — Performance stock units 86,313 (2) 100,898 (1) 85,440 (1) 100,898 (1) Restricted stock units 139,742 (2) — — — Shares of Class B common stock 2,465,936 (2) — — — Convertible notes 1,466,975 (2) — — — (1) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period. (2) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive. NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information: Thirty-Nine Weeks Ended September 25 2024 September 27 2023 Cash paid for: Income taxes, net of refunds $ 5,508 $ 3,147 Interest, net of amounts capitalized 724 343 Non-cash investing activities: Accrued purchases of property and equipment 23,493 30,096 Capitalized equity-based compensation 165 147 Non-cash financing activities: Establishment of liabilities under Tax Receivable Agreement 12,211 721 Shake Shack Inc. Form 10-Q | 23 Table of Contents NOTE 13: COMMITMENTS AND CONTINGENCIES Lease Commitments The Company is obligated under various operating leases for Shacks and the home office space, expiring in various years through 2045. Under certain of these leases, the Company is liable for contingent rent based on a percentage of sales in excess of specified thresholds and typically responsible for its proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. Refer to Note 7, Leases, for additional information. Certain leases require the Company to obtain letters of credit. As of September 25, 2024, the Company held three letters of credit, one for $ 402 , which expires in August 2024 and renews automatically for one-year periods through January 2034, one for $ 163 , which expires in December 2024 and renews automatically for one-year periods through December 2029 and one for $ 130 which expires in February 2026. Purchase Commitments Purchase obligations include 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. These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered. The Company also enters into long-term, exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities. Legal Contingencies The Company is subject to various legal proceedings, claims and liabilities, involving employees and guests alike, which arise in the ordinary course of business and are generally covered by insurance. As of September 25, 2024, the amount of the ultimate liability with respect to these matters was not material. Liabilities under Tax Receivable Agreement The Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Refer to Note 10, Income Taxes, for additional information relating to the Tax Receivable Agreement. NOTE 14: RELATED PARTY TRANSACTIONS Union Square Hospitality Group The Chairman of the Board of Directors serves as the Executive Chairman of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiary, set forth below, are considered related parties. Hudson Yards Sports and Entertainment In fiscal 2011, Shake Shack entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE. The agreement expires in January 2027 and includes five consecutive five-year renewal options at HYC's option. As consideration for these rights, HYC pays the Company a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA. 24 | Shake Shack Inc. Form 10-Q Table of Contents Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Amounts received from HYC Licensing revenue $ 313 $ 419 $ 555 $ 728 Classification September 25 2024 December 27 2023 Amounts due from HYC Accounts receivable, net $ 289 $ 57 Madison Square Park Conservancy The Chairman of the Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which Shake Shack has a license agreement and pays license fees to operate the Madison Square Park Shack. No payments were due to MSP Conservancy during the thirty-nine weeks ended September 25, 2024 and September 27, 2023. Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Amounts paid to MSP Conservancy Occupancy and related expenses $ 249 $ 224 $ 707 $ 672 Olo, Inc. The Chairman of the Board of Directors serves as a director of Olo, Inc., a platform the Company uses in connection with its mobile ordering application. Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Amounts paid to Olo, Inc. Other operating expenses $ 301 $ 156 $ 615 $ 423 Classification September 25 2024 December 27 2023 Amounts due to Olo, Inc. Accounts payable Accrued expenses $ 227 $ 116 Tax Receivable Agreement The Company entered into a Tax Receivable Agreement that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. Refer to Note 10, Income Taxes, for additional information. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the thirty-nine weeks ended September 25, 2024 and September 27, 2023. Classification September 25 2024 December 27 2023 Amounts due under the Tax Receivable Agreement Other current liabilities Liabilities under Tax Receivable Agreement, net of current portion $ 247,824 $ 235,613 Shake Shack Inc. Form 10-Q | 25 Table of Contents Distributions to Members of SSE Holdings Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members. No tax distributions were payable to non-controlling interest holders as of September 25, 2024 and December 27, 2023, respectively. Thirteen Weeks Ended Thirty-Nine Weeks Ended Classification September 25 2024 September 27 2023 September 25 2024 September 27 2023 Amounts paid to non-controlling interest holders Non-controlling interests $ 63 $ 79 $ 208 $ 131