Shake Shack Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Page Management's Report 73 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 75 Consolidated Balance Sheets 80 Consolidated Statements of Income (Loss ) 81 Consolidated Statements of Comprehensive Income (Loss ) 82 Consolidated Statements of Stockholders' Equity 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 85 Shake Shack Inc. Form 10-K | 72 MANAGEMENT'S REPORT Management's Annual Report on the Consolidated Financial Statements Management is responsible for the preparation, integrity and objectivity of the accompanying Consolidated Financial Statements and related financial information. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the Consolidated Financial Statements. Ernst & Young LLP, our independent registered public accounting firm, has audited the Consolidated Financial Statements as of December 25, 2024, as stated in their report herein. Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Prior to filing, management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on the results of our evaluation, management concluded that our internal control over financial reporting was effective as of December 25, 2024. Remediation of Material Weakness As discussed in our Annual Report on Form 10-K for the year ended December 27, 2023, management concluded that there was a material weakness in our internal control over financial reporting related to the calculation of state deferred taxes and the related income tax expense (benefit) as of the end of our fiscal year ended December 27, 2023. In response to the identified material weakness at December 27, 2023, our management, with oversight from our Audit Committee, made the following changes and remediation efforts with respect to our controls and procedures: ▪ Hired a Head of Tax with over 20 years of tax leadership experience including working with Up-C structures, enhancing controls, processes, and tax technology. ▪ Strengthened the depth and experience of our tax department with additional hires who possess the technical expertise necessary to manage the unique complexities of the Up-C structure. ▪ Engaged with a new third-party tax consulting firm and completed a full review of our tax control environment, further bolstering our existing control processes and documentation standards. ▪ Developed enhanced management review control procedures over all related tax controls, but specifically the calculation of state deferred taxes and the related income tax expense (benefit). ▪ Established road map for further tax technology enhancements and a continuous improvement program to monitor the effectiveness of the implemented changes and make adjustments as needed. After completing our testing of the design and operational effectiveness of these controls and updated procedures, management concluded that we remediated the previously identified material weakness as of December 25, 2024. Shake Shack Inc. Form 10-K | 73 Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 25, 2024, as stated in their report included in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting Except as otherwise discussed above, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect such controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Shake Shack Inc. Form 10-K | 74 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shake Shack Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shake Shack Inc. (the Company) as of December 25, 2024 and December 27, 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 25, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 25, 2024 and December 27, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 25, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 25, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Shake Shack Inc. Form 10-K | 75 Measurement of the valuation allowance against deferred tax assets Description of the Matter As discussed in Notes 2 and 14 of the consolidated financial statements, a valuation allowance is recognized if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, tax planning strategies and recent and forecasted results of operations. As of December 25, 2024, the Company is looking to its forecasted future U.S. taxable income to conclude that it is more likely than not that these deferred tax assets, except for certain local unincorporated business tax credits and state loss carryforwards, will be fully realized prior to their expiration. As of December 25, 2024, the Company had a net deferred tax asset balance for U.S. income taxes of $346.4 million, for which a valuation allowance of $0.3 million was provided. Auditing management’s analysis of the realizability of these U.S. deferred tax assets is highly judgmental because it requires the evaluation of positive and negative evidence to support the position that the Company will generate sufficient future U.S. taxable income to realize the deferred tax assets as tax deductions on future income tax returns. The Company’s forecasted financial information, which is inherently subjective, is a significant component of management’s analysis. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s evaluation of deferred tax asset realizability. In addition, we obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s financial forecasting process. Such controls include management’s review of forecasted pretax income, including significant assumptions such as projected Shack openings, operating margins, and operating costs, among others. In our testing of management’s assessment of deferred tax asset realizability as described above, we performed audit procedures that included, among others, evaluating the conclusions reached by the Company regarding the realizability of deferred tax assets, which involved performing procedures over (i) the scheduled reversal of deferred taxes and (ii) forecasted financial information. In order to test management’s financial forecasts, we assessed the historical accuracy of management’s forecasts and compared the significant assumptions used to current industry and economic trends and changes to the Company’s operations. In addition, we performed sensitivity analyses to evaluate the impact of changes in assumptions to future taxable income and ultimately, realizability of deferred tax assets. Measurement of the Tax Receivable Agreement liability Description of the Matter As discussed in Note 14 of the consolidated financial statements, the Company has a Tax Receivable Agreement (“TRA”) with certain current and historical holders of LLC interests, which is a contractual commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the Company to the parties to the TRA. The TRA payments are contingent upon, among other things, the generation of future taxable income over the term of the TRA. As of December 25, 2024, the Company’s liability due to the holders of LLC interests under the TRA (“TRA liability”), was $247.7 million. Auditing management’s accounting for the TRA liability is highly judgmental because it requires the evaluation of the Company’s future qualified taxable income, which is inherently subjective, over the term of the TRA as a basis to determine if the related tax benefits are expected to be realized. Shake Shack Inc. Form 10-K | 76 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s financial forecasting process. Such controls include management’s review of forecasted pretax income, including significant assumptions such as projected Shack openings, operating margins, and operating costs, among others. To test the Company’s position that there is sufficient future taxable income to realize the tax benefits payable under the TRA, we evaluated the assumptions used by management to develop the projections of future taxable income. We assessed the historical accuracy of management’s forecasts and compared the significant assumptions used to current industry and economic trends and changes to the Company’s operations. In addition, we performed sensitivity analyses to evaluate the impact of changes in assumptions to future taxable income. /s/ Ernst & Young LLP We have served as the Company's auditor since 2014. New York, New York February 21, 2025 Shake Shack Inc. Form 10-K | 77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shake Shack Inc. Opinion on Internal Control Over Financial Reporting We have audited Shake Shack Inc.’s (the Company’s) internal control over financial reporting as of December 25, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Shake Shack Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 25, 2024, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 25, 2024 and December 27, 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 25, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated February 21, 2025 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Shake Shack Inc. Form 10-K | 78 /s/ Ernst & Young LLP New York, New York February 21, 2025 Shake Shack Inc. Form 10-K | 79 SHAKE SHACK INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 25 2024 December 27 2023 ASSETS Current assets: Cash and cash equivalents $ 320,714 $ 224,653 Marketable securities — 68,561 Accounts receivable, net 19,687 16,847 Inventories 6,014 5,404 Prepaid expenses and other current assets 21,801 18,967 Total current assets 368,216 334,432 Property and equipment, net of accumulated depreciation of $ 457,186 and $ 376,760 , respectively. 551,600 530,995 Operating lease assets 424,611 398,296 Deferred income taxes, net 341,586 326,208 Other assets 10,958 15,926 TOTAL ASSETS $ 1,696,971 $ 1,605,857 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,609 $ 22,273 Accrued expenses 63,005 54,742 Accrued wages and related liabilities 25,422 20,945 Operating lease liabilities, current 55,739 49,004 Other current liabilities 19,538 17,103 Total current liabilities 187,313 164,067 Long-term debt 246,683 245,636 Long-term operating lease liabilities 494,499 464,533 Liabilities under tax receivable agreement, net of current portion 247,017 235,613 Other long-term liabilities 27,833 26,638 Total liabilities 1,203,345 1,136,487 Commitments and contingencies (Note 17) Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of December 25, 2024 and December 27, 2023. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 40,068,068 and 39,474,315 shares issued and outstanding as of December 25, 2024 and December 27, 2023, respectively. 40 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,455,713 and 2,834,513 shares issued and outstanding as of December 25, 2024 and December 27, 2023, respectively. 2 3 Additional paid-in capital 442,993 426,601 Retained earnings 26,984 16,777 Accumulated other comprehensive loss ( 1 ) ( 3 ) Total stockholders' equity attributable to Shake Shack Inc. 470,018 443,417 Non-controlling interests 23,608 25,953 Total equity 493,626 469,370 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,696,971 $ 1,605,857 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 80 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share amounts) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 Shack sales $ 1,207,561 $ 1,046,819 $ 869,270 Licensing revenue 45,047 40,714 31,216 TOTAL REVENUE 1,252,608 1,087,533 900,486 Shack-level operating expenses: Food and paper costs 339,940 305,041 261,584 Labor and related expenses 338,750 304,254 257,358 Other operating expenses 178,381 149,449 129,650 Occupancy and related expenses 93,069 79,846 68,508 General and administrative expenses 149,047 129,542 120,009 Depreciation and amortization expense 102,468 91,242 72,796 Pre-opening costs 15,547 19,231 15,050 Impairments, loss on disposal of assets, and Shack closures 32,368 3,007 2,425 TOTAL EXPENSES 1,249,570 1,081,612 927,380 INCOME (LOSS) FROM OPERATIONS 3,038 5,921 ( 26,894 ) Other income, net 13,251 12,776 4,127 Interest expense ( 2,045 ) ( 1,717 ) ( 1,518 ) INCOME (LOSS) BEFORE INCOME TAXES 14,244 16,980 ( 24,285 ) Income tax expense (benefit) 3,424 ( 4,010 ) ( 1,180 ) NET INCOME (LOSS) 10,820 20,990 ( 23,105 ) Less: Net income (loss) attributable to non-controlling interests 613 726 ( 1,876 ) NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 10,207 $ 20,264 $ ( 21,229 ) Earnings (loss) per share of Class A common stock: Basic $ 0.26 $ 0.51 $ ( 0.54 ) Diluted $ 0.24 $ 0.48 $ ( 0.54 ) Weighted average shares of Class A common stock outstanding: Basic 39,830 39,419 39,237 Diluted 44,203 43,899 39,237 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 81 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 Net income (loss) $ 10,820 $ 20,990 $ ( 23,105 ) Other comprehensive income (loss), net of tax (1) : Change in foreign currency translation adjustment 2 ( 3 ) ( 1 ) OTHER COMPREHENSIVE INCOME (LOSS) 2 ( 3 ) ( 1 ) COMPREHENSIVE INCOME (LOSS) 10,822 20,987 ( 23,106 ) Less: Comprehensive income (loss) attributable to non-controlling interests 613 726 ( 1,876 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 10,209 $ 20,261 $ ( 21,230 ) (1) Net of tax benefit of $ 0 for fiscal years ended December 25, 2024, December 27, 2023 and December 28, 2022. See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 82 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) 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 29, 2021 39,142,397 $ 39 2,921,587 $ 3 $ 405,957 $ 17,742 $ 1 $ 26,063 $ 449,805 Net loss — — — — — ( 21,229 ) — ( 1,876 ) ( 23,105 ) Other comprehensive loss: Net change in foreign currency translation adjustment — — — — — — ( 1 ) — ( 1 ) Equity-based compensation — — — — 13,518 — — — 13,518 Activity under stock compensation plan 90,527 — — — ( 2,978 ) — — 1,168 ( 1,810 ) Redemption of LLC interests 52,074 — ( 52,074 ) — 313 — — ( 313 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 1,161 ) — — — ( 1,161 ) Distributions paid to non-controlling interest holders — — — — — — — ( 410 ) ( 410 ) BALANCE DECEMBER 28, 2022 39,284,998 39 2,869,513 3 415,649 ( 3,487 ) — 24,632 436,836 Net income — — — — — 20,264 — 726 20,990 Other comprehensive loss: Net change in foreign currency translation adjustment — — — — — — ( 3 ) — ( 3 ) Equity-based compensation — — — — 15,174 — — — 15,174 Activity under stock compensation plan 154,317 — — — ( 3,271 ) — — 1,022 ( 2,249 ) 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 — — — — ( 1,216 ) — — — ( 1,216 ) Distributions paid to non-controlling interest holders — — — — — — — ( 162 ) ( 162 ) BALANCE DECEMBER 27, 2023 39,474,315 39 2,834,513 3 426,601 16,777 ( 3 ) 25,953 469,370 Net income — — — — — 10,207 — 613 10,820 Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — 2 — 2 Equity-based compensation — — — — 16,286 — — — 16,286 Activity under stock compensation plan 214,953 1 — — ( 5,614 ) — — 1,040 ( 4,573 ) Redemption of LLC interests 378,800 — ( 378,800 ) ( 1 ) 3,517 — — ( 3,516 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 2,203 — — — 2,203 Distributions paid to non-controlling interest holders — — — — — — — ( 482 ) ( 482 ) BALANCE DECEMBER 25, 2024 40,068,068 $ 40 2,455,713 $ 2 $ 442,993 $ 26,984 $ ( 1 ) $ 23,608 $ 493,626 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 83 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 OPERATING ACTIVITIES Net income (loss) (including amounts attributable to non-controlling interests) $ 10,820 $ 20,990 $ ( 23,105 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 102,468 91,242 72,796 Amortization of debt issuance costs 1,047 1,047 1,047 Amortization of cloud computing assets 2,138 1,798 1,500 Non-cash operating lease cost 77,432 67,781 58,801 Equity-based compensation 15,915 14,888 13,326 Deferred income taxes ( 1,054 ) ( 9,074 ) ( 5,014 ) Non-cash interest ( 102 ) 116 218 Gain on sale of equity securities — ( 81 ) — Net amortization of discount on held-to-maturity securities ( 440 ) ( 1,620 ) — Impairments, loss on disposal of assets, and Shack closures 32,368 3,007 2,425 Unrealized loss on equity securities — — 158 Changes in operating assets and liabilities: Accounts receivable ( 2,839 ) ( 2,970 ) 9,139 Inventories ( 610 ) ( 1,220 ) ( 334 ) Prepaid expenses and other current assets ( 2,629 ) ( 2,253 ) ( 2,473 ) Other assets ( 2,896 ) ( 6,307 ) ( 8,065 ) Accounts payable 3,356 687 3,541 Accrued expenses 6,644 9,513 3,502 Accrued wages and related liabilities 4,477 3,328 2,859 Other current liabilities ( 712 ) ( 2,809 ) 8,541 Operating lease liabilities ( 77,167 ) ( 58,216 ) ( 61,364 ) Other long-term liabilities 2,939 2,292 ( 756 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 171,155 132,139 76,742 INVESTING ACTIVITIES Purchases of property and equipment ( 135,499 ) ( 146,167 ) ( 142,559 ) Purchases of held-to-maturity securities — ( 94,019 ) — Maturities of held-to-maturity marketable securities 69,420 27,078 — Purchases of equity securities — ( 690 ) ( 865 ) Sales of equity securities — 81,478 — NET CASH USED IN INVESTING ACTIVITIES ( 66,079 ) ( 132,320 ) ( 143,424 ) FINANCING ACTIVITIES Payments on principal of finance leases ( 3,964 ) ( 3,272 ) ( 2,974 ) Distributions paid to non-controlling interest holders ( 482 ) ( 162 ) ( 410 ) Net proceeds from stock option exercises 1,627 744 424 Employee withholding taxes related to net settled equity awards ( 6,198 ) ( 2,994 ) ( 2,242 ) NET CASH USED IN FINANCING ACTIVITIES ( 9,017 ) ( 5,684 ) ( 5,202 ) Effect of exchange rate changes on cash and cash equivalents 2 ( 3 ) ( 1 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 96,061 ( 5,868 ) ( 71,885 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 224,653 230,521 302,406 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 320,714 $ 224,653 $ 230,521 Supplemental cash flow information and non-cash investing and financing activities are further described in the accompanying notes. See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 84 SHAKE SHACK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) Page Note 1 Nature of Operations 86 Note 2 Summary of Significant Accounting Policies 86 Note 3 Revenue 92 Note 4 Fair Value Measurements 93 Note 5 Accounts Receivable 94 Note 6 Property and Equipment 94 Note 7 Supplemental Balance Sheet Information 94 Note 8 Debt 95 Note 9 Leases 97 Note 10 Employee Benefit Plans 99 Note 11 Stockholders' Equity 99 Note 12 Non-Controlling Interests 99 Note 13 Equity-Based Compensation 101 Note 14 Income Taxes 103 Note 15 Earnings (Loss) Per Share 106 Note 16 Supplemental Cash Flow Information 108 Note 17 Commitments and Contingencies 108 Note 18 Related Party Transactions 109 N ote 19 S egment Reporting 111 Note 20 Geographic Information 112 Shake Shack Inc. Form 10-K | 85 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 December 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 December 25, 2024, there were 579 Shacks in operation, system-wide, of which 329 were Company-operated Shacks and 250 were licensed Shacks. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. 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 December 25, 2024 and December 27, 2023, the net assets of SSE Holdings were $ 413,793 and $ 388,250 , respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. Refer to Note 8, Debt, and Note 14, Income Taxes, for additional information. Fiscal Year The Company operates on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2024 contained 52 weeks and ended on December 25, 2024 ("fiscal 2024"). Fiscal 2023 contained 52 weeks and ended on December 27, 2023 ("fiscal 2023"). Fiscal 2022 contained 52 weeks and ended on December 28, 2022 ("fiscal 2022"). Unless otherwise stated, references to years in this report relate to fiscal years. Use of Estimates The preparation of these 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. Fair Value Measurements The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Assets and liabilities are categorized based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below. Shake Shack Inc. Form 10-K | 86 ▪ Level 1 — Quoted prices in active markets for identical assets or liabilities. ▪ Level 2 — Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. ▪ Level 3 — Inputs that are both unobservable and significant to the overall fair value measurements reflecting an entity's estimates of assumptions that market participants would use in pricing the asset or liability. Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash on hand, deposits with banks, money market funds and short-term, highly liquid investments that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Marketable Securities Marketable securities classified as held-to-maturity securities consist of U.S. Treasuries for which the Company has the ability and intent to hold to maturity and are reported at amortized cost, net of a valuation allowance for credit losses. Interest income and the amortization of discounts and premiums are recorded in Other income, net on the Consolidated Statements of Income (Loss). No expected credit losses were recognized as of December 25, 2024 and December 27, 2023. Accounts Receivable, Net Accounts receivable, net consist primarily of receivables from our licensees for licensing revenue and related reimbursements, credit card receivables and vendor rebates. The collectability of accounts receivable is evaluated based on a variety of factors, including historical experience, current economic conditions and other factors. Inventories Inventories, which consist of food, paper goods, beverages, beer, wine and retail merchandise, are valued at the lower of weighted average cost or net realizable value. No adjustment is deemed necessary to reduce inventory to net realizable value due to the rapid turnover and high utilization of inventory. Property and Equipment, Net Property and equipment, net is stated at historical cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which generally range from five to seven years for equipment, furniture and fixtures, and two to five years for computer equipment and software. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease terms. Costs incurred when constructing Shacks are capitalized. The cost of repairs and maintenance are expensed when incurred. Costs for refurbishments and improvements that significantly increase the productive capacity or extend the useful life of the assets are capitalized. When assets are disposed, the resulting gain or loss is recognized in Impairments, loss on disposal of assets, and Shack closures on the Consolidated Statements of Income (Loss). Valuation of Long-lived Assets The Company assesses potential impairments to its long-lived assets, which include property and equipment and operating and finance lease right-of-use assets, whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. The recoverability evaluation is first performed at the market service area level ("MSA"). If the carrying value of the MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks within the identified MSA. An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack. Since Shake Shack Inc. Form 10-K | 87 the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations. Refer to Note 4, Fair Value Measurements, for additional information. Deferred Financing Costs Deferred financing costs incurred in connection with the issuance of long-term debt and establishing credit facilities are capitalized and amortized in Interest expense on the Consolidated Statements of Income (Loss) based on the related debt agreements. Deferred financing costs are included in Other assets on the Consolidated Balance Sheets. Other Assets Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, certain custom pre-ordered furniture, fixtures and equipment for future and existing Shacks, transferable liquor licenses, and security deposits. Implementation costs associated with cloud computing arrangements hosted by third-party vendors are capitalized when incurred during the application development phase. Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement and is recorded within General and administrative expenses on the Consolidated Statements of Income (Loss). As of December 25, 2024 and December 27, 2023, capitalized implementation costs from cloud computing arrangements totaled $ 4,051 and $ 5,572 , respectively, net of accumulated amortization. The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets. Annual liquor license renewal fees, for both types of licenses, are expensed over the renewal term. As of December 25, 2024 and December 27, 2023, indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 2,040 and $ 1,903 , respectively. Indefinite-lived intangible assets are evaluated for impairment at least annually during the fourth quarter, and whenever events or circumstances indicate that an impairment may exist. When evaluating intangible assets for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired. If determined that it is more likely than not that the carrying value of the intangible asset group exceeds its fair value, the Company performs a quantitative assessment to derive the fair value of the intangible asset group. If the carrying value of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. In addition, the Company continuously monitors and may revise the useful lives of intangible assets when facts and circumstances change. 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 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. Shake Shack Inc. Form 10-K | 88 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 fiscal 2024, 2023, and 2022 was $ 413 , $ 327 and $ 1,472 , respectively. During fiscal 2022, the Company concluded it had accumulated a sufficient level of historical data from a large pool of homogeneous transactions to allow it to reasonably and objectively determine an estimated gift card breakage rate and the pattern of actual gift card redemptions. In accordance with ASC 250, Accounting Changes and Error Corrections, the Company concluded that this accounting change represented a change in accounting estimate. As a result, a cumulative catch-up adjustment was recorded during fiscal 2022 that resulted in $ 1,281 of gift card breakage income. Gift card breakage income is included in Shack sales on the 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 judgment 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. Equity-based Compensation Equity-based compensation expense is measured based on the grant-date fair value of the awards. For awards with graded-vesting features and service conditions only, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award. For awards with graded-vesting features and a combination of service and performance conditions, compensation expense is recognized using a graded-vesting attribution method over the vesting period based on the most probable outcome of the performance conditions. For awards with cliff vesting features and a combination of service and performance conditions, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award based on the most probable outcome of the performance conditions. For awards that contain a market condition, a Monte Carlo simulation valuation model is used to calculate the grant-date fair value. The assumptions used in the valuation include expected term, volatility, risk-free interest rate, and closing price as of the valuation date. Compensation expense for awards containing a market condition is recognized ratably over the performance period regardless of whether the market condition and requisite service period are met. Actual distributed shares are calculated upon conclusion of the service and performance periods. Forfeitures are recognized as they occur for all equity awards. Equity-based compensation expense is included in General and administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss). Advertising Most advertising costs are expensed as incurred, with the exception of advertising production costs, which are expensed at the time the advertising first takes place. Advertising costs totaled $ 22,169 , $ 12,437 and $ 12,376 in fiscal 2024, fiscal 2023 and fiscal 2022, respectively, and are included in General and administrative expense and Other operating expenses on the Consolidated Statements of Income (Loss). Shake Shack Inc. Form 10-K | 89 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 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 and are reported in specific line items on the Consolidated Statements of Income (Loss). 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. 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 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 right-of-use 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 right-of-use asset. Pre-opening Costs Pre-opening costs are expensed as incurred and consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for the opening training team and other supporting team members, marketing expenses, legal fees, and inventory costs incurred prior to the opening of a Shack. Shake Shack Inc. Form 10-K | 90 Income Taxes Income taxes are accounted for pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying values and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in Income tax expense on the Consolidated Statements of Income (Loss) in the period of enactment. A valuation allowance is recognized if we determine it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent and expected future results of operations. Recently Adopted Accounting Pronouncements We adopted the Accounting Standards Update ("ASU") summarized below in fiscal 2024. ASU Description Date Adopted Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07) This ASU requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. December 25, 2024 Recently Issued Accounting Pronouncements Accounting standards updates ("ASU") applicable to the Company that were recently issued are summarized below. ASU Description Effective Date Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09) This ASU requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on our Consolidated Financial Statements and related disclosures. Fiscal years beginning after December 15, 2024 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03) This ASU requires that an entity disaggregate relevant expense captions presented on the face of the income statement into natural expense categories within the footnotes of the financial statements. In addition, a separate disclosure of selling expenses is required to be presented. The ASU is intended to allow stakeholders to better understand the components of an entity's expenses. Early adoption is permitted. The Company is evaluating the impact this standard will have on its Consolidated Financial Statements and related disclosures. Fiscal years beginning after December 15, 2026 All other ASUs issued but not yet effective are not applicable or not expected to have a material impact on the Company’s future Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 91 NOTE 3: REVENUE Revenue Recognition Revenue disaggregated by type was as follows: 2024 2023 2022 Shack sales $ 1,207,561 $ 1,046,819 $ 869,270 Licensing revenue: Sales-based royalties 43,487 39,853 30,204 Initial territory and opening fees 1,560 861 1,012 Total revenue $ 1,252,608 $ 1,087,533 $ 900,486 The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of December 25, 2024 was $ 23,130 . 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: December 25 2024 December 27 2023 Shack sales receivables $ 10,699 $ 9,884 Licensing receivables, net of allowance for doubtful accounts 5,735 4,610 Gift card liability 2,584 2,603 Deferred revenue, current 1,666 1,192 Deferred revenue, long-term 17,060 17,157 Revenue recognized that was included in the respective liability balances at the beginning of the period was as follows: 2024 2023 Gift card liability $ 776 $ 634 Deferred revenue 1,461 1,103 Shake Shack Inc. Form 10-K | 92 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: December 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 8, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments. A summary of other income from marketable securities was as follows: 2024 2023 2022 Income from marketable securities $ 640 $ 2,885 $ 1,033 Realized gain on sale of equity securities — 81 — Unrealized loss on equity securities — — ( 158 ) Total $ 640 $ 2,966 $ 875 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. During fiscal 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 $ 29,348 , of which $ 27,633 was impairment expense, related to right-of-use assets, and property, plant and equipment, and $ 1,715 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, Shack sales, profitability, discount rates, and sublease income. No impairment charges were recognized during fiscal 2023. During fiscal 2022, the Company recognized an impairment charge of $ 99 related to one Shack. These impairment charges were included in Impairments, loss on disposal of assets, and Shack closures on the Consolidated Statements of Income (Loss). Shake Shack Inc. Form 10-K | 93 NOTE 5: ACCOUNTS RECEIVABLE, NET The components of Accounts receivable, net were as follows: December 25 2024 December 27 2023 Licensing receivables, net of allowance for doubtful accounts $ 5,735 $ 4,610 Credit card receivables 5,856 6,360 Delivery receivables 4,225 3,039 Other receivables 3,871 2,838 Accounts receivable, net $ 19,687 $ 16,847 NOTE 6: PROPERTY AND EQUIPMENT, NET The components of Property and equipment, net were as follows: December 25 2024 December 27 2023 Leasehold improvements $ 676,098 $ 594,024 Equipment 116,561 98,780 Furniture and fixtures 34,057 31,469 Computer equipment and software 122,406 101,822 Financing equipment lease right-of-use assets 19,630 25,127 Construction in progress 40,034 56,533 Property and equipment, gross 1,008,786 907,755 Less: accumulated depreciation ( 457,186 ) ( 376,760 ) Property and equipment, net $ 551,600 $ 530,995 Depreciation expense was $ 102,442 , $ 91,216 and $ 72,770 for fiscal 2024, fiscal 2023 and fiscal 2022, respectively. NOTE 7: SUPPLEMENTAL BALANCE SHEET INFORMATION The components of Prepaid expenses and other current assets were as follows: December 25 2024 December 27 2023 Prepaid expenses $ 8,196 $ 5,641 Tenant allowance receivables 12,761 12,136 Other 844 1,190 Prepaid expenses and other current assets $ 21,801 $ 18,967 Shake Shack Inc. Form 10-K | 94 The components of Other current liabilities were as follows: December 25 2024 December 27 2023 Sales tax payable $ 6,999 $ 6,076 Current portion of financing equipment lease liabilities 4,086 3,435 Gift card liability 2,584 2,603 Other 5,869 4,989 Other current liabilities $ 19,538 $ 17,103 NOTE 8: 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 10 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 $ 256,900 and $ 205,000 , respectively, as of December 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. The Company may not redeem the Convertible Notes prior to March 6, 2025. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, on or after March 6, 2025 if the last reported sale price of Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date. Shake Shack Inc. Form 10-K | 95 In addition, if Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require it to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert the Convertible Notes in connection with such a corporate event or convert the Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be. Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc. entered into an intercompany note with SSE Holdings (“Intercompany Note”). SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028. Shake Shack Inc. will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by Shake Shack Inc. and the aggregate number of outstanding shares of common stock. Classification 2024 2023 2022 Amortization expense on Convertible Notes Interest expense $ 1,047 $ 1,047 $ 1,047 December 25 2024 December 27 2023 Convertible Notes $ 250,000 $ 250,000 Discount and debt issuance costs, net of amortization ( 3,317 ) ( 4,364 ) Long-term debt $ 246,683 $ 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 fiscal 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 dependent upon the net lease adjusted leverage ratio. As of December 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 December 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 December 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. Classification 2024 2023 2022 Interest expense on Revolving Credit Facility Interest expense $ 67 $ 74 $ 82 Shake Shack Inc. Form 10-K | 96 Classification December 25 2024 December 27 2023 Unamortized deferred financing costs on Revolving Credit Facility Other assets $ 23 $ 42 NOTE 9: LEASES A summary of operating and finance right-of-use assets and lease liabilities were as follows: Classification December 25 2024 December 27 2023 Operating leases Operating lease assets $ 424,611 $ 398,296 Finance leases Property and equipment, net 12,225 11,801 Total right-of-use assets $ 436,836 $ 410,097 Operating leases: Operating lease liabilities, current $ 55,739 $ 49,004 Long-term operating lease liabilities 494,499 464,533 Finance leases: Other current liabilities 4,086 3,435 Other long-term liabilities 8,616 8,721 Total lease liabilities $ 562,940 $ 525,693 The components of lease expense were as follows: Classification 2024 2023 2022 Operating lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses $ 77,432 $ 67,781 $ 58,788 Finance lease cost: Amortization of right-of-use assets Depreciation and amortization expense 4,181 3,324 3,071 Interest on lease liabilities Interest expense 770 476 226 Variable lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses 21,694 18,305 15,973 Short-term lease cost Occupancy and related expenses 840 938 580 Total lease cost $ 104,917 $ 90,824 $ 78,638 Shake Shack Inc. Form 10-K | 97 As of December 25, 2024, future minimum lease payments for operating and finance leases consisted of the following: Operating Leases Finance Leases 2025¹ $ 73,946 $ 4,719 2026 90,942 3,977 2027 86,408 3,239 2028 82,420 1,707 2029 76,049 297 Thereafter 298,374 77 Total minimum payments 708,139 14,016 Less: imputed interest 170,662 1,314 Total lease liabilities $ 537,477 $ 12,702 (1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of December 25, 2024. As of December 25, 2024, the Company had additional operating lease commitments of $ 138,716 for non-cancelable leases without a possession date, which commence in 2025 or later. The terms of these lease commitments are materially consistent with leases recognized on the Consolidated Balance Sheets. A summary of lease terms and discount rates for operating and finance leases were as follows: December 25 2024 December 27 2023 Weighted average remaining lease term (years): Operating leases 8.7 8.9 Finance leases 3.3 4.7 Weighted average discount rate: Operating leases 6.2 % 6.2 % Finance leases 6.1 % 5.6 % Supplemental cash flow information related to leases was as follows: 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 91,783 $ 72,128 $ 61,114 Operating cash flows from finance leases 770 476 226 Financing cash flows from finance leases 3,964 3,272 2,974 Right-of-use assets obtained in exchange for lease obligations: Operating leases 84,887 72,403 56,578 Finance leases 4,792 8,972 2,415 Shake Shack Inc. Form 10-K | 98 NOTE 10: EMPLOYEE BENEFIT PLANS Defined Contribution Plan Team members who have completed 90 days of continuous employment and are 21 years or older are eligible to participate in a defined contribution savings plan maintained by Shake Shack. The plan is funded by participant and employer contributions. Employer contributions, made at the Company's discretion, are paid directly to the third-party trustee and match a portion of certain participants' contributions. The Company matches 100 % of certain participants' contributions for the first 3 % of eligible compensation contributed and 50 % of contributions made in excess of 3 % of eligible compensation up to 5 % of eligible compensation. Employer contributions totaled $ 2,319 , $ 1,888 and $ 1,553 , respectively, for fiscal 2024, fiscal 2023 and fiscal 2022. NOTE 11: STOCKHOLDERS' EQUITY LLC Interests The SSE Holdings LLC Agreement 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, the Company receives a corresponding number of LLC Interests, increasing its total ownership interest in SSE Holdings. Simultaneously, and in connection with a redemption, the corresponding number of shares of Class B common stock are surrendered and cancelled. Refer to Note 12, Non-Controlling Interests, for additional information related to LLC Interests activity. Dividend Restrictions Shake Shack Inc. is a holding company with no direct operations. As a result, its ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends, distributions or other transfers from SSE Holdings. The amounts available to pay cash dividends are subject to certain covenants and restrictions set forth in the Revolving Credit Facility. As of December 25, 2024, essentially all of the net assets of SSE Holdings were restricted. NOTE 12: 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, 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. Shake Shack Inc. Form 10-K | 99 The following table summarizes the ownership interest in SSE Holdings: 2024 2023 LLC Interests Ownership % LLC Interests Ownership % Number of LLC Interests held by Shake Shack Inc. 40,068,068 94.2 % 39,474,315 93.3 % Number of LLC Interests held by non-controlling interest holders 2,455,713 5.8 % 2,834,513 6.7 % Total LLC Interests outstanding 42,523,781 100.0 % 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: 2024 2023 2022 Non-controlling interest holders' weighted average ownership percentages 6.2 % 6.7 % 6.9 % The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity: 2024 2023 2022 Net income (loss) attributable to Shake Shack Inc. $ 10,207 $ 20,264 $ ( 21,229 ) Other comprehensive income (loss): Unrealized holding income (loss) on foreign currency translation adjustment 2 ( 3 ) ( 1 ) Transfers (to) from non-controlling interests: Increase in additional paid-in capital as a result of the redemption of LLC Interests 3,517 265 313 Decrease in additional paid-in capital as a result of activity under stock compensation plan ( 5,614 ) ( 3,271 ) ( 2,978 ) Total effect of changes in ownership interest on equity attributable to Shake Shack Inc. $ 8,112 $ 17,255 $ ( 23,895 ) The following table summarizes the LLC Interests activity: 2024 2023 2022 LLC Interests activity under the Company's stock compensation plan Number of LLC Interests received by Shake Shack Inc. 214,953 154,317 90,527 Redemption and acquisition of LLC Interests Number of LLC Interests redeemed by non-controlling interest holders 378,800 35,000 52,074 Number of LLC Interests received by Shake Shack Inc. 378,800 35,000 52,074 Issuance of Class A common stock Shares of Class A common stock issued in connection with redemptions of LLC Interests 378,800 35,000 52,074 Cancellation of Class B common stock Shares of Class B common stock surrendered and canceled 378,800 35,000 52,074 Shake Shack Inc. Form 10-K | 100 NOTE 13: EQUITY-BASED COMPENSATION A summary of equity-based compensation expense by award type was as follows: 2024 2023 2022 Performance stock units $ 2,611 $ 3,149 $ 4,199 Restricted stock units 13,304 11,739 9,127 Equity-based compensation expense $ 15,915 $ 14,888 $ 13,326 Total income tax benefit recognized related to equity-based compensation $ 396 $ 391 $ 302 Equity-based compensation expense recognized was as follows: 2024 2023 2022 General and administrative expenses $ 14,339 $ 13,587 $ 12,305 Labor and related expenses 1,576 1,301 1,021 Equity-based compensation expense $ 15,915 $ 14,888 $ 13,326 The Company capitalized $ 371 , $ 286 and $ 192 of equity-based compensation expense associated with the construction cost of our Shacks and certain digital and technology projects, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively. Restricted Stock Units In January 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan") under which it may grant up to 5,865,522 restricted stock units and other equity-based awards to team members, directors and officers. In June 2024, the Company amended and restated the 2015 Plan (the “2025 Plan”) which authorizes the issuance of up to 842,321 additional shares of the Company’s Class A Common Stock and extends the term of the 2015 Plan by 10 years, among other things. The restricted stock units granted generally vest equally over periods ranging from one to five years . The fair value of restricted stock units is determined based on the closing market price of our Class A common stock on the date of grant. Compensation expense related to the restricted stock units is recognized using a straight-line attribution method over the vesting period. A summary of restricted stock unit activity was as follows: Restricted Stock Units Weighted Average Grant Date Fair Value Outstanding and unvested as of December 27, 2023 511,544 $ 67.82 Granted 199,345 102.77 Vested ( 185,649 ) 70.31 Forfeited ( 82,436 ) 73.41 Outstanding and unvested as of December 25, 2024 442,804 $ 81.47 The weighted average grant-date fair value of restricted stock units granted during fiscal 2023 and fiscal 2022 were $ 58.26 and $ 71.25 , respectively. The total fair value of shares vested during fiscal 2023 and fiscal 2022 was $ 10,382 and $ 5,936 , respectively. As of December 25, 2024, total unrecognized compensation expense related to unvested restricted stock units was $ 25,942 , which is expected to be recognized over a weighted average period of 2.5 years. Shake Shack Inc. Form 10-K | 101 Performance Stock Units Under the 2025 Plan, the Company may grant performance stock units and other types of performance-based equity awards that vest based on the outcome of certain performance criteria that are established and approved by the Compensation Committee of the Board of Directors. The actual number of equity awards earned is based on the level of performance achieved over a predetermined performance period, relative to established financial goals. Performance stock units granted during fiscal 2024 are subject to a requisite service period and the awards vest ratably over four years or cliff vest over three years . The amount of awards that can be earned ranges from 0 % to 200 % of the number of performance stock units granted, based on the achievement of approved financial goals over a one-year or three-year performance period. Performance stock units containing market conditions are based on a Monte Carlo simulation, and related compensation expense is recognized using a graded attribution method over the vesting period and does not change regardless of the amount of shares received by the recipient based on achievement of the awards. The fair value of performance stock units not containing a market condition is determined based on the closing market price of the Company's Class A common stock on the date of grant. Compensation expense related to the performance stock units not containing a market condition is recognized using either a graded-vesting attribution method or straight-line over the vesting period based on the most probable outcome of the performance conditions. No performance stock units were granted during fiscal 2023 and fiscal 2022. A summary of performance stock unit activity was as follows: Performance Stock Units Weighted Average Grant Date Fair Value Outstanding and unvested as of December 27, 2023 121,425 $ 92.77 Granted 95,624 103.98 Vested ( 10,646 ) 129.68 Forfeited ( 33,957 ) 91.73 Outstanding and unvested as of December 25, 2024 172,446 $ 96.82 The weighted average grant date fair value of performance stock units granted during fiscal 2023 and fiscal 2022 was nil , and nil , respectively. The total fair value of awards that vested during fiscal 2023 and fiscal 2022 was $ 1,441 and $ 1,869 , respectively. As of December 25, 2024, total unrecognized compensation expense related to unvested performance stock units was $ 6,645 , which is expected to be recognized over a weighted average period of 2.5 years. Stock Options Under the 2025 Plan, the Company may grant stock options to team members, directors and officers. The stock options granted generally vest equally over periods ranging from one to five years . The Company does not use cash to settle any of the equity-based awards, and issues new shares of Class A common stock upon the exercise of stock options. Shake Shack Inc. Form 10-K | 102 A summary of stock option activity was as follows: Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years) Outstanding as of December 27, 2023 100,625 $ 21.71 Exercised ( 77,369 ) 21.00 Forfeited ( 11,144 ) 23.45 Outstanding as of December 25, 2024 12,112 $ 24.66 $ 1,300 0.5 Options vested and exercisable as of December 25, 2024 12,112 $ 24.66 $ 1,300 0.5 As of December 25, 2024, total unrecognized compensation expense related to unvested stock options was nil . Cash received from stock options exercised was $ 1,627 and the cash tax benefit realized for the tax deductions from these option exercises was $ 137 for fiscal 2024. No options were granted during fiscal 2024, fiscal 2023 and fiscal 2022. The total intrinsic value of stock options exercised during fiscal 2024, fiscal 2023 and fiscal 2022 was $ 7,212 , $ 1,426 and $ 631 , respectively. No stock options vested during fiscal 2024, fiscal 2023 and fiscal 2022. The following table summarizes information about stock options outstanding and exercisable as December 25, 2024: Options Outstanding and Exercisable Number Outstanding at December 25, 2024 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Exercise Price $ 21.00 9,001 0.1 $ 21.00 $ 34.62 2,003 1.4 $ 34.62 $ 36.41 1,108 1.9 $ 36.41 NOTE 14: INCOME TAXES Shake Shack is the sole managing member of SSE Holdings, which is classified as a partnership for U.S federal and most applicable state and local income tax purposes. As the managing member, the Company consolidates SSE Holdings financial results. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Instead, any taxable income or loss generated by SSE Holdings is allocated to its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of taxable income or loss from 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. Income Tax Expense The components of Income (loss) before income taxes were as follows: 2024 2023 2022 Domestic $ ( 18,247 ) $ ( 13,427 ) $ ( 49,454 ) Foreign 32,491 30,407 25,169 Income (loss) before income taxes $ 14,244 $ 16,980 $ ( 24,285 ) Shake Shack Inc. Form 10-K | 103 The components of Income tax expense (benefit) were as follows: 2024 2023 2022 Current income taxes: State and local $ 554 $ 1,271 $ 222 Foreign 3,924 3,793 3,612 Total current income taxes 4,478 5,064 3,834 Deferred income taxes: Federal ( 2,731 ) ( 12,427 ) ( 4,176 ) State and local 1,677 3,353 ( 838 ) Total deferred income taxes ( 1,054 ) ( 9,074 ) ( 5,014 ) Income tax expense (benefit) $ 3,424 $ ( 4,010 ) $ ( 1,180 ) Reconciliations of Income tax expense (benefit) computed at the U.S. federal statutory income tax rate to the recognized Income tax expense (benefit) and the U.S. statutory income tax rate to our effective tax rates were as follows: 2024 2023 2022 Expected U.S. federal income taxes at statutory rate $ 2,991 21.0 % $ 3,565 21.0 % $ ( 5,100 ) 21.0 % State and local income taxes, net of federal benefit 2,166 15.2 % 2,090 12.3 % ( 759 ) 3.1 % Foreign withholding taxes 3,924 27.6 % 3,792 22.3 % 3,612 ( 14.9 ) % Tax credits ( 7,033 ) ( 49.4 ) % ( 7,060 ) ( 41.6 ) % ( 5,969 ) 24.6 % Non-controlling interest ( 166 ) ( 1.2 ) % ( 196 ) ( 1.2 ) % 122 ( 0.5 ) % Non-deductible expenses 2,240 15.7 % 1,169 6.9 % 1,467 ( 6.0 ) % Reserve for uncertain tax positions — — % 154 0.9 % — — % Remeasurement of deferred tax assets in connection with other tax rate changes 392 2.8 % 1,547 9.1 % 225 ( 0.9 ) % Return to provision adjustment ( 650 ) ( 4.6 ) % ( 519 ) ( 3.0 ) % 267 ( 1.1 ) % Change in valuation allowance ( 97 ) ( 0.7 ) % ( 9,195 ) ( 54.1 ) % 4,955 ( 20.4 ) % Other ( 343 ) ( 2.4 ) % 643 3.8 % — — % Income tax expense (benefit) $ 3,424 24.0 % $ ( 4,010 ) ( 23.6 ) % $ ( 1,180 ) 4.9 % Shake Shack's effective income tax rates for fiscal 2024, fiscal 2023 and fiscal 2022 were 24.0 %, ( 23.6 )% and 4.9 %, respectively. The increase in the effective income tax rate from fiscal 2023 to fiscal 2024 was primarily driven by the release of a valuation allowance and a higher remeasurement of deferred tax assets in fiscal 2023. Shake Shack Inc. Form 10-K | 104 Deferred Tax Assets and Liabilities The components of deferred tax assets and liabilities were as follows: December 25 2024 December 27 2023 Deferred tax assets: Investment in partnership $ 89,397 $ 90,419 Tax Receivable Agreement 67,192 64,076 Operating lease liability 5,264 4,713 Financing lease liability 124 114 Deferred revenue 209 196 Equity-based compensation 357 360 Net operating loss carryforwards 148,700 144,144 Tax credits 33,643 26,048 Other assets 1,772 947 Total gross deferred tax assets 346,658 331,017 Valuation allowance ( 260 ) ( 357 ) Total deferred tax assets, net of valuation allowance 346,398 330,660 Deferred tax liabilities: Property and equipment ( 537 ) ( 599 ) Operating lease right-of-use asset ( 4,147 ) ( 3,735 ) Financing lease right-of-use asset ( 119 ) ( 111 ) Other liabilities ( 9 ) ( 7 ) Total gross deferred tax liabilities ( 4,812 ) ( 4,452 ) Net deferred tax assets $ 341,586 $ 326,208 As of December 25, 2024, the Company's federal and state net operating loss carryforwards for income tax purposes were $ 615,782 and $ 334,359 , respectively. Of the federal net operating loss carryforward, $ 563,915 can be carried forward indefinitely, while the remaining $ 51,867 will begin to expire in 2035. Similarly, of the state net operating loss carryforward, $ 106,682 can be carried forward indefinitely, while the remaining $ 227,677 will begin to expire in 2025. As of December 25, 2024, the Company had federal tax credit carryforwards, including a capital loss carryforward of $ 33,749 , which will begin to expire in 2025 and gross state tax credit carryforwards of $ 273 , also expiring in 2025. As described in Note 12, Non-controlling Interests, the Company acquired a total of 593,753 LLC Interests during fiscal 2024 through LLC Interest redemptions and stock-based compensation plan activity. Upon acquiring these LLC Interests, the Company recognized a deferred tax asset of $ 10,985 related to the basis difference in its investment in SSE Holdings. As of December 25, 2024, the total deferred tax asset associated with the basis difference was $ 89,397 . 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 December 25, 2024, the Company concluded, based on the valuation of all available positive and negative evidence, that all of its deferred tax assets are more likely than not to be realized, except certain state credits and state net operating losses that are not expected to be utilized before expiration. Accordingly, the Company maintained a valuation allowance of $ 260 . The net change in valuation allowance for fiscal 2024 was a decrease of $ 97 . Refer to Schedule II, Valuation and Qualifying Accounts for additional information. Shake Shack Inc. Form 10-K | 105 Uncertain Tax Positions Pursuant to ASC 740, the Company provides for uncertain tax positions based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. In 2024, no new uncertain tax positions were identified. A reconciliation of the beginning to the ending accounts of gross unrecognized tax benefits for fiscal 2024, 2023, and 2022 is as follows: 2024 2023 2022 Beginning balance $ 147 $ — $ — Additions for tax positions of prior years — 263 — Settlements — ( 116 ) — Ending balance $ 147 $ 147 $ — The Company files income tax returns in the United States federal and state and local jurisdictions. The Company is currently open to examination by tax authorities for state and local jurisdictions for tax years beginning 2018. Tax Receivable Agreement 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. On February 4, 2015, the Company entered into a tax receivable agreement with certain then-existing non-controlling members of SSE Holdings (the "Tax Receivable Agreement"). This agreement obligates the Company to pay the non-controlling interest holders 85 % of any tax benefits that the Company may actually realize, or deemed to realize, from (i) increases in the Company's share of the tax basis of SSE Holdings due to redemptions or exchanges of LLC Interests, (ii) tax basis increases resulting from payments made under the Tax Receivable Agreement, and (iii) deductions from imputed interest under the agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15 % of any realized tax benefits. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. Additionally, the rights of each non-controlling interest holder under the Tax Receivable Agreement, are assignable to transferees of its LLC Interests. During fiscal 2024, the Company acquired a total of 378,800 LLC Interests in connection with the redemption of LLC Interests, which led to an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional asset of $ 10,985 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests. This estimate was based on our conclusion that it was probable that such TRA Payments would be made, considering our projections of future taxable income. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement in fiscal 2024 and fiscal 2023. As of December 25, 2024, the total amount of TRA Payments due under the Tax Receivable Agreement was $ 247,734 , of which $ 717 amount was included in Other current liabilities on the Consolidated Balance Sheets. NOTE 15: 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. Shake Shack Inc. Form 10-K | 106 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): 2024 2023 2022 Numerator: Net income (loss) attributable to Shake Shack Inc.—basic $ 10,207 $ 20,264 $ ( 21,229 ) Reallocation of net income attributable to non-controlling interests from the assumed conversion of Class B shares 613 726 — Net income (loss) attributable to Shake Shack Inc.—diluted $ 10,820 $ 20,990 $ ( 21,229 ) Denominator: Weighted average shares of Class A common stock outstanding—basic 39,830 39,419 39,237 Effect of dilutive securities: Stock options 52 75 — Performance stock units 69 11 — Restricted stock units 173 85 — Convertible Notes 1,467 1,467 — Shares of Class B common stock 2,612 2,842 — Weighted average shares of Class A common stock outstanding—diluted 44,203 43,899 39,237 Earnings (loss) per share of Class A common stock—basic $ 0.26 $ 0.51 $ ( 0.54 ) Earnings (loss) per share of Class A common stock—diluted $ 0.24 $ 0.48 $ ( 0.54 ) 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 8, Debt, for additional information. 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: 2024 2023 2022 Stock options — — 134,031 (2) Performance stock units 50,556 (1) 99,718 (1) 159,822 (2) Restricted stock units — — 395,853 (2) Shares of Class B common stock — — 2,869,513 (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. Shake Shack Inc. Form 10-K | 107 NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information: 2024 2023 2022 Cash paid for: Income taxes, net of refunds $ 6,531 $ 4,056 $ 3,731 Interest, net of amounts capitalized 882 537 252 Non-cash investing activities: Accrued purchases of property and equipment 19,226 24,999 26,591 Capitalized equity-based compensation 217 181 126 Non-cash financing activities: Establishment of liabilities under Tax Receivable Agreement 12,121 720 844 NOTE 17: 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 9, Leases, for additional information. Certain leases require the Company to obtain letters of credit. As of December 25, 2024, the Company held three letters of credit, one for $ 402 , which expires in August 2025 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 December 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 Shake Shack Inc. Form 10-K | 108 Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Refer to Note 14, Income Taxes, for additional information relating to the Tax Receivable Agreement. NOTE 18: 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. Classification 2024 2023 2022 Amounts received from HYC Licensing revenue $ 926 $ 988 $ 802 Classification December 25 2024 December 27 2023 Amounts due from HYC Accounts receivable, net $ 73 $ 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 as of December 25, 2024 and December 27, 2023. Classification 2024 2023 2022 Amounts paid to MSP Conservancy Occupancy and related expenses $ 937 $ 898 $ 1,224 Shake Shack Inc. Form 10-K | 109 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. Classification 2024 2023 2022 Amounts paid to Olo, Inc. Other operating expenses $ 838 $ 595 $ 431 Classification December 25 2024 December 27 2023 Amounts due to Olo, Inc. Accounts payable Accrued expenses $ 227 $ 116 Block, Inc. The Company's former Chief Executive Officer is a member of the board of directors of Block, Inc. (formerly known as "Square, Inc."). The Company currently uses certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with its kiosk technology, sales for certain off-site events and the processing of a limited amount of sales at certain locations. Classification 2024 2023 2022 Amounts paid to Block, Inc. Other operating expenses $ 12,119 $ 8,688 $ 4,337 Classification December 25 2024 December 27 2023 Amounts due to Block, Inc. Accounts payable Accrued expenses $ — $ 59 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 14, Income Taxes, for additional information. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2024, fiscal 2023 and fiscal 2022. Classification December 25 2024 December 27 2023 Amounts due under the Tax Receivable Agreement Other current liabilities Liabilities under Tax Receivable Agreement, net of current portion $ 247,734 $ 235,613 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 December 25, 2024 and December 27, 2023, respectively. Classification 2024 2023 2022 Amounts paid to non-controlling interest holders Non-controlling interests $ 482 $ 162 $ 410 Shake Shack Inc. Form 10-K | 110 NOTE 19: SEGMENT REPORTING Shake Shack operates and licenses Shake Shack restaurants, which serve burgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine and more. The Company operates Shacks in the United States and has both domestic and international licensed Shacks. The chief operating decision maker (the "CODM") is the Chief Executive Officer. The Company determined it has one operating segment and one reportable segment, as the CODM regularly reviews Shack operations and financial performance at a consolidated level. The CODM also allocates resources at a consolidated level. The CODM uses net income to allocate resources (including labor, technology, and capital resources) for the single segment to make decisions regarding annual budget, new Shack openings, entering new geographic markets, landlord and vendor negotiations, marketing decisions, pursuing new business ventures, and driving the Company's mission. 2024 2023 2022 Segment revenue (1) $ 1,252,608 $ 1,087,533 $ 900,486 Less: Food and paper costs 339,940 305,041 261,584 Labor and related expenses 338,750 304,254 257,358 Other operating expenses (2) 178,381 149,449 129,650 Occupancy and related expenses 93,069 79,846 68,508 General and administrative expenses 149,047 129,542 120,009 Depreciation and amortization expense 102,468 91,242 72,796 Pre-opening costs 15,547 19,231 15,050 Impairments, loss on disposal of assets, and Shack closures 32,368 3,007 2,425 Interest expense 2,045 1,717 1,518 Income tax expense (benefit) 3,424 ( 4,010 ) ( 1,180 ) Other (income) loss, net (3) ( 13,251 ) ( 12,776 ) ( 4,127 ) Segment income (loss) 10,820 20,990 ( 23,105 ) Reconciliation of profit or loss: Adjustments and reconciling items — — — Consolidated net income (loss) $ 10,820 $ 20,990 $ ( 23,105 ) December 25 2024 December 27 2023 Total Assets $ 1,696,971 $ 1,605,857 (1) Refer to Note 20, for geographic information and breakdown of revenue and long-lived assets by geographic area. (2) 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. (3) Other income, net includes net unrealized and realized gains and losses from marketable securities, dividend and interest income, and adjustments to liabilities under the Tax Receivable Agreement. Interest income was $ 640 , $ 2,390 and nil , respectively for the fifty-two weeks ended December 25, 2024, December 27, 2023 and December 28, 2022. Shake Shack Inc. Form 10-K | 111 NOTE 20: GEOGRAPHIC INFORMATION Revenue by geographic area was as follows: 2024 2023 2022 United States $ 1,219,356 $ 1,056,753 $ 875,047 Other countries 33,252 30,780 25,439 Total revenue $ 1,252,608 $ 1,087,533 $ 900,486 Revenues are shown based on the geographic location of the Company's customers and licensees. The Company's long-lived assets are primarily located in the United States. Shake Shack Inc. Form 10-K | 112 Schedule I: Condensed Financial Information of Registrant SHAKE SHACK INC. CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in thousands, except share and per share amounts) December 25 2024 December 27 2023 ASSETS Current assets: Cash $ 9,271 $ 6,672 Prepaid expenses 1,405 63 Total current assets 10,676 6,735 Deferred income taxes, net 336,588 328,870 Investment in SSE Holdings 390,184 362,296 Note receivable from SSE Holdings 224,879 216,946 Note receivable - conversion option 33,500 12,900 Due from SSE Holdings 9,695 8,213 TOTAL ASSETS $ 1,005,522 $ 935,960 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable — 146 Accrued expenses 87 621 Due to SSE Holdings 32,482 22,027 Other current liabilities 717 — Total current liabilities 33,286 22,794 Long-term debt 246,683 245,636 Liabilities under tax receivable agreement, net of current portion 247,017 235,613 Total liabilities 526,986 504,043 Commitments and contingencies Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of December 25, 2024 and December 27, 2023. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 40,068,068 and 39,474,315 shares issued and outstanding as of December 25, 2024 and December 27, 2023, respectively. 40 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,455,713 and 2,834,513 shares issued and outstanding as of December 25, 2024 and December 27, 2023, respectively. 2 3 Additional paid-in capital 442,993 426,601 Retained earnings 35,502 5,277 Accumulated other comprehensive loss ( 1 ) ( 3 ) Total stockholders' equity 478,536 431,917 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,005,522 $ 935,960 See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 113 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF INCOME (LOSS) (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 Intercompany revenue $ 6,476 $ 7,971 $ 2,293 TOTAL REVENUE 6,476 7,971 2,293 General and administrative expenses 5,647 6,663 3,132 Intercompany expenses 45 54 67 TOTAL EXPENSES 5,692 6,717 3,199 INCOME (LOSS) FROM OPERATIONS 784 1,254 ( 906 ) Equity in net income (loss) from SSE Holdings 8,558 10,091 ( 25,335 ) Other income (expense), net 28,533 14,533 ( 1,767 ) Interest expense ( 1,047 ) ( 1,047 ) ( 1,047 ) INCOME (LOSS) BEFORE INCOME TAXES 36,828 24,831 ( 29,055 ) Income tax expense (benefit) 6,603 ( 5,203 ) ( 5,783 ) NET INCOME (LOSS) $ 30,225 $ 30,034 $ ( 23,272 ) See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 114 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 Net income (loss) $ 30,225 $ 30,034 $ ( 23,272 ) Other comprehensive income (loss), net of tax (1) : Change in foreign currency translation adjustment 2 ( 3 ) ( 1 ) OTHER COMPREHENSIVE INCOME (LOSS) 2 ( 3 ) ( 1 ) COMPREHENSIVE INCOME (LOSS) $ 30,227 $ 30,031 $ ( 23,273 ) (1) Net of tax benefit of $ 0 for fiscal years ended December 25, 2024, December 27, 2023 and December 28, 2022. See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 115 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended December 25 2024 December 27 2023 December 28 2022 OPERATING ACTIVITIES Net income (loss) $ 30,225 $ 30,034 $ ( 23,272 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Equity in net (income) loss from SSE Holdings ( 8,558 ) ( 10,091 ) 25,335 Amortization of debt issuance costs 1,047 1,047 1,047 Equity-based compensation 920 894 614 Deferred income taxes 6,606 ( 5,249 ) ( 5,783 ) (Gain) loss on note receivable - conversion option ( 20,600 ) ( 6,600 ) 9,700 Other non-cash income ( 7,933 ) ( 7,933 ) ( 7,934 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 1,342 ) ( 1 ) 2 Due (to) from SSE Holdings 1,153 ( 3,944 ) ( 728 ) Accounts payable ( 146 ) 107 30 Accrued expenses ( 395 ) 515 ( 103 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 977 ( 1,221 ) ( 1,092 ) INVESTING ACTIVITIES Purchases of LLC Interests from SSE Holdings ( 27,618 ) ( 11,731 ) ( 7,619 ) NET CASH USED IN INVESTING ACTIVITIES ( 27,618 ) ( 11,731 ) ( 7,619 ) FINANCING ACTIVITIES Proceeds from issuance of Class A common stock to SSE Holdings upon settlement of equity awards 27,618 11,731 7,619 Proceeds from stock option exercises 1,620 744 424 NET CASH PROVIDED BY FINANCING ACTIVITIES 29,238 12,475 8,043 Effect of exchange rate changes on cash and cash equivalents 2 ( 3 ) ( 1 ) INCREASE (DECREASE) IN CASH 2,599 ( 480 ) ( 669 ) CASH AT BEGINNING OF PERIOD 6,672 7,152 7,821 CASH AT END OF PERIOD $ 9,271 $ 6,672 $ 7,152 See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 116 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY) (in thousands, except share and per share amounts) NOTE 1: ORGANIZATION Shake Shack Inc. (the "Parent Company") was formed on September 23, 2014 as a Delaware corporation and is a holding company with no direct operations. The Parent Company's assets consist primarily of its equity interest in SSE Holdings, LLC ("SSE Holdings"), certain deferred tax assets and its note receivable from SSE Holdings. The Parent Company's cash inflows are primarily from cash dividends or distributions and other transfers from SSE Holdings. The amounts available to the Parent Company to fulfill cash commitments and pay cash dividends on its common stock are subject to certain restrictions in SSE Holdings' Revolving Credit Facility. Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information. NOTE 2: BASIS OF PRESENTATION These Condensed Parent Company financial statements should be read in conjunction with the Consolidated Financial Statements of Shake Shack Inc. and the accompanying notes thereto, included in Part II, Item 8. For purposes of these condensed financial statements, the Parent Company's interest in SSE Holdings is recorded based upon its proportionate share of SSE Holdings' net assets (similar to presenting them on the equity method). The Parent Company is the sole managing member of SSE Holdings, and pursuant to the Third Amended and Restated LLC Agreement of SSE Holdings (the “SSE Holdings LLC Agreement”), receives compensation in the form of reimbursements for all costs associated with being a public company and maintaining its existence. Intercompany revenue consists of these reimbursement payments and is recognized when the corresponding expense to which it relates is recognized. Certain intercompany balances presented in these Condensed Parent Company financial statements are eliminated in the Company's Consolidated Financial Statements. The following table presents amounts in the Parent Company's Condensed Balance Sheets that were eliminated in consolidation: December 25 2024 December 27 2023 Assets Due from SSE Holdings $ 9,695 $ 8,213 Deferred income taxes, net ( 3,177 ) 4,289 Note receivable from SSE Holdings 224,879 216,946 Note receivable - conversion option 33,500 12,900 Liabilities Due to SSE Holdings 32,482 22,027 Related party amounts that were not eliminated in the Company's Consolidated Financial Statements include the Parent Company's liabilities under the tax receivable agreement, which totaled $ 247,734 and $ 235,613 , respectively as of December 25, 2024 and December 27, 2023. Shake Shack Inc. Form 10-K | 117 The following table presents amounts in the Parent Company's Condensed Statements of Income (Loss) that were eliminated in consolidation: 2024 2023 2022 Intercompany revenue $ 6,476 $ 7,971 $ 2,293 Equity in net income (loss) from SSE Holdings 8,558 10,091 ( 25,335 ) Other income (expense), net 28,533 14,533 ( 1,767 ) Income tax expense (benefit) 7,466 3,715 ( 769 ) NOTE 3: NOTE RECEIVABLE FROM SSE HOLDINGS In March 2021, contemporaneously with the issuance of the Convertible Notes described in Note 4, Debt, below, the Parent Company entered into a $ 250,000 intercompany note with SSE Holdings (the "Intercompany Note"). The Intercompany Note will mature in March 2028 unless the Parent Company exercises its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by the Parent Company and the aggregate number of outstanding shares of Class A common stock. As of December 25, 2024 and December 27, 2023, the balance of the Note receivable from SSE Holdings was $ 224,879 and $ 216,946 , respectively, net of accretion. The Parent Company's right to convert the Intercompany Note into common units of SSE Holdings (the "Conversion Option") is required to be bifurcated from the Intercompany Note and shown separately on the Parent Company's Condensed Balance Sheets. The Conversion Option is to be recorded at fair value and remeasured at each subsequent reporting date. As of December 25, 2024 and December 27, 2023, the fair value of the Conversion Option was $ 33,500 and $ 12,900 , respectively. The following table presents amounts in the Parent Company's Condensed Statements of Income (Loss) related to the change in value and accretion on the Conversion Option: Classification 2024 2023 2022 Unrealized gain (loss) Other income (expense), net $ 20,600 $ 6,600 $ ( 9,700 ) Interest income Other income (expense), net $ 7,933 $ 7,933 $ 7,933 NOTE 4: DEBT In March 2021, the Parent Company issued $ 250,000 aggregate principal amount of 0 % Convertible Senior Notes (“Convertible Notes”) which will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Parent 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. Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information. NOTE 5: COMMITMENTS AND CONTINGENCIES On February 4, 2015, the Parent Company entered into a tax receivable agreement with the non-controlling interest holders that provides for payments to the non-controlling interest holders of 85 % of the amount of any tax benefits that the Parent Company actually realizes, or in some cases is deemed to realize, as a result of certain transactions. Refer to Note 14, Income Taxes,in the accompanying Consolidated Financial Statements, for additional information relating to the Parent Company's Tax Receivable Agreement. As described in Note 14, Income Taxes, in the accompanying Consolidated Financial Statements, the Company is obligated to pay the non-controlling interest holders 85 % of any tax benefits that the Company may actually realize, or deemed to realize, from (i) increases in the Company's share of the tax basis of SSE Holdings due to redemptions or exchanges of LLC Interests, (ii) tax basis increases resulting from payments made under the Tax Receivable Agreement, and (iii) deductions from imputed interest under the agreement (the "TRA Payments"). As of December 25, 2024 and December 27, 2023, liabilities under the Tax Receivable Agreement totaled $ 247,734 and $ 235,613 , respectively. Shake Shack Inc. Form 10-K | 118 NOTE 6: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information: 2024 2023 2022 Cash paid for: Income taxes $ 832 $ 9 $ — Non-cash investing activities: Accrued contribution related to stock option exercises 1,625 744 424 Class A common stock issued in connection with the acquisition of LLC Interests upon redemption by the non-controlling interest holders 3,517 265 313 Non-cash contribution made in connection with equity awards granted to employees of SSE Holdings 20,406 10,305 6,988 Non-cash financing activities: Establishment of liabilities under tax receivable agreement 12,121 720 844 Shake Shack Inc. Form 10-K | 119 Schedule II: Valuation and Qualifying Accounts Balance at beginning of period Additions Balance at end of period (in thousands) Charged to costs and expenses Charged to other accounts Deferred tax asset valuation allowance: Fiscal year ended December 28, 2022 $ 5,173 $ 4,955 $ ( 568 ) (1) $ 9,560 Fiscal year ended December 27, 2023 $ 9,560 $ ( 9,203 ) $ — $ 357 Fiscal year ended December 25, 2024 $ 357 $ ( 97 ) $ — $ 260 (1) Amount relates to a valuation allowance established on deferred tax assets related to our investment in SSE Holdings. Shake Shack Inc. Form 10-K | 120 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.