Shake Shack Inc. [SHAK] Filings

10-Q 1 shak-20230628.htm 10-Q shak-20230628

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission file number: 001-36823

SHAKE SHACK INC.

(Exact name of registrant as specified in its charter)


Delaware			47-1941186
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
225 Varick Street
Suite 301
	New York,	New York	10014
	(Address of principal executive offices)		(Zip Code)

(646) 747-7200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001	SHAK	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule-405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No

As of July 26, 2023, there were 39,462,483 shares of Class A common stock outstanding and 2,834,513 shares of Class B common stock outstanding.

SHAKE SHACK INC.

TABLE OF CONTENTS


Cautionary Note Regarding Forward-Looking Information			1

Part I			2
	Item 1.	Financial Statements (Unaudited)	2
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
	Item 4.	Controls and Procedures	42

Part II			43
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 3.	Defaults Upon Senior Securities	43

	Item 5.	Other Information	43
	Item 6.	Exhibits	44

SIGNATURES			45

Table of Contents

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including, but not limited to, statements about the Company's growth, strategic plan, and liquidity. Forward-looking statements discuss the Company's current expectations and projections relating to its financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Some of the factors which could cause results to differ materially from the Company's expectations include the continuing impact of the COVID-19 pandemic, including the potential impact of any COVID-19 variants, the Company's ability to develop and open new Shacks on a timely basis, increased costs or shortages or interruptions in the supply and delivery of products, increased labor costs or shortages, inflationary pressures, the Company's management of its digital capabilities and expansion into new channels, including drive-thru and multiple format investments, the Company's ability to maintain and grow sales at existing Shacks, and risks relating to the restaurant industry generally. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2022 as filed with the Securities and Exchange Commission (the "SEC").

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Shake Shack Inc.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).


			Page
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Income (Loss)			4
Condensed Consolidated Statements of Comprehensive Income (Loss)			5
Condensed Consolidated Statements of Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Condensed Consolidated Financial Statements			9

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


		June 28 2023		December 28 2022
ASSETS
Current assets:
	Cash and cash equivalents	$	203,697	$	230,521
	Marketable securities	91,537		80,707
	Accounts receivable, net	14,332		13,877
	Inventories	4,674		4,184
	Prepaid expenses and other current assets	15,278		14,699
	Total current assets	329,518		343,988
Property and equipment, net of accumulated depreciation of $331,571 and $290,362, respectively		500,085		467,031
Operating lease assets		385,386		367,488
Deferred income taxes, net		302,025		300,538

Other assets		15,802		15,817
TOTAL ASSETS		$	1,532,816	$	1,494,862
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

	Accounts payable	$	17,005	$	20,407
	Accrued expenses	50,588		47,945
	Accrued wages and related liabilities	18,221		17,576
	Operating lease liabilities, current	46,490		42,238
	Other current liabilities	17,881		19,552
	Total current liabilities	150,185		147,718


Long-term debt		245,113		244,589


Long-term operating lease liabilities		448,580		427,227
Liabilities under tax receivable agreement, net of current portion		235,361		234,893
Other long-term liabilities		22,218		20,687
Total liabilities		1,101,457		1,075,114
Commitments and contingencies (Note 13)
Stockholders' equity:

	Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of June 28, 2023 and December 28, 2022.	—		—
	Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,449,246 and 39,284,998 shares issued and outstanding as of June 28, 2023 and December 28, 2022, respectively.	39		39
	Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,844,513 and 2,869,513 shares issued and outstanding as of June 28, 2023 and December 28, 2022, respectively.	3		3
	Additional paid-in capital	421,356		415,611
	Accumulated deficit	(15,123)		(20,537)
	Accumulated other comprehensive loss	(4)		—
	Total stockholders' equity attributable to Shake Shack Inc.	406,271		395,116
Non-controlling interests		25,088		24,632
Total equity		431,359		419,748
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,532,816	$	1,494,862

See accompanying Notes to Condensed Consolidated Financial Statements.

Shake Shack Inc.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share amounts)


		Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 28 2023		June 29 2022		June 28 2023		June 29 2022
Shack sales		$	261,810	$	223,054	$	506,064	$	419,845
Licensing revenue		9,995		7,698		19,019		14,298
TOTAL REVENUE		271,805		230,752		525,083		434,143
Shack-level operating expenses:
	Food and paper costs	75,800		65,987		147,572		125,871
	Labor and related expenses	75,158		65,851		149,422		126,316
	Other operating expenses	36,109		32,151		71,045		62,322
	Occupancy and related expenses	19,801		16,657		38,384		32,933
General and administrative expenses		31,476		29,487		62,787		60,873
Depreciation and amortization expense		22,252		18,087		43,574		34,942
Pre-opening costs		5,577		2,823		9,134		5,535
Impairment and loss on disposal of assets		884		528		1,606		1,105
TOTAL EXPENSES		267,057		231,571		523,524		449,897
INCOME (LOSS) FROM OPERATIONS		4,748		(819)		1,559		(15,754)
Other income, net		3,227		538		6,064		249
Interest expense		(405)		(315)		(808)		(670)
INCOME (LOSS) BEFORE INCOME TAXES		7,570		(596)		6,815		(16,175)
Income tax expense (benefit)		347		707		1,214		(3,590)
NET INCOME (LOSS)		7,223		(1,303)		5,601		(12,585)
Less: Net income (loss) attributable to non-controlling interests		275		(115)		187		(1,235)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	6,948	$	(1,188)	$	5,414	$	(11,350)
Earnings (loss) per share of Class A common stock:
	Basic	$	0.18	$	(0.03)	$	0.14	$	(0.29)
	Diluted	$	0.16	$	(0.03)	$	0.13	$	(0.29)
Weighted average shares of Class A common stock outstanding:
	Basic	39,416		39,227		39,374		39,195
	Diluted	43,886		39,227		43,837		39,195

See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


		Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 28 2023		June 29 2022		June 28 2023		June 29 2022
Net income (loss)		$	7,223	$	(1,303)	$	5,601	$	(12,585)
Other comprehensive income (loss), net of tax(1):
	Change in foreign currency translation adjustment	—		(1)		(4)		(2)




OTHER COMPREHENSIVE INCOME (LOSS)		—		(1)		(4)		(2)
COMPREHENSIVE INCOME (LOSS)		7,223		(1,304)		5,597		(12,587)
Less: Comprehensive income (loss) attributable to non-controlling interests		275		(115)		187		(1,235)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	6,948	$	(1,189)	$	5,410	$	(11,352)

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share amounts)


For the Thirteen Weeks Ended June 28, 2023 and June 29, 2022
		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, MARCH 29, 2023		39,404,905	$	39	2,844,513	$	3	$	417,451	$	(22,071)	$	(4)	$	24,487	$	419,905

	Net income	—	—		—	—		—		6,948		—		275		7,223
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment	—	—		—	—		—		—		—		—		—
	Equity-based compensation	—	—		—	—		4,011		—		—		—		4,011
	Activity under stock compensation plans	44,341	—		—	—		145		—		—		329		474

	Redemption of LLC Interests	—	—		—	—		—		—		—		—		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		(251)		—		—		—		(251)

	Distributions paid to non-controlling interest holders	—	—		—	—		—		—		—		(3)		(3)
BALANCE, JUNE 28, 2023		39,449,246	$	39	2,844,513	$	3	$	421,356	$	(15,123)	$	(4)	$	25,088	$	431,359

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

	Net loss	—	—		—	—		—		(1,188)		—		(115)		(1,303)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment	—	—		—	—		—		—		(1)		—		(1)
	Equity-based compensation	—	—		—	—		3,501		—		—		—		3,501
	Activity under stock compensation plans	8,306	—		—	—		(332)		—		—		421		89

	Redemption of LLC Interests	40,074	—		(40,074)	—		257		—		—		(257)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		113		—		—		—		113

	Distributions paid to non-controlling interest holders	—	—		—	—		—		—		—		(22)		(22)
BALANCE, JUNE 29, 2022		39,266,670	$	39	2,871,513	$	3	$	410,520	$	(7,796)	$	(1)	$	24,871	$	427,636

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For the Twenty-Six Weeks Ended June 28, 2023 and June 29, 2022
		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 28, 2022		39,284,998	$	39	2,869,513	$	3	$	415,611	$	(20,537)	$	—	$	24,632	$	419,748

	Net income	—	—		—	—		—		5,414		—		187		5,601
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment	—	—		—	—		—		—		(4)		—		(4)
	Equity-based compensation	—	—		—	—		7,875		—		—		—		7,875
	Activity under stock compensation plans	139,248	—		—	—		(2,554)		—		—		515		(2,039)

	Redemption of LLC Interests	25,000	—		(25,000)	—		194		—		—		(194)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		230		—		—		—		230

	Distributions paid to non-controlling interest holders	—	—		—	—		—		—		—		(52)		(52)
BALANCE, JUNE 28, 2023		39,449,246	$	39	2,844,513	$	3	$	421,356	$	(15,123)	$	(4)	$	25,088	$	431,359

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

	Net loss	—	—		—	—		—		(11,350)		—		(1,235)		(12,585)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment	—	—		—	—		—		—		(2)		—		(2)
	Equity-based compensation	—	—		—	—		6,725		—		—		—		6,725
	Activity under stock compensation plans	74,199	—		—	—		(2,608)		—		—		673		(1,935)

	Redemption of LLC Interests	50,074	—		(50,074)	—		306		—		—		(306)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		157		—		—		—		157

	Distributions paid to non-controlling interest holders	—	—		—	—		—		—		—		(324)		(324)
BALANCE, JUNE 29, 2022		39,266,670	$	39	2,871,513	$	3	$	410,520	$	(7,796)	$	(1)	$	24,871	$	427,636

See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


			Twenty-Six Weeks Ended
			June 28 2023		June 29 2022
OPERATING ACTIVITIES
Net income (loss) (including amounts attributable to non-controlling interests)			$	5,601	$	(12,585)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
	Depreciation and amortization expense		43,574		34,942
	Amortization of debt issuance costs		524		524
	Amortization of cloud computing asset		880		683
	Non-cash operating lease cost		32,598		28,010
	Equity-based compensation		7,734		6,640
	Deferred income taxes		2,733		8,392

	Non-cash interest expense		99		28
	Gain on sale of equity securities		(81)		—
	Net amortization of discount on held-to-maturity securities		(89)		—

	Impairment and loss on disposal of assets		1,606		1,105
	Unrealized loss on equity securities		—		561


	Changes in operating assets and liabilities:
		Accounts receivable	(455)		1,721
		Inventories	(490)		(105)
		Prepaid expenses and other current assets	(519)		(3,964)
		Other assets	(3,217)		(4,090)
		Accounts payable	(3,939)		(1,104)
		Accrued expenses	39		(13,208)
		Accrued wages and related liabilities	592		3,802
		Other current liabilities	(2,081)		4,929

		Operating lease liabilities	(25,584)		(21,102)
		Other long-term liabilities	2,666		(15)
NET CASH PROVIDED BY OPERATING ACTIVITIES			62,191		35,164
INVESTING ACTIVITIES
Purchases of property and equipment			(74,755)		(55,268)
Purchases of held-to-maturity securities			(91,448)		—
Purchases of equity securities			(690)		(186)
Sales of equity securities			81,478		—
NET CASH USED IN INVESTING ACTIVITIES			(85,415)		(55,454)
FINANCING ACTIVITIES










Payments on principal of finance leases			(1,504)		(1,513)
Distributions paid to non-controlling interest holders			(52)		(324)



Proceeds from stock option exercises			630		175
Employee withholding taxes related to net settled equity awards			(2,670)		(2,120)

NET CASH USED IN FINANCING ACTIVITIES			(3,596)		(3,782)
Effect of exchange rate changes on cash and cash equivalents			(4)		(2)
DECREASE IN CASH AND CASH EQUIVALENTS			(26,824)		(24,074)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			230,521		302,406
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	203,697	$	278,332

See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)


		Page
Note 1	Nature of Operations	10
Note 2	Summary of Significant Accounting Policies	10
Note 3	Revenue	11
Note 4	Fair Value Measurements	12
Note 5	Supplemental Balance Sheet Information	13
Note 6	Debt	14
Note 7	Leases	15
Note 8	Non-Controlling Interests	18
Note 9	Equity-Based Compensation	19
Note 10	Income Taxes	20
Note 11	Earnings (Loss) Per Share	21
Note 12	Supplemental Cash Flow Information	23
Note 13	Commitments and Contingencies	23
Note 14	Related Party Transactions	24

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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 June 28, 2023 the Company owned 93.3% of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. 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 June 28, 2023, there were 471 Shacks in operation system-wide, of which 270 were domestic Company-operated Shacks, 35 were domestic licensed Shacks and 166 were international licensed Shacks.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in its Annual Report on Form 10-K for the fiscal year ended December 28, 2022 ("2022 Form 10-K"). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These interim Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes thereto included in its 2022 Form 10-K. In the Company's opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The Company has elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the thirteen and twenty-six weeks ended June 28, 2023. These reclassifications had no effect on previously reported Net Loss. For the thirteen and twenty-six weeks ended June 29, 2022, the Company reclassified $412 and $478, respectively from Other operating expenses to General and administrative expenses in the accompanying Condensed Consolidated Statements of Income (Loss).

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 June 28, 2023 and December 28, 2022, the net assets of SSE Holdings were $373,388 and $362,571, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement.

Fiscal Year

The Company operates on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2023 contains 52 weeks and ends on December 27, 2023. Fiscal 2022 contained 52 weeks and ended on December 28, 2022. Unless otherwise stated, references to years in this report relate to fiscal years.

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Use of Estimates

The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

The Company reviewed all recently issued accounting pronouncements and concluded that they were not applicable or not expected to have a significant impact on its Condensed Consolidated Financial Statements.

NOTE 3: REVENUE

Revenue Recognition

Revenue primarily consists of Shack sales and Licensing revenue. Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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 as sales tax payable 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 and website ("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 the revenue on a gross basis.

The Company sells gift cards which do not have expiration dates. Revenue from gift cards is recognized when gift cards are redeemed by the customer 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 of $72 and $178, respectively, was recognized during the thirteen and twenty-six weeks ended June 28, 2023, and $59 and $1,368, respectively was recognized during the thirteen and twenty-six weeks ended June 29, 2022. The twenty-six weeks ended June 29, 2022 included a cumulative catch-up adjustment of $1,281. Gift card breakage income is included in Shack sales in the Condensed Consolidated Statements of Income (Loss).

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 is comprised of the initial territory fee and an estimate of the total Shack opening fees the Company expects to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an 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

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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.

Revenue disaggregated by type was as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Shack sales	$	261,810	$	223,054	$	506,064	$	419,845
Licensing revenue:
Sales-based royalties	9,712		7,486		18,490		13,886
Initial territory and opening fees	283		212		529		412
Total revenue	$	271,805	$	230,752	$	525,083	$	434,143

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of June 28, 2023 was $23,787. The Company expects to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties.

Contract Balances

Contract liabilities and receivables from contracts with customers were as follows:


	June 28 2023		December 28 2022
Shack sales receivables	$	8,320	$	8,779
Licensing receivables, net of allowance for doubtful accounts	4,572		3,918
Gift card liability	1,983		2,285
Deferred revenue, current	1,252		969
Deferred revenue, long-term	16,680		14,340

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


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Gift card liability(1)	$	144	$	137	$	477	$	1,643
Deferred revenue	274		207		518		404

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

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.

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The Company's investments were as follows:


	June 28 2023		December 28 2022
Equity securities	$	—	$	80,707
Held-to-maturity securities	91,537		—
Total investments	$	91,537	$	80,707

The Company classified its available-for-sale and held-to-maturity securities as Level 1 measurements within the fair value hierarchy. Refer to Note 6, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments.

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


	June 28, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasuries	$	91,537	$	3	$	—	$	91,540

As of June 28, 2023, the contractual maturities of held-to-maturity securities were less than 12 months. Any expected credit losses would not be material to the Condensed Consolidated Statements of Income (Loss).

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


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Income from investments	$	126	$	135	$	621	$	212

Realized gain on sale of equity securities	—		—		81		—
Unrealized loss on equity securities	—		(161)		—		(561)
Total	$	126	$	(26)	$	702	$	(349)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis include long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. The Company performs its impairment analysis at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges recognized during the thirteen and twenty-six weeks ended June 28, 2023 and June 29, 2022.

NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities were as follows:


	June 28 2023		December 28 2022
Sales tax payable	$	5,726	$	5,363

Gift card liability	1,983		2,285

Current portion of financing equipment lease liabilities	2,566		2,546
Legal reserve	2,475		6,285
Other	5,131		3,073
Other current liabilities	$	17,881	$	19,552

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


	June 28 2023		December 28 2022
Deferred licensing revenue	$	16,680	$	14,340
Long-term portion of financing equipment lease liabilities	3,793		3,909
Other	1,745		2,438
Other long-term liabilities	$	22,218	$	20,687

NOTE 6: DEBT

Convertible Notes

The Company's $250,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

The Convertible Notes had an initial conversion rate of 5.8679 shares of Class A common stock per one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $170.42 per share of Class A common stock. The fair value of the Convertible Notes was approximately $199,063 and $162,500, respectively, as of June 28, 2023 and December 28, 2022, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy.


		Thirteen Weeks Ended				Twenty-Six Weeks Ended
	Classification	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Amortization expense on Convertible Notes	Interest expense	$	262	$	262	$	524	$	524


	June 28 2023		December 28 2022
Convertible Notes	$	250,000	$	250,000
Discount and debt issuance costs, net of amortization	(4,887)		(5,411)
Long-term debt	$	245,113	$	244,589

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Revolving Credit Facility

The Company maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $50,000 with the ability to increase available borrowings up to an additional $100,000, subject to satisfaction of certain conditions. Under the Revolving Credit Facility, outstanding borrowings bear interest at either: (i) LIBOR, or the Secured Overnight Financing Rate upon the discontinuance or unavailability of LIBOR, plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio. As of June 28, 2023 and December 28, 2022, no amounts were outstanding under the Revolving Credit Facility.

After the Balance Sheet date, the Company entered into a fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modifies the benchmark interest rate to either: (i) the base rate plus applicable margin or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin.

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

The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15,000. As of June 28, 2023 and December 28, 2022, the Company has outstanding letters of credit of $1,863 in connection with the Revolving Credit Facility.


		Thirteen Weeks Ended				Twenty-Six Weeks Ended
	Classification	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Interest expense on Revolving Credit Facility	Interest expense	$	22	$	37	$	46	$	73


	Classification	June 28 2023		December 28 2022
Unamortized deferred financing costs on Revolving Credit Facility	Other assets	$	52	$	62

NOTE 7: LEASES

Nature of Leases

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2044. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met, the Company has identified a lease within the contract, and therefore a right of use asset and lease liability are recorded on the Condensed Consolidated Balance Sheet. 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.

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For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term within the Condensed Consolidated Statements of Income (Loss) in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a domestic 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 Condensed Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term.

The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings.

The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset.

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


	Classification	June 28 2023		December 28 2022
Operating leases	Operating lease assets	$	385,386	$	367,488
Finance leases	Property and equipment, net	6,120		6,152
Total right-of-use assets		$	391,506	$	373,640




Operating leases:
	Operating lease liabilities, current	$	46,490	$	42,238
	Long-term operating lease liabilities	448,580		427,227
Finance leases:
	Other current liabilities	2,566		2,546
	Other long-term liabilities	3,793		3,909
Total lease liabilities		$	501,429	$	475,920

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The components of lease expense were as follows:


			Thirteen Weeks Ended				Twenty-Six Weeks Ended
		Classification	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Operating lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	$	16,523	$	14,329	$	32,598	$	28,010
Finance lease cost:
	Amortization of right-of-use assets	Depreciation and amortization expense	703		772		1,440		1,525
	Interest on lease liabilities	Interest expense	72		55		142		107
Variable lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	4,682		3,603		8,452		7,107
Short-term lease cost		Occupancy and related expenses	273		33		513		131
Total lease cost			$	22,253	$	18,792	$	43,145	$	36,880

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


	Operating Leases		Finance Leases
2023(1)	$	25,586	$	1,508
2024	76,181		2,455
2025	77,088		1,559
2026	73,423		685
2027	68,999		365
Thereafter	314,495		302
Total minimum payments	635,772		6,874
Less: imputed interest	151,244		515
Total lease liabilities	$	484,528	$	6,359

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

As of June 28, 2023 the Company had additional operating lease commitments of $132,871 for non-cancelable leases without a possession date, which commence in 2023 or later. These lease commitments are materially consistent with the leases that have been executed thus far.

A summary of lease terms and discount rates for operating and finance leases were as follows:


		June 28 2023		December 28 2022
Weighted average remaining lease term (years):
	Operating leases	9.0		8.9
	Finance leases	4.8		5.1
Weighted average discount rate:
	Operating leases	5.9	%	5.7	%
	Finance leases	4.6	%	4.0	%

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Supplemental cash flow information related to leases was as follows:


		Twenty-Six Weeks Ended
		June 28 2023		June 29 2022
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	34,454	$	26,975
	Operating cash flows from finance leases	142		107
	Financing cash flows from finance leases	1,504		1,513
Right-of-use assets obtained in exchange for lease obligations:
	Operating leases	37,625		27,818
	Finance leases	1,408		1,193

NOTE 8: NON-CONTROLLING INTERESTS

Shake Shack is the primary beneficiary and sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. The Company reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, the Company will receive a corresponding number of LLC Interests, increasing the total ownership interest in SSE Holdings. Changes in the ownership interest in SSE Holdings while the Company retains its controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in SSE Holdings:


	June 28, 2023			December 28, 2022
	LLC Interests	Ownership %		LLC Interests	Ownership %
Number of LLC Interests held by Shake Shack Inc.	39,449,246	93.3	%	39,284,998	93.2	%
Number of LLC Interests held by non-controlling interest holders	2,844,513	6.7	%	2,869,513	6.8	%
Total LLC Interests outstanding	42,293,759	100.0	%	42,154,511	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.


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022
Non-controlling interest holders' weighted average ownership percentages	6.7	%	6.9	%	6.7	%	6.9	%

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


		Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 28 2023		June 29 2022		June 28 2023		June 29 2022
Net income (loss) attributable to Shake Shack Inc.		$	6,948	$	(1,188)	$	5,414	$	(11,350)
Other comprehensive loss:

	Unrealized loss on foreign currency translation adjustment	—		(1)		(4)		(2)
Transfers (to) from non-controlling interests:


	Increase in additional paid-in capital as a result of the redemption of LLC Interests	—		257		194		306



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

Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc.		$	7,093	$	(1,264)	$	3,050	$	(13,654)

The following table summarizes the LLC Interests activity:


		Thirteen Weeks Ended		Twenty-Six Weeks Ended
		June 28 2023	June 29 2022	June 28 2023	June 29 2022
LLC Interests activity under the Company's stock compensation plan
	Number of LLC Interests received by Shake Shack Inc.	44,341	8,306	139,248	74,199
Redemption and acquisition of LLC Interests
	Number of LLC Interests redeemed by non-controlling interest holders	—	40,074	25,000	50,074

	Number of LLC Interests received by Shake Shack Inc.	—	40,074	25,000	50,074
Issuance of Class A common stock
	Shares of Class A common stock issued in connection with redemptions of LLC Interests	—	40,074	25,000	50,074

Cancellation of Class B common stock
	Shares of Class B common stock surrendered and canceled	—	40,074	25,000	50,074

NOTE 9: EQUITY-BASED COMPENSATION

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


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022

Performance stock units	$	749	$	999	$	2,059	$	2,423
Restricted stock units	3,183		2,453		5,675		4,217
Equity-based compensation expense	$	3,932	$	3,452	$	7,734	$	6,640

Total income tax benefit recognized related to equity-based compensation	$	98	$	57	$	200	$	117

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Equity-based compensation expense recognized was as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 28 2023		June 29 2022		June 28 2023		June 29 2022
General and administrative expenses	$	3,562	$	3,154	$	7,091	$	6,145
Labor and related expenses	370		298		643		495
Equity-based compensation expense	$	3,932	$	3,452	$	7,734	$	6,640

NOTE 10: INCOME TAXES

Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. The Company is also subject to withholding taxes in foreign jurisdictions.

The effective income tax rates for the thirteen weeks ended June 28, 2023 and June 29, 2022 were 4.6% and (118.6)%, respectively. The increase was primarily driven by the change in pre-tax income, and the impact of permanent differences and discrete expense on pre-tax income for the period compared to pre-tax loss for the same period last year. The Company's ownership interest in SSE Holdings is directly related to its share of the taxable income (loss) of SSE Holdings. The weighted-average ownership interest in SSE Holdings was 93.3% and 93.1% for the thirteen weeks ended June 28, 2023 and June 29, 2022, respectively.

The effective income tax rates for the twenty-six weeks ended June 28, 2023 and June 29, 2022 were 17.8% and 22.2%, respectively. The decrease was primarily driven by the change in pre-tax income and the effect of permanent differences, primarily tax credits, on pre-tax income for the period compared to pre-tax loss in the same period last year, as well as a decrease in expense due to tax benefits related to certain windfalls in equity based compensation. The decrease was partially offset by an increase in the Company's ownership interest in SSE Holdings which increased its share of the taxable income (loss) of SSE Holdings. The Company's weighted-average ownership interest in SSE Holdings was 93.3% and 93.1% for the twenty-six weeks ended June 28, 2023 and June 29, 2022, respectively.

Deferred Tax Assets and Liabilities

During the twenty-six weeks ended June 28, 2023, the Company acquired an aggregate of 164,248 LLC Interests in connection with the redemption of LLC Interests, and activity relating to its stock compensation plan. The Company recognized a deferred tax asset in the amount of $573 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. As of June 28, 2023, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $87,606.

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

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of June 28, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets relating to certain state tax credits and net operating losses and certain foreign tax credits) are more likely than not to be realized. As such, no additional valuation allowance was recognized.

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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 of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85% of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15% of any tax benefits that may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company. The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests.

During the twenty-six weeks ended June 28, 2023, the Company acquired an aggregate of 25,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional liability in the amount of $468 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on estimates of future taxable income. During the twenty-six weeks ended June 28, 2023 and June 29, 2022, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement. As of June 28, 2023, the total amount of TRA Payments due under the Tax Receivable Agreement, was $235,361. Refer to Note 13, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement.

NOTE 11: EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Shake Shack Inc.

Form 10-Q | 21

Table of Contents

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):

Shake Shack Inc. [SHAK] Filings
10-Q	[2023-08-04]
10-Q	[2023-05-05]
10-K	[2023-02-23]
10-Q	[2022-11-04]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-02-18]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-10-30]
10-Q	[2020-07-31]
10-Q	[2020-05-04]
10-K	[2020-02-24]
10-Q	[2019-11-04]
10-Q	[2019-08-05]
10-Q	[2019-05-06]
10-K	[2019-02-25]
10-Q	[2018-11-05]
10-Q	[2018-08-06]
10-Q	[2018-05-07]
10-K	[2018-02-26]
10-Q	[2017-11-02]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-03-13]
10-Q	[2016-11-10]
10-Q	[2016-08-11]
10-Q	[2016-05-16]
10-K	[2016-03-30]
10-Q	[2015-11-06]
S-1	[2015-10-08]
10-Q	[2015-08-10]
S-1	[2015-07-20]
10-Q	[2015-05-15]
10-K	[2015-03-27]
S-1	[2014-12-29]