shak-20210331

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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 March 31, 2021


☐			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 if 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 and posted pursuant to Rule-405 of Regulation S-T 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 April 28, 2021, there were 39,103,614 shares of Class A common stock outstanding and 2,921,588 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	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
	Item 4.	Controls and Procedures	43

Part II			45
	Item 1.	Legal Proceedings	45
	Item 1A.	Risk Factors	45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 3.	Defaults Upon Senior Securities	45
	Item 4.	Mine Safety Disclosures	45
	Item 5.	Other Information	45
	Item 6.	Exhibits	46

SIGNATURES			47

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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 are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020 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. We undertake 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.

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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			7
Notes to Condensed Consolidated Financial Statements			8

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


		March 31 2021		December 30 2020
ASSETS
Current assets:
	Cash and cash equivalents	$	374,999	$	146,873
	Marketable securities	40,914		36,887
	Accounts receivable, net	8,838		9,464
	Inventories	2,734		2,888
	Prepaid expenses and other current assets	7,805		7,074
	Total current assets	435,290		203,186
Property and equipment, net of accumulated depreciation of $179,226 and $166,156, respectively		348,580		336,541
Operating lease assets		312,087		306,317
Deferred income taxes, net		299,838		287,007
Other assets		11,794		12,297
TOTAL ASSETS		$	1,407,589	$	1,145,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

	Accounts payable	$	24,307	$	23,487
	Accrued expenses	28,774		25,920
	Accrued wages and related liabilities	13,306		10,441
	Operating lease liabilities, current	37,275		35,657
	Other current liabilities	15,087		14,200
	Total current liabilities	118,749		109,705


Long-term debt		242,875		—


Long-term operating lease liabilities		349,670		343,736
Liabilities under tax receivable agreement, net of current portion		234,048		232,954
Other long-term liabilities		22,297		24,460
Total liabilities		967,639		710,855
Commitments and contingencies (Note 13)
Stockholders' equity:

	Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 30, 2020.	—		—
	Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,103,239 and 38,717,790 shares issued and outstanding as of March 31, 2021 and December 30, 2020, respectively.	39		39
	Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,921,588 and 2,951,188 shares issued and outstanding as of March 31, 2021 and December 30, 2020, respectively.	3		3
	Additional paid-in capital	400,371		395,067
	Retained earnings	13,518		12,209
	Accumulated other comprehensive income	2		3
	Total stockholders' equity attributable to Shake Shack Inc.	413,933		407,321
Non-controlling interests		26,017		27,172
Total equity		439,950		434,493
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,407,589	$	1,145,348

See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share amounts)


		Thirteen Weeks Ended
		March 31 2021		March 25 2020
Shack sales		$	150,668	$	138,048
Licensing revenue		4,614		5,122
TOTAL REVENUE		155,282		143,170
Shack-level operating expenses:
	Food and paper costs	44,630		39,564
	Labor and related expenses	46,382		41,766
	Other operating expenses	23,144		17,779
	Occupancy and related expenses	13,911		12,558
General and administrative expenses		19,565		16,191
Depreciation and amortization expense		13,726		11,768
Pre-opening costs		3,576		2,243
Impairment and loss on disposal of assets		369		2,088
TOTAL EXPENSES		165,303		143,957
OPERATING LOSS		(10,021)		(787)
Other income (expense), net		31		(93)
Interest expense		(515)		(112)
LOSS BEFORE INCOME TAXES		(10,505)		(992)
Income tax expense (benefit)		(11,080)		87
NET INCOME (LOSS)		575		(1,079)
Less: net loss attributable to non-controlling interests		(734)		(119)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	1,309	$	(960)
Earnings (loss) per share of Class A common stock:
	Basic	$	0.03	$	(0.03)
	Diluted	$	0.01	$	(0.03)
Weighted-average shares of Class A common stock outstanding:
	Basic	38,948		34,444
	Diluted	42,789		34,444

`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
			March 31 2021		March 25 2020
Net income (loss)			$	575	$	(1,079)
Other comprehensive income (loss), net of tax(1):
	Change in foreign currency translation adjustment		(1)		1



		Net change	(1)		1
OTHER COMPREHENSIVE INCOME (LOSS)			(1)		1
COMPREHENSIVE INCOME (LOSS)			574		(1,078)
Less: comprehensive loss attributable to non-controlling interest			(734)		(119)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.			$	1,308	$	(959)

(1) Net of tax expense of $0 for the thirteen weeks ended March 31, 2021 and March 25, 2020.

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 March 31, 2021 and March 25, 2020
		Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest		Total Equity
		Shares	Amount		Shares	Amount
BALANCE, DECEMBER 30, 2020		38,717,790	$	39	2,951,188	$	3	$	395,067	$	12,209	$	3	$	27,172	$	434,493

	Net income (loss)									1,309				(734)		575
	Other comprehensive income (loss):

	Net change in foreign currency translation adjustment											(1)				(1)
	Equity-based compensation							1,696								1,696
	Activity under stock compensation plans	355,849						3,359						82		3,441

	Redemption of LLC Interests	29,600			(29,600)			36						(36)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							213								213

	Distributions paid to non-controlling interest holders													(467)		(467)
BALANCE, MARCH 31, 2021		39,103,239	$	39	2,921,588	$	3	$	400,371	$	13,518	$	2	$	26,017	$	439,950

BALANCE, DECEMBER 25, 2019		34,417,302	$	35	3,145,197	$	3	$	244,410	$	54,367	$	2	$	23,168	$	321,985

	Net loss									(960)				(119)		(1,079)
	Other comprehensive income (loss):
	Net change in foreign currency translation adjustment											1				1
	Equity-based compensation							1,313								1,313
	Activity under stock compensation plans	77,903	—					424						(361)		63
	Redemption of LLC Interests	28,195	—		(28,195)	—		195						(195)		—

	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis							628								628
	Distributions paid to non-controlling interest holders													(305)		(305)
BALANCE, MARCH 25, 2020		34,523,400	$	35	3,117,002	$	3	$	246,970	$	53,407	$	3	$	22,188	$	322,606

6 | Shake Shack Inc. Form 10-Q

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SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


			Thirteen Weeks Ended
			March 31 2021		March 25 2020
OPERATING ACTIVITIES
Net income (loss) (including amounts attributable to non-controlling interests)			$	575	$	(1,079)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
	Depreciation and amortization expense		13,726		11,768
	Amortization of debt issuance costs		86		—
	Amortization of cloud computing asset		313		260
	Non-cash operating lease cost		12,330		10,742
	Equity-based compensation		1,681		1,300
	Deferred income taxes		(1,523)		3,775
	Non-cash interest expense		337		69

	Gain on sale of marketable securities		—		(79)
	Impairment and loss on disposal of assets		369		2,088
	Unrealized loss on available-for-sale securities		46		356
	Other non-cash (income) expense		(1)		183

	Changes in operating assets and liabilities:
		Accounts receivable	626		3,150
		Inventories	154		306
		Prepaid expenses and other current assets	(731)		(439)
		Other assets	(216)		(1,039)
		Accounts payable	1,474		(4,449)
		Accrued expenses	(9,420)		(6,330)
		Accrued wages and related liabilities	2,865		(5,113)
		Other current liabilities	(158)		273

		Long-term operating lease liabilities	(10,754)		(8,755)
		Other long-term liabilities	(1,828)		497
NET CASH PROVIDED BY OPERATING ACTIVITIES			9,951		7,484
INVESTING ACTIVITIES
Purchases of property and equipment			(23,155)		(19,159)
Purchases of marketable securities			(4,073)		(192)
Sales of marketable securities			—		20,000
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			(27,228)		649
FINANCING ACTIVITIES

Proceeds from issuance of convertible notes, net of discount			243,750		—
Proceeds from revolving credit facility			—		50,000



Deferred financing costs			(70)		—



Payments on principal of finance leases			(602)		(615)
Distributions paid to non-controlling interest holders			(467)		(305)

Payments under tax receivable agreement			—		(6,569)
Debt issuance costs			(649)		—
Proceeds from stock option exercises			6,451		1,032
Employee withholding taxes related to net settled equity awards			(3,010)		(969)

NET CASH PROVIDED BY FINANCING ACTIVITIES			245,403		42,574
NET INCREASE IN CASH AND CASH EQUIVALENTS			228,126		50,707
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			146,873		37,099
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	374,999	$	87,806

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	9
Note 2	Summary of Significant Accounting Policies	9
Note 3	Revenue	10
Note 4	Fair Value Measurements	11


Note 5	Supplemental Balance Sheet Information	13
Note 6	Debt	13

Note 7	Leases	15
Note 8	Non-Controlling Interests	17
Note 9	Equity-Based Compensation	19
Note 10	Income Taxes	19
Note 11	Earnings (Loss) Per Share	20
Note 12	Supplemental Cash Flow Information	22
Note 13	Commitments and Contingencies	22
Note 14	Related Party Transactions	23

8 | Shake Shack Inc. Form 10-Q

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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"). We are the sole managing member of SSE Holdings and, as sole managing member, we operate and control all of the business and affairs of SSE Holdings. As a result, we consolidate the financial results of SSE Holdings and report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of March 31, 2021 we owned 93.0% 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.

We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, hot dogs, chicken, crinkle-cut fries, shakes, frozen custard, beer, wine and more. As of March 31, 2021, there were 321 Shacks in operation, system-wide, of which 192 were domestic Company-operated Shacks, 22 were domestic licensed Shacks and 107 were international licensed Shacks. As of March 31, 2021, four domestic Company-operated Shacks and 16 licensed Shacks were temporarily closed, primarily due to the COVID-19 pandemic.

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 our Annual Report on Form 10-K for the fiscal year ended December 30, 2020 ("2020 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 such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our 2020 Form 10-K. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have 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, we consolidate SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of March 31, 2021 and December 30, 2020, the net assets of SSE Holdings were $380,713 and $383,669, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. See Note 6, Debt, for more information.

Fiscal Year

We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal 2021 contains 52 weeks and ends on December 29, 2021. Fiscal 2020 contained 53 weeks and ended on December 30, 2020. Unless otherwise stated, references to years in this report relate to fiscal years.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

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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

We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2021.


Accounting Standards Update	Description	Date Adopted
Simplifying the Accounting for Income Taxes (ASU 2019-12)	This standard simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC 740, “Income Taxes” (“ASC 740”), and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The adoption of this standard did not have a material impact to our condensed consolidated financial statements.	December 31, 2020
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. (ASU 2020-06)	This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. We elected to early adopt this standard, beginning December 31, 2020. The guidance of this ASU is applicable to our convertible notes issued in March 2021. As a result, the convertible notes are accounted for as a single liability measured at amortized cost. The if-converted earnings per share ("EPS") method is used, with the effect of potential share settlement included in diluted EPS. Refer to Note 6, Debt, for further details of the convertible notes issued.	December 31, 2020

NOTE 3: REVENUE

Revenue Recognition

Revenue 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 we expect to be entitled to in exchange for those goods or services. Shack revenues are recognized when payment is tendered at the point of sale as the performance obligation has been satisfied.

Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from our gift cards is deferred and recognized upon redemption.

Licensing revenues include 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 goods or services transferred to the licensee in our contracts, 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 licenses and considered as one performance obligation per Shack. We determine the transaction price for each contract, which is comprised of the initial territory fee, and an estimate of the total Shack opening fees we expect to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack. Because we are transferring licenses to access our intellectual property during a contractual term, 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 licensing agreement, and payment for the Shack opening fees are received either in advance of or upon opening the related Shack. These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period.

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Revenue from sales-based royalties is recognized as the related sales occur.

Revenue recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020, disaggregated by type is as follows:


	Thirteen Weeks Ended
	March 31 2021		March 25 2020
Shack sales	$	150,668	$	138,048
Licensing revenue:
Sales-based royalties	4,425		4,944
Initial territory and opening fees	189		178
Total revenue	$	155,282	$	143,170

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 was $16,748. We expect 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

Opening and closing balances of contract liabilities and receivables from contracts with customers is as follows:


	March 31 2021		December 31 2020
Shack sales receivables	$	5,641	$	5,373
Licensing receivables, net of allowance for doubtful accounts	2,420		2,647
Gift card liability	2,600		2,637
Deferred revenue, current	612		608
Deferred revenue, long-term	11,965		12,151

Revenue recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 that was included in their respective liability balances at the beginning of the period is as follows:


	Thirteen Weeks Ended
	March 31 2021		March 25 2020
Gift card liability	$	219	$	300
Deferred revenue	181		175

NOTE 4: FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of our Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses approximate their fair value due to the short-term nature of these financial instruments.

As of March 31, 2021 and December 30, 2020, we held certain assets that are required to be measured at fair value on a recurring basis including our Marketable securities, which consist of investments in equity securities. Fair value of these investments is measured using Level 1 inputs (unadjusted quoted prices in active markets for identical assets). The carrying value of these investments in equity securities approximates fair value.

Our assets measured at fair value on a recurring basis as of March 31, 2021 and December 30, 2020 were as follows:

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		Fair Value Measurements
		March 31 2021		December 30 2020
		Level 1		Level 1
Equity securities:
	Mutual funds	$	40,914	$	36,887
Total Marketable securities		$	40,914	$	36,887

Refer to Note 6, Debt, for the fair value of the Company's outstanding debt instruments.

A summary of Other income (expense) from equity securities recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows:


		Thirteen Weeks Ended
		March 31 2021		March 25 2020
Equity securities:
	Dividend income	$	74	$	184

	Realized gain (loss) on sale of investments	—		79
	Unrealized gain (loss) on equity securities	(46)		(356)
Total		$	28	$	(93)

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

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. During the thirteen weeks ended March 25, 2020, we recognized an impairment charge of $1,132 at one location. Of the total impairment charge, $736 was attributed to property and equipment held and used, $383 was attributed to operating lease right-of-use assets, and $13 was attributed to finance lease right-of-use assets. The asset impairment charge was included in Impairment and loss on disposal of assets on the Condensed Consolidated Statement of Income (Loss). The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. There were no impairment charges recognized during the thirteen weeks ended March 31, 2021.

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NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities as of March 31, 2021 and December 30, 2020 are as follows:


	March 31 2021		December 30 2020
Sales tax payable	$	4,045	$	4,285

Gift card liability	2,600		2,637

Current portion of financing equipment lease liabilities	2,445		1,998
Other	5,997		5,280
Other current liabilities	$	15,087	$	14,200

The components of Other long-term liabilities as of March 31, 2021 and December 30, 2020 are as follows:


	March 31 2021		December 30 2020
Deferred licensing revenue	$	11,965	$	12,151
Long-term portion of financing equipment lease liabilities	4,056		3,586
Other(1)	6,276		8,723
Other long-term liabilities	$	22,297	$	24,460

(1) As of March 31, 2021, Other included $3,359 of deferred lease incentive liabilities related to leases with variable lease cost as well as $2,607 of deferred Social Security taxes associated with the Coronavirus Aid, Relief, and Economic Security Act.

NOTE 6: DEBT

Revolving Credit Facility

In August 2019, we entered into a revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $50,000, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100,000, to be made available subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15,000.

In March 2020, we drew down the full $50,000 available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020.

In May 2020, we entered into a first amendment to the Revolving Credit Facility ("First Amendment"), which, among other things, provided for modified financial covenant compliance requirements for a period of time. The First Amendment required us to maintain minimum liquidity of $25,000 through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bore interest at either: (i) the London Interbank Offered Rate ("LIBOR") plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

In March 2021, we entered into a second amendment to the Revolving Credit Facility (“Second Amendment”). The Second Amendment modified the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith. In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment; (ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iii) added mechanics relating to the transition from the use of LIBOR to the Secured Overnight Financing Rate ("SOFR") upon the discontinuance or unavailability of LIBOR.

Subsequently, and also in March 2021, we entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) with JPMorgan Chase Bank, N.A. (as successor agent to Wells Fargo Bank, National Association), as administrative agent, and

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the lenders party thereto. In addition, in March 2021, Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A. The Third Amendment appoints JPMorgan Bank, N.A. as administrative agent under the Revolving Credit Facility. In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026. As of March 31, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries (with certain exceptions).

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios. We are not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above. In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit our ability to incur debt; incur liens; make investments; engage in mergers, consolidations, liquidations or acquisitions; dispose of assets; make distributions on or repurchase equity securities; engage in transactions with affiliates; and prohibits us, with certain exceptions, from engaging in any line of business not related to our current line of business. As of March 31, 2021, we were in compliance with all covenants.

As of March 31, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $110, and was included in Other assets on the Condensed Consolidated Balance Sheet. Total interest expense related to the Revolving Credit Facility were $368 and $52 for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Total interest expense for the thirteen weeks ended March 31, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.

Convertible Notes

In March 2021, we issued $225,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. We granted an option to the initial purchasers to purchase up to an additional $25,000 aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250,000 aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our 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 our 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 $1,000 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 we call 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 Shake Shack’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $170.42 per share of Shake Shack’s Class A common stock.

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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 we provide 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.

In addition, if we undergo a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require us 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 we deliver a notice of redemption in respect of some or all of the Convertible Notes, we will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert our Convertible Notes in connection with such a corporate event or convert our 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, LLC (“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, by Shake Shack Inc and the aggregate number of outstanding shares of common stock.

As of March 31, 2021, the Convertible Notes had a gross principal balance of $250,000 and a balance of $242,875, net of unamortized discount and debt issuance costs of $7,125. As of March 31, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method. Total amortization expense was $86 for the thirteen weeks ended March 31, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the Convertible Notes, we also incurred costs of $236, including consulting and advisory fees, in the thirteen weeks ended March 31, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At March 31, 2021, the fair value of the Convertible Notes was approximately $248,125, 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.

NOTE 7: LEASES

Nature of Leases

We currently lease all of our domestic Company-operated Shacks, our home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2037. We evaluate 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. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of Accounting Standards Codification Topic 842 ("ASC 842").

Upon the possession of a leased asset, we determine its classification as an operating or finance lease. Our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases. Generally, our 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 we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments 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. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, we record the straight-line lease

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expense and any contingent rent, if applicable, in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss).

As there are no explicit rates provided in our leases, we use our incremental borrowing rate in determining the present value of future lease payments. The discount rate 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 incremental borrowing rate is our credit rating and is subject to judgment. We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own.

We expend cash for leasehold improvements to build out and equip our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof. In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property. We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2021 and December 30, 2020 is as follows:


	Classification	March 31 2021		December 30 2020
Finance leases	Property and equipment, net	$	6,315	$	5,409
Operating leases	Operating lease assets	312,087		306,317
Total right-of-use assets		$	318,402	$	311,726




Finance leases:
	Other current liabilities	$	2,445	$	1,998
	Other long-term liabilities	4,056		3,586
Operating leases:
	Operating lease liabilities, current	37,275		35,657
	Long-term operating lease liabilities	349,670		343,736
Total lease liabilities		$	393,446	$	384,977

The components of lease expense for the thirteen weeks ended March 31, 2021 and March 25, 2020 was as follows:


			Thirteen Weeks Ended
		Classification	March 31 2021		March 25 2020
Finance lease cost:
	Amortization of right-of-use assets	Depreciation expense	$	613	$	577
	Interest on lease liabilities	Interest expense	54		55
Operating lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	12,330		10,742
Short-term lease cost		Occupancy and related expenses	82		124
Variable lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	2,851		3,730
Total lease cost			$	15,930	$	15,228

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As of March 31, 2021, future minimum lease payments for finance and operating leases consisted of the following:


	Finance Leases		Operating Leases
2021	$	2,023	$	35,013
2022	2,183		53,111
2023	1,326		56,121
2024	689		55,896
2025	438		54,853
Thereafter	289		246,023
Total minimum payments	6,948		501,017
Less: imputed interest	447		114,072
Total lease liabilities	$	6,501	$	386,945

As of March 31, 2021 we had additional operating lease commitments of $55,964 for non-cancelable leases without a possession date, which will begin to commence in 2021. These lease commitments are consistent with the leases that we have executed thus far.

A summary of lease terms and discount rates for finance and operating leases as of March 31, 2021 and December 30, 2020 is as follows:


		March 31 2021		December 30 2020
Weighted-average remaining lease term (years):
	Finance leases	5.5		5.2
	Operating leases	9.6		9.7
Weighted-average discount rate:
	Finance leases	3.5	%	3.6	%
	Operating leases	3.9	%	4.2	%

Supplemental cash flow information related to leases for the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows:


		Thirteen Weeks Ended
		March 31 2021	March 25 2020
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from finance leases	54	$	55
	Operating cash flows from operating leases	11,825	11,329
	Financing cash flows from finance leases	602	559
Right-of-use assets obtained in exchange for lease obligations:
	Finance leases	1,518	716
	Operating leases	11,095	28,035

NOTE 8: NON-CONTROLLING INTERESTS

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

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exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. Changes in our ownership interest in SSE Holdings while we retain our 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 as of March 31, 2021 and December 30, 2020.


	March 31, 2021			December 30, 2020
	LLC Interests	Ownership%		LLC Interests	Ownership %
Number of LLC Interests held by Shake Shack Inc.	39,103,239	93.0	%	38,717,790	92.9	%
Number of LLC Interests held by non-controlling interest holders	2,921,588	7.0	%	2,951,188	7.1	%
Total LLC Interests outstanding	42,024,827	100.0	%	41,668,978	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 Shake Shack Inc. and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the thirteen weeks ended March 31, 2021 and March 25, 2020 was 7.0% and 8.4%, respectively.

The following table summarizes the effects of changes in ownership of SSE Holdings on our equity during the thirteen weeks ended March 31, 2021 and March 25, 2020.


		Thirteen Weeks Ended
		March 31 2021		March 25 2020
Net income (loss) attributable to Shake Shack Inc.		$	1,309	$	(960)


Transfers (to) from non-controlling interests:


	Increase in additional paid-in capital as a result of the redemption of LLC Interests	36		195


	Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plans and the related income tax effect	3,359		424

Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.		$	4,704	$	(341)

The following table summarizes redemptions of LLC Interests activity during the thirteen weeks ended March 31, 2021 and March 25, 2020.


		Thirteen Weeks Ended
		March 31 2021	March 25 2020
Redemption and acquisition of LLC Interests
	Number of LLC Interests redeemed by non-controlling interest holders	29,600	28,195

	Number of LLC Interests received by Shake Shack Inc.	29,600	28,195
Issuance of Class A common stock
	Shares of Class A common stock issued in connection with redemptions of LLC Interests	29,600	28,195

Cancellation of Class B common stock
	Shares of Class B common stock surrendered and canceled	29,600	28,195

During the thirteen weeks ended March 31, 2021 and March 25, 2020, we received an aggregate of 355,849 and 77,903 LLC Interests, respectively, in connection with the activity under our stock compensation plan.

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NOTE 9: EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows:


	Thirteen Weeks Ended
	March 31 2021		March 25 2020
Stock options	$	20	$	261
Performance stock units	414		413
Restricted stock units	1,247		626
Equity-based compensation expense	$	1,681	$	1,300

Total income tax benefit recognized related to equity-based compensation	$	67	$	36

Equity-based compensation expense is included in General and administrative expenses and Labor and related expenses on the Condensed Consolidated Statements of Income (Loss) during the thirteen weeks ended March 31, 2021 and March 25, 2020 as follows:


	Thirteen Weeks Ended
	March 31 2021		March 25 2020
General and administrative expenses	$	1,541	$	1,214
Labor and related expenses	140		86
Equity-based compensation expense	$	1,681	$	1,300

NOTE 10: INCOME TAXES

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

Our effective income tax rates for the thirteen weeks ended March 31, 2021 and March 25, 2020 were 105.5% and (8.8)%, respectively. The increase was primarily driven by lower pre-tax book income resulting in a loss, causing tax credits and windfall tax benefits related to equity-based compensation to have an increasing effect on the tax rate, as well as a reduction of a valuation allowance. Additionally, an increase in our ownership interest in SSE Holdings increases our share of the taxable income (loss) of SSE Holdings. Our weighted-average ownership interest in SSE Holdings was 93.0% and 91.6% for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

Deferred Tax Assets and Liabilities

During the thirteen weeks ended March 31, 2021, we acquired an aggregate of 385,449 LLC Interests in connection with the redemption of LLC Interests, and activity relating to our stock compensation plan. We recognized a deferred tax asset in the amount of $10,204 associated with the basis difference in our investment in SSE Holdings upon acquisition of these LLC Interests. As of March 31, 2021, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was $142,867. However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss. As of March 31, 2021, the total valuation allowance established against the deferred tax asset to which this portion relates was $1,260.

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During the thirteen weeks ended March 31, 2021, we also recognized $300 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. See "Tax Receivable Agreement," herein for more information.

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish 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 March 31, 2021, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that are expected to result in a capital loss upon eventual sale of our interest in SSE Holdings, New York City UBT credits and certain foreign tax credits) are more likely than not to be realized. As such, no additional valuation allowance was recognized.

Tax Receivable Agreement

Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our 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. We plan to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. We intend 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 we would otherwise pay 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, we 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 us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our 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"). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. 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 thirteen weeks ended March 31, 2021, we acquired an aggregate of 29,600 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. We recognized an additional liability in the amount of $1,094 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits we expect 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 our estimates of future taxable income. During the thirteen weeks ended March 31, 2021 and March 25, 2020, payments of $0 and $6,569, inclusive of interest, were made to the parties to the Tax Receivable Agreement, respectively. As of March 31, 2021, the total amount of TRA Payments due under the Tax Receivable Agreement, was $234,048. See Note 13, Commitments and Contingencies, for more information relating to our liabilities under the Tax Receivable Agreement.

NOTE 11: EARNINGS (LOSS) PER SHARE

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) for the thirteen weeks ended March 31, 2021 and March 25, 2020.

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			Thirteen Weeks Ended
			March 31 2021		March 25 2020
Numerator:
	Net income (loss) attributable to Shake Shack Inc.—basic		$	1,309	$	(960)
	Reallocation of net loss attributable to non-controlling interests from the assumed conversion of Class B shares		(734)		—
	Net income (loss) attributable to Shake Shack Inc.—diluted		$	575	$	(960)
Denominator:
	Weighted-average shares of Class A common stock outstanding—basic		38,948		34,444
	Effect of dilutive securities:
		Stock options	232		—
		Performance stock units	53		—
		Restricted stock units	164		—
		Convertible Notes	451		—
		Shares of Class B common stock	2,941		—
	Weighted-average shares of Class A common stock outstanding—diluted		42,789		34,444

Earnings (loss) per share of Class A common stock—basic			$	0.03	$	(0.03)
Earnings (loss) per share of Class A common stock—diluted			$	0.01	$	(0.03)

Shares of our 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 our 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 antidilutive.

The following table presents potentially dilutive securities, as of the end of the period, excluded from the computations of diluted earnings (loss) per share of Class A common stock for the thirteen weeks ended March 31, 2021 and March 25, 2020.


	Thirteen Weeks Ended
	March 31 2021		March 25 2020
Stock options	1,698	(1)	847,207	(3)
Performance stock units	51,974	(2)	179,253	(3)
Restricted stock units	—		264,431	(3)
Shares of Class B common stock	—		3,117,002	(3)

(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 exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money").

(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 performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.

(3) 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.

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NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the thirteen weeks ended March 31, 2021 and March 25, 2020:


		Thirteen Weeks Ended
		March 31 2021		March 25 2020
Cash paid for:
	Income taxes, net of refunds	$	388	$	801
	Interest, net of amounts capitalized	70		61
Non-cash investing activities:
	Accrued purchases of property and equipment	12,949		13,715


	Capitalized equity-based compensation	9		13

Non-cash financing activities:





	Revolving Credit Facility amendment-related accrual	112		—
	Convertible Notes issuance-related accrual	312		—
	Establishment of liabilities under tax receivable agreement	1,094		310

NOTE 13: COMMITMENTS AND CONTINGENCIES

Lease Commitments

We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2037. Under certain of these leases, we are liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for our proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. See Note 7, Leases.

As security under the terms of one of our leases, we are obligated under a letter of credit totaling $130 as of March 31, 2021, which expires in February 2026. Additionally, in September 2017, we entered into a letter of credit in conjunction with our new home office lease in the amount of $603, which expires in August 2021 and renews automatically for one-year periods through January 31, 2034.

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. We also enter into long-term, exclusive contracts with certain vendors to supply us with food, beverages and paper goods, obligating us to purchase specified quantities.

Legal Contingencies

In March 2020, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act. At a mediation between the parties, we agreed to settle the matter with the plaintiff and other employees who elect to participate in the settlement for $595. As of March 31, 2021, an accrual in the amount of $595 was recorded for this matter and related expenses.

In February 2018, a claim was filed against Shake Shack in California state court alleging certain violations of the California Labor Code. At a mediation between the parties, we agreed to settle the matter with the plaintiff and all other California employees who elect to participate in the settlement for $1,200. As of March 31, 2021, an accrual in the amount of $1,180 was recorded for this matter and related expenses.

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We are subject to various legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. As of March 31, 2021, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note 10, Income Taxes, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay certain of the members of SSE Holdings 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. We are not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. During the thirteen weeks ended March 31, 2021 and March 25, 2020, we recognized liabilities totaling $1,094 and $310, respectively, relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of March 31, 2021 and December 30, 2020, our total obligations under the Tax Receivable Agreement were $234,048 and $232,954, respectively. There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits.

NOTE 14: RELATED PARTY TRANSACTIONS

Union Square Hospitality Group

The Chairman of our Board of Directors serves as the Chief Executive Officer of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiaries, set forth below, are considered related parties.

Hudson Yards Sports and Entertainment

In fiscal 2011, we 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 us a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays us a percentage of profits on sales of branded beverages, as defined in the MLA.


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020

Amounts received from HYC	Licensing revenue	$	—	$	22


	Classification	March 31 2021		December 30 2020

Amounts due from HYC	Accounts Receivable	$	—	$	8

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Madison Square Park Conservancy

The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack. No amounts were due to MSP Conservancy as of both March 31, 2021 and December 30, 2020.


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts paid to MSP Conservancy	Occupancy and related expenses	$	215	$	219

Olo, Inc.

The Chairman of our Board of Directors serves as a director of Olo, Inc. (formerly known as "Mobo Systems, Inc."), a platform we use in connection with our mobile ordering application. No amounts were due to Olo as of both March 31, 2021 and December 30, 2020.


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts paid to Olo	Other operating expenses	$	147	$	52

Square, Inc.

Our Chief Executive Officer is a member of the Board of Directors of Square, Inc. ("Square"). We currently use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with the processing of a limited amount of sales at certain of our locations, sales for certain off-site events and in connection with our kiosk technology.


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts paid to Square	Other operating expenses	$	462	$	571


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts due to Square	Accounts Payable	$	9	$	—

USHG Acquisition Corp.

Our Chief Executive Officer has been appointed to the board of directors of USHG Acquisition Corp. in which the Chairman of our Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp. USHG Acquisition Corp. is a newly organized blank check company incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. No amounts were due to or due from USHG Acquisition Corp as of both March 31, 2021 and December 30, 2020.

Tax Receivable Agreement

As described in Note 10, Income Taxes, we entered into a Tax Receivable Agreement with certain members of SSE Holdings that provides for the payment by us of 85% of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions.

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		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts paid to members (inclusive of interest)	Other current liabilities	$	—	$	6,569


	Classification	March 31 2021		December 30 2020
Amounts due under the Tax Receivable Agreement	Other current liabilities Liabilities under tax receivable agreement, net of current portion	$	234,048	$	232,954

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 March 31, 2021 and December 30, 2020, respectively.


		Thirteen Weeks Ended
	Classification	March 31 2021		March 25 2020
Amounts paid to non-controlling interest holders	Non-controlling interests	$	467	$	305

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to any 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. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020 ("2020 Form 10-K"). The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion should be read in conjunction with our 2020 Form 10-K and the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.

OVERVIEW

Shake Shack is a modern day "roadside" burger stand serving a classic American menu of premium burgers, chicken sandwiches, hot dogs, crinkle cut fries, shakes, frozen custard, beer and wine. As of March 31, 2021, there were 321 Shacks in operation system-wide, of which 192 were domestic Company-operated Shacks, 22 were domestic licensed Shacks and 107 were international licensed Shacks.

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Recent Developments and Trends

We have experienced continued positive momentum in the business during the first quarter of 2021, and through April 28 ("fiscal April"), all while continuing to support our Shack teams, our guests and the communities in which we operate during the COVID-19 pandemic. With COVID cases stabilizing and more regions steadily loosening restrictions, we are optimistic that improving trends can continue for our industry. With a continued prioritization on health and safety, we have steadily re-opened dining rooms under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

Same-Shack sales continued to improve across all regions, up 5.7% in the first quarter 2021, when compared to down 17.4% in the fourth quarter 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales retention. Same-Shack sales in fiscal April were up 86% compared to the same period last year. As of the end of fiscal April 2021, the vast majority of Shacks were operating with open dining rooms, the majority of which continue to remain under varying levels of capacity restrictions, especially in urban Shacks. The Company continues to experience recovery across urban and suburban markets, however many major urban markets, such as Manhattan, remain materially below pre-COVID levels, while office, events and tourism traffic return.

Average weekly sales were $64,000 in the first quarter of 2021. Fiscal February was heavily impacted by severe winter weather, resulting in average weekly sales of $60,000, followed by a significant improvement to $68,000 in fiscal March, and continuing through fiscal April with $69,000. This continued improvement was driven by a substantial increase in in-Shack sales, as well as a high retention of digital sales.

During the first quarter of 2021, total digital sales, including orders placed on the Shake Shack app, website and third-party delivery platforms, represented 60% of Shack sales. Fiscal January and February digital mix was 64% and 62% of Shack sales, respectively, driven largely by increased delivery due to bad weather across large portions of the United States. Digital sales mix decreased to 54% of Shack sales in fiscal March and 51% of Shack sales in fiscal April, driven by an increase in in-Shack dining as the weather improved and parts of the country continued to re-open. Encouragingly, while in-Shack dining continues to increase, there continues to be a high level of digital sales retention with 90% of fiscal January's digital sales retained in fiscal April. Company-owned app and web channels continued to perform well in the first quarter 2021, with 2.4 million first-time purchasers between mid-March of 2020 and the end of fiscal March 2021, and over 230% year-over-year sales growth, when compared to the first quarter 2020.

Licensing revenue for the first quarter of 2021 was $4.6 million, reflecting a decrease of 9.9% versus the same period last year. We did, however, see improvement in total weekly sales performance throughout the quarter, with sales recovery led by improvements in both our international and domestic licensed Shacks, particularly in airports which are experiencing increases in Transportation Security Administration ("TSA") flight traffic.

Development Highlights

During the first quarter 2021, we opened ten new domestic Company-operated Shacks and two new international licensed Shacks. These openings were partially offset by the closure of one domestic Company-operated Shack and one international licensed Shack.

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Location

Type

Opening Date

Kuwait City, Kuwait — Waterfront

International Licensed

1/28/2021

Plymouth Meeting, PA — Plymouth Meeting

Domestic Company-Operated

2/4/2021

Nanuet, NY — Nanuet

Domestic Company-Operated

2/8/2021

Dubai, UAE — First Avenue Mall, Motor City

International Licensed

2/11/2021

Ardmore, PA — Suburban Square

Domestic Company-Operated

2/19/2021

Towson, MD — Towson

Domestic Company-Operated

2/20/2021

Woburn, MA — Woburn

Domestic Company-Operated

3/1/2021

Huntersville, NC — Huntersville

Domestic Company-Operated

3/2/2021

Nashville, TN — Downtown Nashville

Domestic Company-Operated

3/4/2021

New York, NY — Bryant Park

Domestic Company-Operated

3/22/2021

Boulder, CO — Boulder

Domestic Company-Operated

3/26/2021

Hoboken, NJ — Hoboken

Domestic Company-Operated

3/29/2021

As of May 6, 2021, we have opened another five domestic Company-operated Shacks, and expect a total of 16 to 18 openings by the mid-year point. Though our rate of recovery and development plans continue to be impacted by the ongoing uncertainty due to COVID, we are aiming to open a total of between 35 and 40 new domestic Company-operated Shacks, and 15 to 20 new licensed Shacks, in fiscal 2021.

Liquidity Update

In March 2021, we issued $225 million aggregate principal amount of 0% Convertible Senior Notes due 2028 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. We granted an option to the initial purchasers to purchase up to an additional $25 million aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250 million aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election.

Financial Highlights for the First Quarter 2021

▪Total revenue in the first quarter 2021 increased 8.5% to $155.3 million versus the same period last year.

▪Shack sales in the first quarter 2021 increased 9.1% to $150.7 million versus the same period last year. Total Shack sales improved further in fiscal April with an increase of 171% versus the same period last year.

▪Same-Shack sales1 improved to up 5.7% in the first quarter 2021 versus the same period last year. In fiscal April, Same-Shack sales continued to recover, with an increase of 86% versus the same period last year.

▪Licensed revenue in the first quarter 2021 decreased 9.9% to $4.6 million versus the same period last year.

▪Shack system-wide sales in the first quarter 2021 increased 3.0% to $228.3 million, versus the same period last year.

▪Operating loss in the first quarter 2021 was $10.0 million compared to an operating loss of $0.8 million in the same period last year.

▪Shack-level operating profit2 decreased 14.3% to $22.6 million, or 15.0% of Shack sales in the first quarter 2021, versus the same period last year.

▪Net income was $0.6 million and adjusted EBITDA2 was $7.1 million in the first quarter 2021, compared to a net loss of $1.1 million and adjusted EBITDA of $14.3 million in the same period last year.

▪Net income attributable to Shake Shack Inc. was $1.3 million and adjusted pro forma net income2 was $1.8 million, or $0.04 per fully exchanged and diluted share in the first quarter 2021, compared to net loss attributable to Shake Shack Inc. of $1.0 million and adjusted pro forma net income of $0.8 million, or $0.02 per fully exchanged and diluted share, in the same period last year.

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▪Net system-wide Shack openings, comprised of nine net domestic Company-operated Shacks and one net licensed Shack.

▪Cash and marketable securities on hand was $415.9 million as of March 31, 2021.

1In order to compare like-for-like periods for fiscal 2021, same-Shack sales will compare the 52 weeks from December 31, 2020 through December 29, 2021 to the 52 weeks from January 2, 2020 through December 30, 2020. For Q1 2021, same-Shack sales compares the thirteen weeks from December 31, 2020 through March 31, 2021 to the thirteen weeks from January 2, 2021 through April 1, 2021.

2This represents a non-GAAP measure. Reconciliations to the most directly comparable financial measures presented in accordance with GAAP are set forth in the schedules within “Non-GAAP Financial Measures,” herein.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the thirteen weeks ended March 31, 2021 and March 25, 2020:


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021				March 25 2020
Shack sales		$	150,668	97.0	%	$	138,048	96.4	%
Licensing revenue		4,614		3.0	%	5,122		3.6	%
TOTAL REVENUE		155,282		100.0	%	143,170		100.0	%
Shack-level operating expenses(1):
	Food and paper costs	44,630		29.6	%	39,564		28.7	%
	Labor and related expenses	46,382		30.8	%	41,766		30.3	%
	Other operating expenses	23,144		15.4	%	17,779		12.9	%
	Occupancy and related expenses	13,911		9.2	%	12,558		9.1	%
General and administrative expenses		19,565		12.6	%	16,191		11.3	%
Depreciation and amortization expense		13,726		8.8	%	11,768		8.2	%
Pre-opening costs		3,576		2.3	%	2,243		1.6	%
Impairment and loss on disposal of assets		369		0.2	%	2,088		1.5	%
TOTAL EXPENSES		165,303		106.5	%	143,957		100.5	%
OPERATING LOSS		(10,021)		(6.5)	%	(787)		(0.5)	%
Other income (expense), net		31		—	%	(93)		(0.1)	%
Interest expense		(515)		(0.3)	%	(112)		(0.1)	%
LOSS BEFORE INCOME TAXES		(10,505)		(6.8)	%	(992)		(0.7)	%
Income tax expense (benefit)		(11,080)		(7.1)	%	87		0.1	%
NET INCOME (LOSS)		575		0.4	%	(1,079)		(0.8)	%
Less: net loss attributable to non-controlling interests		(734)		(0.5)	%	(119)		(0.1)	%
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.		$	1,309	0.8	%	$	(960)	(0.7)	%

(1) As a percentage of Shack sales.

Shack Sales

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our domestic Company-operated Shacks. Shack sales in any period are directly influenced by the number of operating weeks in such period, the number of open Shacks and same-Shack sales. Same-Shack sales means, for any reporting period, sales performance at our Company-operated domestic Shacks that have been open for at least 24 months.

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Shack sales		$	150,668		$	138,048
	Percentage of total revenue	97.0		%	96.4		%
	Dollar change compared to prior year	$	12,620
	Percentage change compared to prior year	9.1		%

Shack sales during the thirteen weeks ended March 31, 2021 increased 9.1% from the same prior-year period, primarily driven by the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021, and to a lesser extent, an increase in same-Shack sales.

Same-Shack sales continued to improve across all regions, and increased 5.7% for the first quarter of 2021, compared to down 17.4% in the fourth quarter of 2020, with performance driven by increases in in-Shack dining in both urban and suburban Shacks, combined with high levels of digital sales retention. The increase in first quarter 2021 same-Shack sales was due to a price and sales mix increase of 18.0% — a combination of our end-of-year price increase in December, increased pricing on third-party delivery channels which rolled out over the early part of this fiscal year, and a higher number of items per check, particularly in our digital channels — partially offset by a 12.3% decrease in guest traffic. For the purpose of calculating same-Shack sales growth, Shack sales for 123 Shacks were included in the comparable Shack base as of the end of the first quarter of 2021 versus 90 Shacks for the first quarter of 2020.

Licensing Revenue

Licensing revenue is comprised of license fees, opening fees for certain licensed Shacks and territory fees. License fees are calculated as a percentage of sales and territory fees are payments for the exclusive right to develop Shacks in a specific geographic area.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Licensing revenue		$	4,614		$	5,122
	Percentage of total revenue	3.0		%	3.6		%
	Dollar change compared to prior year	$	(508)
	Percentage change compared to prior year	(9.9)		%

Licensed revenue for the thirteen weeks ended March 31, 2021 decreased 9.9% to $4.6 million versus the same prior-year period, primarily due to reduced sales related to the COVID-19 pandemic, partially offset by a net increase of 9 Shacks opened between March 25, 2020 and March 31, 2021. As of the end of the first quarter 2021, 16 licensed Shacks remained temporarily closed due to COVID. Through the first quarter of 2021, we did, however, see improvement in total weekly sales performance throughout the quarter, with sales recovery led by improvements in both our international and domestic licensed Shacks, particularly in airports which are experiencing increases in TSA flight traffic.

Food and Paper Costs

Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of Food and paper costs are variable by nature, change with sales volume, are impacted by menu mix and fluctuations in commodity costs, as well as geographic scale and proximity.

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Food and paper costs		$	44,630		$	39,564
	Percentage of Shack sales	29.6		%	28.7		%
	Dollar change compared to prior year	$	5,066
	Percentage change compared to prior year	12.8		%

The increase in Food and paper costs for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021, as well as increased paper and packaging costs and beef costs.

Labor and Related Expenses

Labor and related expenses include domestic Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers’ compensation expense and medical benefits. As we expect with other variable expense items, we expect labor costs to grow as our Shack sales grow. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our domestic Company-operated Shacks.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Labor and related expenses		$	46,382		$	41,766
	Percentage of Shack sales	30.8		%	30.3		%
	Dollar change compared to prior year	$	4,616
	Percentage change compared to prior year	11.1		%

The increase in Labor and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to our annual wage rate increase, higher payroll taxes at the state level, and a more normalized level of performance related bonuses, including the impact of the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.

As a percentage of Shack sales, the increase in Labor and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to our annual wage increase, a more normalized level of performance related bonuses and new Shack openings at higher levels of labor, partially offset by an increase in labor productivity at existing Shacks.

Other Operating Expenses

Other operating expenses consist of Shack-level repairs and maintenance, utilities and other operating expenses incidental to operating our domestic Company-operated Shacks, such as delivery commissions, credit card fees, non-perishable supplies, and business insurance.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Other operating expenses		$	23,144		$	17,779
	Percentage of Shack sales	15.4		%	12.9		%
	Dollar change compared to prior year	$	5,365
	Percentage change compared to prior year	30.2		%

The increase in Other operating expenses for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021 and higher delivery commission as a result of digital growth.

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As a percentage of Shack sales, the increase in Other operating expenses for the thirteen weeks ended March 31, 2021 was primarily due to higher delivery commissions as a result of digital growth.

Occupancy and Related Expenses

Occupancy and related expenses consist of Shack-level occupancy expenses (including rent, common area expenses and certain local taxes), and exclude occupancy expenses associated with unopened Shacks, which are recorded separately in Pre-opening costs.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Occupancy and related expenses		$	13,911		$	12,558
	Percentage of Shack sales	9.2		%	9.1		%
	Dollar change compared to prior year	$	1,353
	Percentage change compared to prior year	10.8		%

The increase in Occupancy and related expenses for the thirteen weeks ended March 31, 2021 was primarily due to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021.

As a percentage of Shack sales, Occupancy and related expenses for the thirteen weeks ended March 31, 2021 was relatively consistent with the same-prior year period, and continues to be impacted by sales deleverage, particularly in our high-volume urban Shacks.

General and Administrative Expenses

General and administrative expenses consist of costs associated with home office and administrative functions that support Shack development and operations, as well as equity-based compensation expense.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
General and administrative expenses		$	19,565		$	16,191
	Percentage of total revenue	12.6		%	11.3		%
	Dollar change compared to prior year	$	3,374
	Percentage change compared to prior year	20.8		%

The increase in General and administrative expenses for the thirteen weeks ended March 31, 2021 was primarily due to continued investment across the business, including an increase in headcount to support the strategic growth plan, and increased investments in marketing and our digital initiatives.

As a percentage of total revenue, the increase in General and administrative expenses for the thirteen weeks ended March 31, 2021 was primarily due primarily to drivers described above.

Depreciation and Amortization Expense

Depreciation and amortization expense primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, as well as financing equipment lease assets.

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Depreciation and amortization expense		$	13,726		$	11,768
	Percentage of total revenue	8.8		%	8.2		%
	Dollar change compared to prior year	$	1,958
	Percentage change compared to prior year	16.6		%

The increase in Depreciation and amortization expense for the thirteen weeks ended March 31, 2021 was primarily due to incremental depreciation of capital expenditures related to the opening of 25 net new domestic Company-operated Shacks between March 25, 2020 and March 31, 2021 and increased technology investments to support our digital initiatives.

As a percentage of total revenue, the increase in Depreciation and amortization expense for the thirteen weeks ended March 31, 2021 was primarily due to the aforementioned items.

Pre-Opening Costs

Pre-opening costs consist primarily of legal fees, rent, managers' salaries, training costs, employee payroll and related expenses, costs to relocate and compensate Shack management teams prior to an opening and wages, travel and lodging costs for our opening training team and other supporting team members. All such costs incurred prior to the opening of a domestic Company-operated Shack are expensed in the period in which the expense was incurred. Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of domestic Company-operated Shack openings and the specific pre-opening costs incurred for each domestic Company-operated Shack. Additionally, domestic Company-operated Shack openings in new geographic market areas may initially experience higher pre-opening costs than our established geographic market areas, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Pre-opening costs		$	3,576		$	2,243
	Percentage of total revenue	2.3		%	1.6		%
	Dollar change compared to prior year	$	1,333
	Percentage change compared to prior year	59.4		%

The increase in Pre-opening costs for the thirteen weeks ended March 31, 2021 was due to the increased fiscal 2021 development pipeline for new domestic Company-operated Shacks, including those expected to open in the first half of the fiscal year.

Impairment and Loss on Disposal of Assets

Impairment and loss on disposal of assets include impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets. Additionally, Impairment and loss on disposal of assets includes the net book value of assets that have been retired and consists primarily of furniture, equipment and fixtures that were replaced in the normal course of business.

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Impairment and loss on disposal of assets		$	369		$	2,088
	Percentage of total revenue	0.2		%	1.5		%
	Dollar change compared to prior year	$	(1,719)
	Percentage change compared to prior year	(82.3)		%

The decrease in Impairment and loss on disposal of assets for the thirteen weeks ended March 31, 2021 was primarily due to asset impairment charges of $1.1 million in the first quarter of 2020 related to the impairment of one Shack. In addition, loss on disposal of assets decreased due to several Shack renovations in fiscal 2020.

Other Income (Expense), Net

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


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Other income (expense), net		$	31		$	(93)
	Percentage of total revenue	—		%	(0.1)		%
	Dollar change compared to prior year	$	124
	Percentage change compared to prior year	(133.3)		%

The increase in Other income (expense), net for the thirteen weeks ended March 31, 2021 was primarily due to a decline in unrealized losses related to our investments in marketable securities, partially offset by a decrease in dividend income.

Interest Expense

Interest expense primarily consists of interest and fees on our Revolving Credit Facility, imputed interest related to our financing equipment leases, amortization of deferred financing costs, and interest on the current portion of our liabilities under the Tax Receivable Agreement.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Interest expense		$	(515)		$	(112)
	Percentage of total revenue	(0.3)		%	(0.1)		%
	Dollar change compared to prior year	$	(403)
	Percentage change compared to prior year	359.8		%

The increase in Interest expense was primarily due to the write-off of previously capitalized costs of $0.3 million associated with the amendment of our Revolving Credit Facility in March 2021. Refer to Note 6, Debt, for further details.

Income Tax Expense (Benefit)

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

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		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Income tax expense (benefit)		$	(11,080)		$	87
	Percentage of total revenue	(7.1)		%	0.1		%
	Dollar change compared to prior year	$	(11,167)
	Percentage change compared to prior year	(12,835.6)		%

Net Loss Attributable to Non-Controlling Interests

We are the sole managing member of SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings. Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Condensed Consolidated Statements of Income (Loss), representing the portion of Net income (loss) attributable to the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income to Shake Shack Inc. and the non-controlling interest holders.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Net loss attributable to non-controlling interests		$	(734)		$	(119)
	Percentage of total revenue	(0.5)		%	(0.1)		%
	Dollar change compared to prior year	$	(615)
	Percentage change compared to prior year	516.8		%

The increase in Net loss attributable to non-controlling interests for the thirteen weeks ended March 31, 2021 was primarily due to an increase in net loss for SSE Holdings for the period, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 7.0% and 8.4% for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

NON-GAAP FINANCIAL MEASURES

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

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Shack-Level Operating Profit

Shack-level operating profit is defined as Shack sales less Shack-level operating expenses including Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.

How This Measure Is Useful

When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that the Company believes are useful measures to evaluate the performance and profitability of its Shacks. Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by management to develop internal budgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods. It is also used to evaluate employee compensation as it serves as a metric in certain performance-based employee bonus arrangements. The Company believes presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of its operating performance that can provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates the business, as well as the financial and operational decision-making.

Limitations of the Usefulness of this Measure

Shack-level operating profit and Shack-level operating profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack-level operating profit excludes certain costs, such as General and administrative expenses and Pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of the Company's Shacks. Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with the Company's GAAP financial results. A reconciliation of Shack-level operating profit to Operating loss, the most directly comparable GAAP financial measure, is set forth below.


		Thirteen Weeks Ended
(dollar amounts in thousands)		March 31 2021			March 25 2020
Operating loss		$	(10,021)		$	(787)
Less:
	Licensing revenue	4,614			5,122
Add:
	General and administrative expenses	19,565			16,191
	Depreciation and amortization expense	13,726			11,768
	Pre-opening costs	3,576			2,243
	Impairment and loss on disposal of assets(1)	369			2,088
Shack-level operating profit		$	22,601		$	26,381

Total revenue		$	155,282		$	143,170
Less: licensing revenue		4,614			5,122
Shack sales		$	150,668		$	138,048

Shack-level operating profit margin(2)		15.0		%	19.1		%

(1) For the thirteen weeks ended March 25, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

(2) As a percentage of Shack sales.

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EBITDA and Adjusted EBITDA

EBITDA is defined as Net income (loss) before interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease cost, Impairment and loss on the disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.

How These Measures Are Useful

When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance-based equity incentive programs and certain bonus arrangements. The Company believes presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of the Company's operating performance that facilitates analysis and comparisons of its ongoing business operations because they exclude items that may not be indicative of the Company's ongoing operating performance.

Limitations of the Usefulness of These Measures

EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to Net income (loss), the most directly comparable GAAP measure, is as follows.


	Thirteen Weeks Ended
(dollar amounts in thousands)	March 31 2021			March 25 2020
Net income (loss)	$	575		$	(1,079)
Depreciation and amortization expense	13,726			11,768
Interest expense, net	515			112
Income tax expense (benefit)	(11,080)			87
EBITDA	$	3,736		$	10,888

Equity-based compensation	1,681			1,300
Amortization of cloud-based software implementation costs(1)	313			260
Deferred lease costs(2)	204			(330)
Impairment and loss on disposal of assets(3)	369			2,088
Debt offering related costs(4)	236			—
Legal settlement(5)	595			—

Executive transition costs(6)	—			34
Project Concrete(7)	—			(261)
Other(8)	—			285

ADJUSTED EBITDA	$	7,134		$	14,264

Adjusted EBITDA margin(9)	4.6		%	10.0		%

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

(2) Reflects the extent to which lease expense is greater than or less than contractual fixed base rent.

(3) Includes losses on disposals of property and equipment in the normal course of business. For the thirteen weeks ended March 25, 2020, amount includes a non-cash impairment charge of $1.1 million related to one Shack.

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(4) Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees. Refer to Note 6, Debt, for further details.

(5) Expense incurred to establish an accrual related to the settlement of a legal matter. See Note 13, Commitments and Contingencies, for further details.

(6) Represents fees paid in connection with the search and hiring of certain executive and key management positions.

(7) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.

(8) Represents incremental expenses incurred related to an inventory adjustment and certain employee-related expenses.

(9) Calculated as a percentage of total revenue which was $155.3 million and $143.2 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share

Adjusted pro forma net income represents net income (loss) attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that we don't believe directly reflect our core operations and may not be indicative of our recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income (loss) by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to any dilutive securities such as outstanding equity-based awards.

How These Measures Are Useful

When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income (loss) attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net income (loss) and earnings (loss) per share, as determined under GAAP. While these measures are useful in evaluating our performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income (loss) attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results. A reconciliation of adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.

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			Thirteen Weeks Ended
(in thousands, except per share amounts)			March 31 2021		March 25 2020
Numerator:
	Net income (loss) attributable to Shake Shack Inc.		$	1,309	$	(960)
	Adjustments:
		Reallocation of net loss attributable to non-controlling interests from the assumed exchange of LLC Interests(1)	(734)		(119)
		Executive transition costs(2)	—		34
		Project Concrete(3)	—		(261)

		Legal settlement(4)	595		—
		Debt offering related costs(5)	236		—
		Revolving Credit Facility amendment-related costs(6)	323		—



		Income tax benefit (7)	24		1,819
		Other(8)	—		285
	Adjusted pro forma net income		$	1,753	$	798
Denominator:
	Weighted-average shares of Class A common stock outstanding—diluted		42,789		34,444
	Adjustments:
		Assumed exchange of LLC Interests for shares of Class A common stock(1)	—		3,144
		Dilutive effect of stock options	—		704
	Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		42,789		38,292
Adjusted pro forma earnings per fully exchanged share—diluted			$	0.04	$	0.02


		Thirteen Weeks Ended
		March 31 2021		March 25 2020
Earnings (loss) per share of Class A common stock - diluted		$	0.01	$	(0.03)
	Assumed exchange of LLC Interests for shares of Class A common stock(1)	—		—
	Non-GAAP adjustments(9)	0.03		0.05


Adjusted pro forma earnings per fully exchanged share—diluted		$	0.04	$	0.02

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

(2) Represents fees paid in connection with the search and hiring of certain executive and key management positions.

(3) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.

(4) Expense incurred to establish an accrual related to the settlement of a legal matter. See Note 13, Commitments and Contingencies, for further details.

(5) Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees. Refer to Note 6, Debt, for further details.

(6) Expense incurred in connection with the Company's amendments on the Revolving Credit Facility, including the write-off of previously capitalized costs on the Revolving Credit Facility. Refer to Note 6, Debt, for further details.

(7) Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 118.8% and 185.4% for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Amounts include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportioned to each applicable state, local and foreign jurisdiction.

(8) Represents incremental expenses incurred related to an inventory adjustment and certain employee-related expenses.

(9) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted Pro Forma Net Income above for further details.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

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Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility. In March 2021, we issued 0% Convertible Notes of Convertible Debt, and received $243.8 million of proceeds, net of discounts. Refer to Note 6, Debt, for further discussion.

As of March 31, 2021, we maintained a cash and cash equivalents balance of $375.0 million and a short-term investments balance of $40.9 million within Marketable securities.

On June 8, 2018, we filed a Registration Statement on Form S-3 with the SEC which permits us to issue a combination of securities described in the prospectus in one or more offerings from time to time. To date, we have not experienced difficulty accessing the capital markets; however, future volatility in the capital markets may affect our ability to access those markets or increase the costs associated with issuing debt or equity instruments.

Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investments in our corporate and digital infrastructure.

In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of March 31, 2021, such obligations totaled $234.0 million. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The amount of such payments are also limited to the extent we utilize the related deferred tax assets. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.

In response to the uncertain market conditions resulting from the onset of the COVID-19 pandemic, we took the following actions in fiscal 2020.

•On April 17, 2020, we announced an "at-the-market" equity offering program (the "ATM Program"), under which we may offer and sell shares of our Class A common stock having an aggregate price of up to $75.0 million from time to time. On April 21, 2020, we completed the sale of 233,467 shares of our Class A common stock pursuant to the ATM Program and received $9.8 million of proceeds, net of commissions. The proceeds were used to purchase newly-issued LLC Interests.

•On April 21, 2020, we completed an underwritten offering of 3,416,070 shares of our Class A common stock, resulting in $135.9 million of proceeds, net of underwriting discounts and commissions. The proceeds were used to purchase newly-issued LLC Interests.

•In May 2020, we entered into an amendment to our Revolving Credit Facility that provided for a number of enhanced modifications to reflect the current and ongoing impact from COVID-19. Our Revolving Credit Facility was further amended in March 2021, resulting in a modification of the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes, including obligations and transactions in connection therewith. Refer to Note 6, Debt, for further information.

•In March 2020, we drew down the full $50.0 million available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020. As of March 31, 2021, we were in compliance with all covenants.

We believe our existing cash and marketable securities balances will be sufficient to fund our operating and finance lease obligations, capital expenditures, Tax Receivable Agreement obligations and working capital needs for at least the next 12 months and the foreseeable future.

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Summary of Cash Flows

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


	Thirteen Weeks Ended
(in thousands)	March 31 2021		March 25 2020
Net cash provided by operating activities	$	9,951	$	7,484
Net cash provided by (used in) investing activities	(27,228)		649
Net cash provided by financing activities	245,403		42,574
Increase in cash and cash equivalents	228,126		50,707
Cash and cash equivalents at beginning of period	146,873		37,099
Cash and cash equivalents at end of period	$	374,999	$	87,806

Operating Activities

For the thirteen weeks ended March 31, 2021 net cash provided by operating activities was $10.0 million compared to $7.5 million for the thirteen weeks ended March 25, 2020, an increase of $2.5 million. The increase was primarily due to change in operating assets and liabilities of $3.9 million and an increase in net income of $1.7 million, partially offset by the impact of non-cash charges of $3.1 million.

The $3.9 million change in our operating asset and liability balances was primarily driven by Accrued wages and related liabilities being a source of cash of $2.9 million in the first quarter of 2021, primarily driven by higher accruals associated with payroll costs, compared to a use of cash of $5.1 million in the first quarter of 2020; Accounts payable being a source of cash of $1.5 million in the first quarter of 2021, driven by timing of payments, compared to a use of cash of $4.4 million in the first quarter of 2020; partially offset by Accrued expenses being a use of cash of $9.4 million in the first quarter of 2021, due to the timing of accruals associated with tax payments, compared to a use of cash of $6.3 million in the first quarter of 2020; Other long-term liabilities being a use of cash of $1.8 million in the first quarter of 2021, due to the timing of tax payments, compared to a source of cash of $0.5 million in the first quarter of 2020; and Accounts Receivable being a source of cash of $0.6 million in the first quarter of 2021, primarily driven by timing of cash receipts of open receivables, compared to a source of cash of $3.2 million in the first quarter of 2020.

Investing Activities

For the thirteen weeks ended March 31, 2021 net cash used in investing activities was $27.2 million compared to net cash provided by investing activities of $0.6 million for the thirteen weeks ended March 25, 2020, a decrease of $27.8 million. This decrease was primarily due to a decrease of $20.0 million of proceeds from sales of marketable securities, an increase of $4.0 million in capital expenditures to support our real estate development and digital initiatives and increased purchases of marketable securities of $3.9 million.

Financing Activities

For the thirteen weeks ended March 31, 2021 net cash provided by financing activities was $245.4 million compared to $42.6 million for the thirteen weeks ended March 25, 2020, an increase of $202.8 million. This increase was primarily due to $243.8 million in net cash proceeds from the issuance of the Convertible Notes, decreased payments made under the Tax Receivable Agreement, and increased proceeds from stock option exercises, partially offset by $50.0 million in gross cash proceeds from the drawdown of funds from our Revolving Credit Facility in the first quarter of 2020 — which was repaid in full, plus interest, in the second quarter of 2020.

Revolving Credit Facility

In August 2019, we entered into a Revolving Credit Facility, which permits borrowings up to $50.0 million, of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $100.0 million, to be made available subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.

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In March 2020, we drew down the full $50.0 million available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic. We repaid this amount in full, plus interest, in June 2020.

In May 2020, we entered into a First Amendment, which, among other things, provided for modified financial covenant compliance requirements for a period of time. The First Amendment required us to maintain minimum liquidity of $25.0 million through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bore interest at either: (i) LIBOR plus a percentage ranging from 1.0% to 2.5% or (ii) the base rate plus a percentage ranging from 0.0% to 1.5%, in each case depending on our net lease adjusted leverage ratio.

In March 2021, we entered into a Second Amendment. The Second Amendment modified the applicable covenants and restrictions in the Credit Agreement to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith. In addition, the Second Amendment, among other things, (i) extended the period applicable to the increased interest rate margin as set forth in the First Amendment; (ii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iii) added mechanics relating to the transition from the use of LIBOR to SOFR upon the discontinuance or unavailability of LIBOR.

Subsequently, and also in March 2021, we entered into a Third Amendment with JPMorgan Chase Bank, N.A. (as successor agent to Wells Fargo Bank, National Association), as administrative agent, and the lenders party thereto. In addition, in March 2021, Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A. The Third Amendment appoints JPMorgan Bank, N.A. as administrative agent under the Revolving Credit Facility. In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026. As of March 31, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

As of March 31, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $0.1 million, and was included in Other assets on the Condensed Consolidated Balance Sheet. Total interest expense related to the Revolving Credit Facility were $0.4 million and $0.1 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively. Total interest expense for the thirteen weeks ended March 31, 2021 primarily included write-off of previously capitalized costs on the Revolving Credit Facility.

Convertible Notes

In March 2021, we issued $225.0 million aggregate principal amount of 0% Convertible Senior Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. We granted an option to the initial purchasers to purchase up to an additional $25.0 million aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $250.0 million aggregate principal amount of Convertible Notes. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Shake Shack’s Class A common stock or a combination of cash and shares of Shake Shack’s Class A common stock, at our election.

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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 in which the trading price (as defined in the Indenture) per $1,000 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 we call 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.

We may not redeem the Convertible Notes prior to March 6, 2025. We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after March 6, 2025 if the last reported sale price of Shake Shack’s 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 we provide 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.

Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc. entered into an Intercompany Note with SSE Holdings, LLC. 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, by Shake Shack Inc and the aggregate number of outstanding shares of common stock.

As of March 31, 2021, the Convertible Notes had a gross principal balance of $250.0 million and a balance of $242.9 million, net of unamortized discount and debt issuance costs of $7.1 million. As of March 31, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Condensed Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method. Total amortization expense was $0.1 million for the thirteen weeks ended March 31, 2021 and was included in Interest expense in the Condensed Consolidated Statements of Income (Loss). In connection with the Convertible Notes, we also incurred costs of $0.2 million, including consulting and advisory fees, in the thirteen weeks ended March 31, 2021 and was included in General and administrative expense in the Condensed Consolidated Statements of Income (Loss).

At March 31, 2021, the fair value of the Convertible Notes was approximately $248.1 million, 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.

42 | Shake Shack Inc. Form 10-Q

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CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020, other than those made in the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes to our off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying condensed consolidated financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020.

Recently Issued Accounting Pronouncements

See "Note 2: Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” under Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 30, 2020.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information required by this Item is incorporated by reference to Part I, Item 1, Note 13: Commitments and Contingencies—Legal Contingencies.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit

Number

Incorporated by Reference

Filed
Herewith

Exhibit Description

Form

Exhibit

Filing Date

3.1

Amended and Restated Certificate of Incorporation of Shake Shack Inc., effective February 4, 2015

8-K

3.1

2/10/2015

3.2

Second Amended and Restated Bylaws of Shack Shake Inc., dated October 1, 2019

8-K

3.1

10/4/2019

4.1

Form of Class A Common Stock Certificate

S-1/A

4.1

1/28/2015

10.1

Second Amendment to Credit Agreement, dated as of March 1, 2021, by and among SSE Holdings, LLC, the Guarantors party thereto, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent

10.2

Third Amendment to Credit Agreement, dated as of March 5, 2021, by and among SSE Holdings, LLC, the Guarantors party thereto, the Lenders party thereto, and JPMorgan Chase Bank, National Association, as Administrative Agent

31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

# Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Shake Shack Inc.
	(Registrant)

Date: May 7, 2021	By:	/s/ Randy Garutti
		Randy Garutti
		Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: May 7, 2021	By:	/s/ Tara Comonte
		Tara Comonte
		President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

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