Shake Shack Inc. (NYSE:SHAK) Q3 2023 Earnings Conference Call November 2, 2023 8:00 AM ET Company Participants Michael Oriolo – Senior Director-FP&A and Investor Relations Randy Garutti – Chief Executive Officer Katie Fogertey – Chief Financial Officer Conference Call Participants Brian Vaccaro – Raymond James Katherine Griffin – Bank of America Jim Sanderson – Northcoast Research Jeff Farmer – Gordon Haskett Brian Harper – Morgan Stanley Sharon Zackfia – William Blair Jake Bartlett – Truist Securities Mich ...

[Cautionary Note Regarding Forward-Looking Information](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Information) This section outlines forward-looking statements, identifying terminology and risks, with a disclaimer on public update obligations [Forward-Looking Statements Disclosure](index=4&type=section&id=Forward-Looking%20Statements%20Disclosure) This disclosure identifies forward-looking statements by specific terminology, outlines risks, and disclaims public update obligations - Forward-looking statements are identified by 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," and their negatives[4](index=4&type=chunk) - Factors that could cause actual results to differ materially include the continuing impact of the COVID-19 pandemic, ability to develop and open new Shacks, increased costs or shortages in supply/labor, inflationary pressures, management of digital capabilities, expansion into new channels, and ability to maintain/grow sales at existing Shacks[5](index=5&type=chunk) - The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law[6](index=6&type=chunk) [PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents unaudited condensed consolidated financial statements and notes, prepared under GAAP - The financial statements are unaudited and prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP")[33](index=33&type=chunk) - The financial statements include Condensed Consolidated Balance Sheets, Statements of Income (Loss), Statements of Comprehensive Income (Loss), Statements of Stockholders' Equity, and Statements of Cash Flows[8](index=8&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :--------------------------------------------------------------------------------------------- | :----------- | :----------- | | **ASSETS** | | | | Cash and cash equivalents | $190,020 | $230,521 | | Marketable securities | $94,957 | $80,707 | | Total current assets | $323,236 | $343,988 | | Property and equipment, net | $525,557 | $467,031 | | Operating lease assets | $397,870 | $367,488 | | TOTAL ASSETS | $1,564,856 | $1,494,862 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $152,177 | $147,718 | | Long-term debt | $245,375 | $244,589 | | Long-term operating lease liabilities | $463,370 | $427,227 | | Liabilities under tax receivable agreement, net of current portion | $235,614 | $234,893 | | Total liabilities | $1,122,858 | $1,075,114 | | Total stockholders' equity attributable to Shake Shack Inc. | $416,354 | $395,116 | | Non-controlling interests | $25,644 | $24,632 | | Total equity | $441,998 | $419,748 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $1,564,856 | $1,494,862 | [Condensed Consolidated Statements of Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20%28Loss%29) This section presents the condensed consolidated statements of income (loss), detailing revenues, expenses, and net income (loss) for the periods Condensed Consolidated Statements of Income (Loss) (in thousands, except per share amounts) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Shack sales | $264,980 | $219,501 | $771,044 | $639,346 | | Licensing revenue | $11,227 | $8,313 | $30,246 | $22,611 | | TOTAL REVENUE | $276,207 | $227,814 | $801,290 | $661,957 | | INCOME (LOSS) FROM OPERATIONS | $5,657 | $(4,826) | $7,216 | $(20,580) | | NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $7,627 | $(2,024) | $13,041 | $(13,374) | | Basic EPS | $0.19 | $(0.05) | $0.33 | $(0.34) | | Diluted EPS | $0.19 | $(0.05) | $0.31 | $(0.34) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the condensed consolidated statements of comprehensive income (loss), including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net income (loss) | $8,136 | $(2,311) | $13,737 | $(14,896) | | Change in foreign currency translation adjustment | $1 | $— | $(3) | $(2) | | COMPREHENSIVE INCOME (LOSS) | $8,137 | $(2,311) | $13,734 | $(14,898) | | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $7,628 | $(2,024) | $13,038 | $(13,376) | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section presents the condensed consolidated statements of stockholders' equity, showing changes in equity components over time - Total equity increased from **$419,748 thousand** as of December 28, 2022, to **$441,998 thousand** as of September 27, 2023[11](index=11&type=chunk)[22](index=22&type=chunk) - Accumulated deficit improved from **$(20,537) thousand** at December 28, 2022, to **$(7,496) thousand** at September 27, 2023, driven by net income[11](index=11&type=chunk)[22](index=22&type=chunk) - Equity-based compensation contributed **$11,438 thousand** to additional paid-in capital for the thirty-nine weeks ended September 27, 2023[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=15&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $90,591 | $54,335 | | Net cash used in investing activities | $(126,264) | $(95,212) | | Net cash used in financing activities | $(4,825) | $(4,529) | | Effect of exchange rate changes on cash and cash equivalents | $(3) | $(2) | | DECREASE IN CASH AND CASH EQUIVALENTS | $(40,501) | $(45,408) | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $190,020 | $256,998 | [Notes to Condensed Consolidated Financial Statements](index=16&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes to the condensed consolidated financial statements, clarifying accounting policies and specific line items - The notes provide detailed explanations for the financial statements, covering areas such as Nature of Operations, Summary of Significant Accounting Policies, Revenue, Fair Value Measurements, Debt, Leases, Non-Controlling Interests, Equity-Based Compensation, Income Taxes, and Earnings (Loss) Per Share[30](index=30&type=chunk) [Note 1: Nature of Operations](index=17&type=section&id=Note%201%3A%20Nature%20of%20Operations) This note describes the company's business, ownership structure, and system-wide Shack count - Shake Shack Inc. is the sole managing member of SSE Holdings, LLC, owning **93.3%** of SSE Holdings as of September 27, 2023[31](index=31&type=chunk) - As of September 27, 2023, there were **495 Shacks** in operation system-wide, comprising **280 domestic Company-operated**, **39 domestic licensed**, and **176 international licensed Shacks**[32](index=32&type=chunk) [Note 2: Summary of Significant Accounting Policies](index=17&type=section&id=Note%202%3A%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies used in preparing the unaudited condensed consolidated financial statements - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP and are consistent with the accounting policies described in the Annual Report on Form 10-K for the fiscal year ended December 28, 2022[33](index=33&type=chunk) - Certain marketing expenses for prior periods were reclassified from Other operating expenses to General and administrative expenses to conform with current presentation, with no effect on previously reported Net Loss[34](index=34&type=chunk) - Shake Shack Inc. consolidates SSE Holdings, LLC, as it is the primary beneficiary and sole managing member[35](index=35&type=chunk) [Note 3: Revenue](index=18&type=section&id=Note%203%3A%20Revenue) This note details the company's revenue recognition policies and disaggregates revenue by type - Revenue primarily consists of Shack sales (recognized at point of sale) and Licensing revenue (including initial territory fees, Shack opening fees, and ongoing sales-based royalty fees)[39](index=39&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Gift card breakage income for the thirty-nine weeks ended September 27, 2023, was **$238 thousand**, compared to **$1,415 thousand** in the prior year, which included a cumulative catch-up adjustment of **$1,281 thousand**[41](index=41&type=chunk) Revenue Disaggregated by Type (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Shack sales | $264,980 | $219,501 | $771,044 | $639,346 | | Sales-based royalties | $10,898 | $8,050 | $29,388 | $21,936 | | Initial territory and opening fees | $329 | $263 | $858 | $675 | | **Total revenue** | **$276,207** | **$227,814** | **$801,290** | **$661,957** | [Note 4: Fair Value Measurements](index=19&type=section&id=Note%204%3A%20Fair%20Value%20Measurements) This note provides information on fair value measurements for financial instruments, including investments - The carrying values of Cash and cash equivalents, Accounts receivable, net, Accounts payable, and Accrued expenses approximate fair value due to their short-term nature[48](index=48&type=chunk) Investments (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :------------------------ | :----------- | :----------- | | Equity securities | $— | $80,707 | | Held-to-maturity securities | $94,957 | $— | | **Total investments** | **$94,957** | **$80,707** | - Held-to-maturity securities, primarily U.S. Treasuries, had an estimated fair value of **$95,213 thousand** as of September 27, 2023, with contractual maturities less than 12 months[50](index=50&type=chunk) [Note 5: Supplemental Balance Sheet Information](index=20&type=section&id=Note%205%3A%20Supplemental%20Balance%20Sheet%20Information) This note provides supplemental details for various balance sheet accounts, including prepaid expenses and other liabilities Prepaid expenses and other current assets (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :---------------------------------- | :----------- | :----------- | | Prepaid expenses | $6,689 | $3,815 | | Tenant allowance receivables | $12,128 | $10,121 | | Other | $945 | $763 | | **Total** | **$19,762** | **$14,699** | Other current liabilities (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :---------------------------------- | :----------- | :----------- | | Sales tax payable | $5,521 | $5,363 | | Gift card liability | $1,972 | $2,285 | | Current portion of financing equipment lease liabilities | $3,235 | $2,546 | | Legal reserve | $2,620 | $6,285 | | Other | $4,174 | $3,073 | | **Total** | **$17,522** | **$19,552** | Other long-term liabilities (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :---------------------------------- | :----------- | :----------- | | Deferred licensing revenue | $16,709 | $14,340 | | Long-term portion of financing equipment lease liabilities | $8,215 | $3,909 | | Other | $1,398 | $2,438 | | **Total** | **$26,322** | **$20,687** | [Note 6: Debt](index=21&type=section&id=Note%206%3A%20Debt) This note details the company's debt instruments, including convertible senior notes and the revolving credit facility - The Company has **$250,000 thousand** aggregate principal amount of 0% Convertible Senior Notes due 2028, with a fair value of **$181,408 thousand** as of September 27, 2023[57](index=57&type=chunk)[59](index=59&type=chunk) Long-term debt (in thousands) | Metric | Sep 27, 2023 | Dec 28, 2022 | | :------------------------------------ | :----------- | :----------- | | Convertible Notes | $250,000 | $250,000 | | Discount and debt issuance costs, net of amortization | $(4,625) | $(5,411) | | **Long-term debt** | **$245,375** | **$244,589** | - The Revolving Credit Facility permits borrowings up to **$50,000 thousand** (with an ability to increase to an additional **$100,000 thousand**) and matures on March 5, 2026[61](index=61&type=chunk) No amounts were outstanding as of September 27, 2023, and the Company was in compliance with all covenants[62](index=62&type=chunk) [Note 7: Leases](index=22&type=section&id=Note%207%3A%20Leases) This note describes the company's lease arrangements, including operating and finance leases, and associated costs and liabilities - The Company leases all domestic Company-operated Shacks, the home office, and certain equipment under non-cancelable lease agreements expiring through 2044, with real estate leases classified as operating leases and most equipment leases as finance leases[64](index=64&type=chunk)[65](index=65&type=chunk) Total Lease Cost (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :---------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Operating lease cost | $17,177 | $15,178 | $49,775 | $43,188 | | Finance lease cost | $1,099 | $805 | $2,681 | $2,437 | | Short-term lease cost | $206 | $264 | $719 | $395 | | **Total lease cost** | **$22,970** | **$20,134** | **$66,115** | **$57,014** | Future Minimum Lease Payments as of September 27, 2023 (in thousands) | Year | Operating Leases | Finance Leases | | :--------- | :--------------- | :------------- | | Total minimum payments | $657,357 | $12,917 | | Less: imputed interest | $158,505 | $1,467 | | **Total lease liabilities** | **$498,852** | **$11,450** | [Note 8: Non-Controlling Interests](index=25&type=section&id=Note%208%3A%20Non-Controlling%20Interests) This note explains the non-controlling interests in SSE Holdings, LLC, and their impact on consolidated financial results - Shake Shack Inc. consolidates SSE Holdings, LLC, and reports a non-controlling interest representing the economic interest held by other members of SSE Holdings[79](index=79&type=chunk) Ownership Interest in SSE Holdings as of September 27, 2023 | Holder | LLC Interests | Ownership % | | :------------------------------------------------- | :------------ | :---------- | | Number of LLC Interests held by Shake Shack Inc. | 39,466,268 | 93.3% | | Number of LLC Interests held by non-controlling interest holders | 2,834,513 | 6.7% | | **Total LLC Interests outstanding** | **42,300,781** | **100.0%** | - Net income attributable to non-controlling interests for the thirty-nine weeks ended September 27, 2023, was **$696 thousand**, an improvement from a loss of **$(1,522) thousand** in the prior year[83](index=83&type=chunk) [Note 9: Equity-Based Compensation](index=27&type=section&id=Note%209%3A%20Equity-Based%20Compensation) This note details the company's equity-based compensation plans and the associated expense recognized Equity-Based Compensation Expense (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Performance stock units | $391 | $1,053 | $2,450 | $3,476 | | Restricted stock units | $3,095 | $2,462 | $8,770 | $6,679 | | **Total expense** | **$3,486** | **$3,515** | **$11,220** | **$10,155** | - The majority of equity-based compensation expense is recognized in General and administrative expenses, totaling **$10,254 thousand** for the thirty-nine weeks ended September 27, 2023[87](index=87&type=chunk) [Note 10: Income Taxes](index=28&type=section&id=Note%2010%3A%20Income%20Taxes) This note provides information on the company's income tax expense, effective tax rates, and tax receivable agreement obligations - SSE Holdings is treated as a partnership for U.S. federal and most state/local income tax purposes, with Shake Shack Inc. subject to taxes on its allocable share of income/loss[88](index=88&type=chunk) Effective Income Tax Rates | Period | Sep 27, 2023 | Sep 28, 2022 | | :-------------------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 6.1% | 39.5% | | Thirty-Nine Weeks Ended | 11.3% | 25.5% | - The total obligations under the Tax Receivable Agreement were **$235,614 thousand** as of September 27, 2023, representing **85%** of expected tax benefits from increases in tax basis due to LLC Interest redemptions[97](index=97&type=chunk) [Note 11: Earnings (Loss) Per Share](index=30&type=section&id=Note%2011%3A%20Earnings%20%28Loss%29%20Per%20Share) This note presents the basic and diluted earnings (loss) per share calculations for Class A common stock Basic and Diluted EPS for Class A Common Stock | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Basic EPS | $0.19 | $(0.05) | $0.33 | $(0.34) | | Diluted EPS | $0.19 | $(0.05) | $0.31 | $(0.34) | - Potentially dilutive securities, including stock options, performance stock units, restricted stock units, Class B common stock, and Convertible Notes, were excluded from diluted EPS computations when their effect would have been anti-dilutive[102](index=102&type=chunk) [Note 12: Supplemental Cash Flow Information](index=31&type=section&id=Note%2012%3A%20Supplemental%20Cash%20Flow%20Information) This note provides supplemental cash flow details, including cash paid for taxes and interest, and non-cash investing activities Supplemental Cash Flow Information (in thousands) for Thirty-Nine Weeks Ended | Metric | Sep 27, 2023 | Sep 28, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Cash paid for income taxes, net of refunds | $3,147 | $2,904 | | Cash paid for interest, net of amounts capitalized | $343 | $179 | | Accrued purchases of property and equipment (non-cash investing) | $30,096 | $31,593 | | Establishment of liabilities under tax receivable agreement (non-cash financing) | $721 | $847 | [Note 13: Commitments and Contingencies](index=32&type=section&id=Note%2013%3A%20Commitments%20and%20Contingencies) This note outlines the company's material commitments and contingencies, including lease obligations and the Tax Receivable Agreement - The Company is obligated under various operating leases for Shacks and its home office, with terms expiring through 2044[105](index=105&type=chunk) - Purchase obligations, including commitments for real estate, inventory, equipment, marketing, software, and services, are generally short-term in nature[106](index=106&type=chunk) - Total obligations under the Tax Receivable Agreement were **$235,614 thousand** as of September 27, 2023, contingent on future taxable income[108](index=108&type=chunk) [Note 14: Related Party Transactions](index=32&type=section&id=Note%2014%3A%20Related%20Party%20Transactions) This note discloses transactions with related parties, including licensing revenue and operating expenses - The Company has related party transactions with Hudson Yards Sports and Entertainment (HYSE), Madison Square Park Conservancy (MSP Conservancy), Olo, Inc., and Block, Inc., due to shared board members or executive officers[109](index=109&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk) Key Related Party Transactions (in thousands) for Thirty-Nine Weeks Ended Sep 27, 2023 | Related Party | Transaction Type | Amount | | :-------------------------------- | :-------------------------------- | :----- | | Hudson Yards Sports and Entertainment | Licensing revenue | $728 | | Madison Square Park Conservancy | Occupancy and related expenses | $672 | | Olo, Inc. | Other operating expenses | $423 | | Block, Inc. | Other operating expenses | $6,105 | - Distributions paid to non-controlling interest holders for the thirty-nine weeks ended September 27, 2023, were **$131 thousand**, down from **$389 thousand** in the prior year[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, covering business, operations, non-GAAP measures, liquidity, and accounting policies - The discussion covers the Company's financial position, results of operations, plans, objectives, future performance, and business, emphasizing its 'fine casual' concept and 'Stand For Something Good' mission[122](index=122&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Overview](index=37&type=section&id=Overview) This section provides a high-level overview of the company's business, operational highlights, and key performance indicators for the period - As of September 27, 2023, there were **495 Shacks** in operation system-wide, including **280 domestic Company-operated**, **39 domestic licensed**, and **176 international licensed Shacks**[127](index=127&type=chunk) - Same-Shack sales increased **2.3%** for the thirteen weeks ended September 27, 2023, driven by a **6.5%** increase in price mix, partially offset by a **4.2%** decrease in guest traffic[128](index=128&type=chunk) - System-wide sales increased **24.3%** to **$438.9 million** for the thirteen weeks ended September 27, 2023[130](index=130&type=chunk) - Digital sales increased **5.4%** to **$83.2 million** for the thirteen weeks ended September 27, 2023, representing **31.4%** of Shack sales[130](index=130&type=chunk) - During Q3 2023, the Company opened **10 new domestic Company-operated Shacks**, **4 new domestic licensed Shacks**, and **11 new international licensed Shacks**[131](index=131&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenues and expenses, explaining period-over-period changes and their drivers Key Financial Highlights (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | TOTAL REVENUE | $276,207 | $227,814 | $801,290 | $661,957 | | INCOME (LOSS) FROM OPERATIONS | $5,657 | $(4,826) | $7,216 | $(20,580) | | NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $7,627 | $(2,024) | $13,041 | $(13,374) | [Shack Sales](index=39&type=section&id=Shack%20Sales) This section analyzes the changes in Shack sales, attributing growth to new openings and menu price increases Shack Sales (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $264,980 | $219,501 | +20.7% | | Thirty-Nine Weeks Ended | $771,044 | $639,346 | +20.6% | - The increase in Shack sales was primarily due to the opening of **48 new domestic Company-operated Shacks** (contributing **$40.7 million** for 13 weeks and **$86.7 million** for 39 weeks) and increased menu prices (contributing **$20.0 million** for 13 weeks and **$55.0 million** for 39 weeks)[137](index=137&type=chunk) [Licensing Revenue](index=40&type=section&id=Licensing%20Revenue) This section analyzes the growth in licensing revenue, driven by new licensed Shacks and higher sales at existing locations Licensing Revenue (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $11,227 | $8,313 | +35.1% | | Thirty-Nine Weeks Ended | $30,246 | $22,611 | +33.8% | - The increases were primarily due to the opening of **45 net new licensed Shacks** (contributing **$1.9 million** for 13 weeks and **$4.1 million** for 39 weeks) and higher sales at existing licensed Shacks, particularly domestic airports[139](index=139&type=chunk) [Food and Paper Costs](index=40&type=section&id=Food%20and%20Paper%20Costs) This section analyzes food and paper costs, including their percentage of Shack sales and key drivers like commodity prices Food and Paper Costs (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Shack Sales (2023) | % of Shack Sales (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :---------------------- | :---------------------- | | Thirteen Weeks Ended | $77,180 | $67,774 | +13.9% | 29.1% | 30.9% | | Thirty-Nine Weeks Ended | $224,752 | $193,645 | +16.1% | 29.1% | 30.3% | - The decrease as a percentage of Shack sales was primarily driven by menu price increases, partially offset by increased commodity costs, particularly in beef and fries[142](index=142&type=chunk) [Labor and Related Expenses](index=41&type=section&id=Labor%20and%20Related%20Expenses) This section analyzes labor and related expenses, including their percentage of Shack sales and factors like wage increases and efficiencies Labor and Related Expenses (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Shack Sales (2023) | % of Shack Sales (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :---------------------- | :---------------------- | | Thirteen Weeks Ended | $76,233 | $64,638 | +17.9% | 28.8% | 29.4% | | Thirty-Nine Weeks Ended | $225,655 | $190,954 | +18.2% | 29.3% | 29.9% | - The decrease as a percentage of Shack sales was primarily due to labor efficiencies and sales leverage, partially offset by increased wages[145](index=145&type=chunk) [Other Operating Expenses](index=41&type=section&id=Other%20Operating%20Expenses) This section analyzes other operating expenses, including their percentage of Shack sales and drivers such as repair costs and delivery commissions Other Operating Expenses (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Shack Sales (2023) | % of Shack Sales (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :---------------------- | :---------------------- | | Thirteen Weeks Ended | $37,307 | $33,680 | +10.8% | 14.1% | 15.3% | | Thirty-Nine Weeks Ended | $108,352 | $96,002 | +12.9% | 14.1% | 15.0% | - The decrease as a percentage of Shack sales was primarily driven by decreased repair and maintenance expenses, lower delivery commissions due to a shift in channel mix, and sales leverage[148](index=148&type=chunk) [Occupancy and Related Expenses](index=42&type=section&id=Occupancy%20and%20Related%20Expenses) This section analyzes occupancy and related expenses, including their percentage of Shack sales and factors like rent and common area maintenance Occupancy and Related Expenses (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Shack Sales (2023) | % of Shack Sales (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :---------------------- | :---------------------- | | Thirteen Weeks Ended | $20,300 | $17,337 | +17.1% | 7.7% | 7.9% | | Thirty-Nine Weeks Ended | $58,684 | $50,270 | +16.7% | 7.6% | 7.9% | - The decrease as a percentage of Shack sales was primarily driven by sales leverage and lower base rent, partially offset by an increase in common area maintenance charges for the thirty-nine-week period[151](index=151&type=chunk) [General and Administrative Expenses](index=42&type=section&id=General%20and%20Administrative%20Expenses) This section analyzes general and administrative expenses, including their percentage of total revenue and drivers like wages and professional fees General and Administrative Expenses (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Total Revenue (2023) | % of Total Revenue (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :------------------------ | :------------------------ | | Thirteen Weeks Ended | $30,939 | $26,931 | +14.9% | 11.2% | 11.8% | | Thirty-Nine Weeks Ended | $93,726 | $87,804 | +6.7% | 11.7% | 13.3% | - The increase was primarily due to increased wages and other team costs, professional fees related to a non-recurring matter (**$2.3 million** for 39 weeks), and investments in marketing and technology initiatives[153](index=153&type=chunk) [Depreciation and Amortization Expense](index=43&type=section&id=Depreciation%20and%20Amortization%20Expense) This section analyzes depreciation and amortization expense, including its percentage of total revenue and impact from new Shack openings and technology Depreciation and Amortization Expense (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Total Revenue (2023) | % of Total Revenue (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :------------------------ | :------------------------ | | Thirteen Weeks Ended | $23,130 | $18,647 | +24.0% | 8.4% | 8.2% | | Thirty-Nine Weeks Ended | $66,704 | $53,589 | +24.5% | 8.3% | 8.1% | - The increases were predominantly due to incremental depreciation of capital expenditures related to the opening of **48 new domestic Company-operated Shacks** and technology projects placed into service[156](index=156&type=chunk) [Pre-Opening Costs](index=43&type=section&id=Pre-Opening%20Costs) This section analyzes pre-opening costs, including their percentage of total revenue and factors like wages and legal costs for new Shacks Pre-Opening Costs (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | % of Total Revenue (2023) | % of Total Revenue (2022) | | :-------------------------------- | :----------- | :----------- | :------- | :------------------------ | :------------------------ | | Thirteen Weeks Ended | $4,969 | $3,041 | +63.4% | 1.8% | 1.3% | | Thirty-Nine Weeks Ended | $14,103 | $8,576 | +64.4% | 1.8% | 1.3% | - The increase was primarily due to increased wages and benefits for Shack teams, occupancy expense, legal costs, and smallwares related to the timing of Shack openings[159](index=159&type=chunk) [Impairment and Loss on Disposal of Assets](index=43&type=section&id=Impairment%20and%20Loss%20on%20Disposal%20of%20Assets) This section analyzes impairment and loss on disposal of assets, detailing changes due to abandoned projects and maturing Shacks Impairment and Loss on Disposal of Assets (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $492 | $592 | -16.9% | | Thirty-Nine Weeks Ended | $2,098 | $1,697 | +23.6% | - The decrease for the thirteen-week period was due to a reduction in abandoned construction projects, while the increase for the thirty-nine-week period was due to the number of Shacks maturing in the base and disposal of home office assets[162](index=162&type=chunk) [Other Income, Net](index=44&type=section&id=Other%20Income%2C%20Net) This section analyzes other income, net, highlighting the significant increase driven by higher interest income from cash equivalents Other Income, Net (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $3,441 | $1,482 | +132.2% | | Thirty-Nine Weeks Ended | $9,505 | $1,731 | +449.1% | - The increases were primarily due to a significant increase in income from cash equivalents (**$1.2 million** for 13 weeks and **$6.2 million** for 39 weeks) resulting from increased interest rates[164](index=164&type=chunk) [Interest Expense](index=44&type=section&id=Interest%20Expense) This section analyzes interest expense, detailing changes influenced by sales tax audit assessments and finance lease charges Interest Expense (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $(433) | $(475) | -8.8% | | Thirty-Nine Weeks Ended | $(1,241) | $(1,145) | +8.4% | - The decrease for the thirteen-week period was primarily due to decreased various sales tax audit assessment charges, partially offset by increased finance lease charges[166](index=166&type=chunk) The increase for the thirty-nine-week period was primarily due to increased finance lease charges[166](index=166&type=chunk) [Income Tax Expense (Benefit)](index=45&type=section&id=Income%20Tax%20Expense%20%28Benefit%29) This section analyzes income tax expense (benefit) and effective tax rates, explaining changes due to pre-tax income shifts and permanent differences Income Tax Expense (Benefit) (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Thirteen Weeks Ended | $529 | $(1,508) | -135.1% | | Thirty-Nine Weeks Ended | $1,743 | $(5,098) | -134.2% | Effective Income Tax Rates | Period | Sep 27, 2023 | Sep 28, 2022 | | :-------------------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 6.1% | 39.5% | | Thirty-Nine Weeks Ended | 11.3% | 25.5% | - The decrease in effective income tax rates was primarily driven by the change from pre-tax loss to income and the impact of permanent differences (primarily tax credits)[169](index=169&type=chunk)[170](index=170&type=chunk) [Net Income (Loss) Attributable to Non-Controlling Interests](index=45&type=section&id=Net%20Income%20%28Loss%29%20Attributable%20to%20Non-Controlling%20Interests) This section analyzes net income (loss) attributable to non-controlling interests, noting improvements due to net results and ownership changes Net Income (Loss) Attributable to Non-Controlling Interests (in thousands) | Period | Sep 27, 2023 | Sep 28, 2022 | | :-------------------------------- | :----------- | :----------- | | Thirteen Weeks Ended | $509 | $(287) | | Thirty-Nine Weeks Ended | $696 | $(1,522) | - The improvements were primarily due to an increase in net results compared to the same periods last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership (**6.7%** for 2023 vs. **6.8-6.9%** for 2022)[173](index=173&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=46&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section discusses the company's non-GAAP financial measures, including Shack-level operating profit, EBITDA, and adjusted pro forma net income - The Company uses non-GAAP financial measures, including Shack-level operating profit, EBITDA, adjusted EBITDA, adjusted pro forma net income (loss), and adjusted pro forma earnings (loss) per fully exchanged and diluted share, to supplement GAAP financial statements[174](index=174&type=chunk) - These measures are used internally by management for budgeting, forecasting, and assessing performance, and are believed to provide useful insights into the underlying operating performance of Shacks and the Company as a whole[176](index=176&type=chunk)[182](index=182&type=chunk)[189](index=189&type=chunk) [Shack-Level Operating Profit](index=46&type=section&id=Shack-Level%20Operating%20Profit) This section defines and presents Shack-level operating profit and margin, a key non-GAAP measure of restaurant performance - Shack-level operating profit is defined as Shack sales less Shack-level operating expenses (Food and paper costs, Labor and related expenses, Other operating expenses, and Occupancy and related expenses)[175](index=175&type=chunk) Shack-Level Operating Profit and Margin (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Shack-level operating profit | $53,960 | $36,072 | $153,601 | $108,475 | | Shack-level operating profit margin | 20.4% | 16.4% | 19.9% | 17.0% | [EBITDA and Adjusted EBITDA](index=47&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) This section defines and presents EBITDA and Adjusted EBITDA, non-GAAP measures used to assess overall company performance - EBITDA is Net income (loss) before Interest expense (net of interest income), Income tax expense (benefit), and Depreciation and amortization expense[180](index=180&type=chunk) Adjusted EBITDA further excludes equity-based compensation, impairment and loss on disposal of assets, amortization of cloud-based software implementation costs, and certain non-recurring items[180](index=180&type=chunk) - In Q1 2023, the definition of Adjusted EBITDA was revised to exclude deferred lease costs and executive transition costs, with prior periods restated for comparability[181](index=181&type=chunk) EBITDA and Adjusted EBITDA (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | EBITDA | $30,950 | $15,303 | $82,020 | $34,740 | | Adjusted EBITDA | $35,784 | $19,807 | $100,399 | $53,141 | | Adjusted EBITDA margin | 13.0% | 8.7% | 12.5% | 8.0% | [Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings (Loss) Per Fully Exchanged and Diluted Share](index=48&type=section&id=Adjusted%20Pro%20Forma%20Net%20Income%20%28Loss%29%20and%20Adjusted%20Pro%20Forma%20Earnings%20%28Loss%29%20Per%20Fully%20Exchanged%20and%20Diluted%20Share) This section presents adjusted pro forma net income and EPS, assuming full exchange of LLC interests and adjusting for non-recurring items - Adjusted pro forma net income (loss) assumes the full exchange of all outstanding SSE Holdings, LLC membership interests for Class A common stock, adjusted for certain non-recurring items[187](index=187&type=chunk) Adjusted Pro Forma Net Income (Loss) (in thousands) | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Adjusted pro forma net income (loss) | $7,537 | $(2,322) | $15,127 | $(10,349) | Adjusted Pro Forma Earnings (Loss) Per Fully Exchanged Share — Diluted | Metric | Thirteen Weeks Ended Sep 27, 2023 | Thirteen Weeks Ended Sep 28, 2022 | Thirty-Nine Weeks Ended Sep 27, 2023 | Thirty-Nine Weeks Ended Sep 28, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Adjusted pro forma earnings (loss) per fully exchanged share — diluted | $0.17 | $(0.06) | $0.34 | $(0.25) | [LIQUIDITY AND CAPITAL RESOURCES](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's liquidity sources and uses, including cash flows, debt, and capital expenditure plans - Primary sources of liquidity include cash from operations, cash and cash equivalents (**$190.0 million** as of September 27, 2023), and availability under the Revolving Credit Facility[197](index=197&type=chunk) - Primary uses of liquidity are working capital needs, operating and finance lease obligations, capital expenditures (new Shacks, existing Shack investments, technology infrastructure), and general corporate needs[199](index=199&type=chunk) - The Company believes its existing cash and cash equivalents balances and cash from operations will be sufficient to fund its obligations for at least the next 12 months and the foreseeable future[201](index=201&type=chunk) [Summary of Cash Flows](index=51&type=section&id=Summary%20of%20Cash%20Flows) This section summarizes cash flow activities from operations, investing, and financing, detailing changes period-over-period Summary of Cash Flows (in thousands) for Thirty-Nine Weeks Ended | Metric | Sep 27, 2023 | Sep 28, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $90,591 | $54,335 | | Net cash used in investing activities | $(126,264) | $(95,212) | | Net cash used in financing activities | $(4,825) | $(4,529) | | Net decrease in Cash and cash equivalents | $(40,501) | $(45,408) | | Cash and cash equivalents at end of period | $190,020 | $256,998 | - Net cash provided by operating activities increased by **$36.3 million**, primarily due to a **$43.4 million** improvement in net results (excluding non-cash charges), partially offset by changes in working capital[204](index=204&type=chunk) - Net cash used in investing activities increased by **$31.1 million**, primarily due to a net increase in marketable securities activity and an **$18.2 million** increase in capital expenditures[205](index=205&type=chunk) [Convertible Notes](index=53&type=section&id=Convertible%20Notes) This section provides details on the company's 0% Convertible Senior Notes due 2028, including principal amount and conversion options - The Company issued **$250.0 million** aggregate principal amount of 0% Convertible Senior Notes due 2028, convertible into cash, Class A common stock, or a combination, at the Company's election[207](index=207&type=chunk) [Revolving Credit Facility](index=53&type=section&id=Revolving%20Credit%20Facility) This section describes the company's revolving credit facility, including borrowing capacity, maturity, and compliance with covenants - The Revolving Credit Facility permits borrowings up to **$50.0 million** (with an ability to increase to **$150.0 million**) and matures in March 2026[208](index=208&type=chunk) - The Fourth Amendment modified the benchmark interest rate to either the base rate plus applicable margin (**0.0% to 1.5%**) or SOFR plus applicable margin (**1.0% to 2.5%**)[208](index=208&type=chunk) - No amounts were outstanding under the Revolving Credit Facility as of September 27, 2023, and the Company was in compliance with all covenants[208](index=208&type=chunk)[209](index=209&type=chunk) [Contractual Obligations](index=53&type=section&id=Contractual%20Obligations) This section outlines the company's material contractual obligations, such as lease liabilities, long-term debt, and purchase commitments - Material contractual obligations include operating and finance lease obligations, long-term debt, liabilities under the Tax Receivable Agreement, and purchase obligations[210](index=210&type=chunk) - The majority of purchase obligations are due within the next 12 months[212](index=212&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=54&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section confirms no significant changes to the company's critical accounting policies and estimates since the last annual report - There have been no significant changes to the Company's critical accounting policies and estimates as disclosed in its Annual Report on Form 10-K for the fiscal year ended December 28, 2022[213](index=213&type=chunk) [Recently Issued Accounting Pronouncements](index=54&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 2 for information on recently issued accounting pronouncements relevant to the financial statements - Refer to Note 2, Summary of Significant Accounting Policies, for information on recently issued accounting pronouncements[214](index=214&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section reports no material changes to the company's market risk exposure since the prior annual report - There have been no material changes to the Company's exposure to market risks as described in Part II, Item 7A of its Annual Report on Form 10-K for the fiscal year ended December 28, 2022[215](index=215&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 27, 2023[216](index=216&type=chunk) - There were no changes to internal control over financial reporting that occurred during the quarter ended September 27, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[217](index=217&type=chunk) [PART II – OTHER INFORMATION](index=57&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part contains other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 for information on legal proceedings - Information required by this Item is incorporated by reference to Part I, Item 1, Note 13, Commitments and Contingencies[218](index=218&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section reports no material changes to the company's risk factors since the prior annual report - 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 28, 2022[219](index=219&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds for the period - None to report[219](index=219&type=chunk) [Item 3. Defaults Upon Senior Securities](index=57&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities for the period - None to report[219](index=219&type=chunk) [Item 5. Other Information](index=57&type=section&id=Item%205.%20Other%20Information) This section discloses a Rule 10b5-1 trading arrangement by the Chairman to sell Class A Common Stock - Daniel Meyer, Chairman of the Board of Directors, adopted a Rule 10b5-1 trading arrangement on August 8, 2023, to sell **100,000 shares** of Class A Common Stock by April 30, 2024[221](index=221&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including organizational documents, agreements, and certifications - Exhibits include the Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Letter Agreements, Fourth Amendment to Credit Agreement, and certifications (e.g., Section 302, Section 906)[223](index=223&type=chunk) [SIGNATURES](index=59&type=section&id=SIGNATURES) This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report [Report Signatures](index=59&type=section&id=Report%20Signatures) The report is officially signed by the Chief Executive Officer and Chief Financial Officer on November 3, 2023 - The report was signed by Randy Garutti, Chief Executive Officer, and Katherine I. Fogertey, Chief Financial Officer, on November 3, 2023[224](index=224&type=chunk)

Third Quarter 2023 Shareholder Letter 1 Garden City, RI Q3 2023 HIGHLIGHTS BUSINESS OVERVIEW THIRD QUARTER 2023 HIGHLIGHTS: • Total revenue grew 21.2% year-over-year to $276.2m. • Shack sales grew 20.7% year-over-year to $265.0m. • Licensing revenue grew 35.1% year-over-year to $11.2m. • System-wide sales grew 24.3% year-over-year to $438.9m. • Average weekly sales (AWS) grew 1.4% year-over-year to $74k. • Same-Shack sales (SSS) grew 2.3% year-over-year. • Operating income of $5.7m versus operating loss of ...

Financial Data and Key Metrics - Total revenue grew by 18% YoY to $272 million, with same-Shack sales up 3% and average weekly sales of $77,000 [8] - System-wide sales increased by 21% YoY to $426 million, driven by growth in the licensed business [8] - Shack-level operating profit reached 21%, the highest since 2019, marking a 240-basis point gain over last year [10] - Adjusted EBITDA grew by 61.9% YoY to $37.1 million, representing 13.6% of total revenue [25] - Net income attributable to Shake Shack Inc was $6.9 million, or $0.16 per diluted share [42] Business Line Performance - Company-operated business opened 10 new Shacks, with 23 under construction, targeting ~40 new Shacks in 2023 [8] - Licensed business opened 13 Shacks in Q2, targeting 35 new Shacks in 2023, representing 17% system-wide unit growth YoY [9] - Kiosk sales doubled YoY, with high single-digit lift in average order values, contributing to profitability [15][28] - Delivery traffic declined, while in-Shack traffic grew by 4.7%, with Kiosk adoption driving higher profitability [31] Market Performance - Domestic licensed business grew sales by over 50% YoY, led by airports and roadway locations [34] - Strong performance in China, with the first Shack opened in Thailand and a Resort Shack in the Bahamas [20][34] - Urban markets like Washington D C, Boston, and New York City performed well, with July same-Shack sales up 4.5% [34] Strategy and Industry Competition - Focus on recruiting, retaining, and rewarding a winning team, with improved retention and turnover rates [12] - Culinary strategy includes core menu improvements and limited-time offers (LTOs) to drive mix frequency and margins [14] - Drive-through expansion is a key focus, with 18 drive-throughs operating and plans to open ~15 in 2023 [17][18] - Digital investments, particularly in Kiosks, are a priority for enhancing guest experience and profitability [16][28] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of the consumer, particularly in higher-income segments, but acknowledged pressures from lower-income consumers trading down [74] - Beef inflation remains a key uncertainty, with high single-digit inflation in Q2 and potential for low double-digit inflation in Q3 [46][70] - The company is optimistic about reducing build costs by ~10% in 2024, driven by operational efficiencies and standardized formats [19][56] Other Important Information - The company ended Q2 with $295.2 million in cash and cash equivalents, up from $293.4 million in the prior quarter [43] - CapEx spending increased by 48% YoY to $40.4 million, driven by new Shack openings and Kiosk retrofits [43] - Full-year 2023 guidance includes total revenue of $1.07 billion to $1.08 billion, with same-Shack sales growth of low-to-mid single digits [47] Q&A Session Summary Question: Build cost reduction targets for 2024 - The company targets a 10% reduction in build costs for 2024, with improvements in both drive-through and traditional formats [54][56] Question: Labor efficiency improvements - Labor hours per Shack decreased by 50 hours per week YoY, driven by Kiosk adoption, dynamic labor scheduling, and improved training [77][80] Question: Consumer behavior and demand trends - The company noted resilience in higher-income consumers but acknowledged pressures from lower-income consumers trading down [74][75] Question: Kiosk impact on sales and labor - Kiosks drove a high single-digit lift in average order values, with early signs of labor savings and improved profitability [66][67] Question: Beef inflation and mitigation strategies - Beef inflation was high single digits in Q2, with potential for low double-digit inflation in Q3, but no hedging strategy is in place [70][71] Question: Guest experience and operational improvements - The company emphasized improving guest experience through Kiosks, standardized operations, and enhanced service, while reducing costs [82][85] Question: Marketing and brand awareness - The company plans to increase marketing spend to drive brand awareness, particularly in newer markets with lower brand recognition [94][108]

Part I – Financial Information [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited Q2 2023 financial statements detail improved net income, 17.8% revenue growth, and increased total assets to $1.53 billion [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 28, 2023, total assets increased to $1.53 billion, total liabilities rose to $1.10 billion, and total equity grew to $431.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2023 | December 28, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $329,518 | $343,988 | | **Total Assets** | **$1,532,816** | **$1,494,862** | | **Total Current Liabilities** | $150,185 | $147,718 | | **Total Liabilities** | **$1,101,457** | **$1,075,114** | | **Total Equity** | **$431,359** | **$419,748** | [Condensed Consolidated Statements of Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) Q2 2023 saw a turnaround to $7.2 million net income from a prior-year loss, with total revenue increasing 17.8% to $271.8 million Q2 2023 vs. Q2 2022 Income Statement (in thousands, except per share amounts) | Metric | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$271,805** | **$230,752** | **17.8%** | | Shack Sales | $261,810 | $223,054 | 17.4% | | Licensing Revenue | $9,995 | $7,698 | 29.8% | | **Income (Loss) from Operations** | **$4,748** | **($819)** | **N/A** | | **Net Income (Loss)** | **$7,223** | **($1,303)** | **N/A** | | **Diluted EPS** | **$0.16** | **($0.03)** | **N/A** | YTD 2023 vs. YTD 2022 Income Statement (in thousands, except per share amounts) | Metric | Twenty-Six Weeks Ended June 28, 2023 | Twenty-Six Weeks Ended June 29, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$525,083** | **$434,143** | **20.9%** | | **Income (Loss) from Operations** | **$1,559** | **($15,754)** | **N/A** | | **Net Income (Loss)** | **$5,601** | **($12,585)** | **N/A** | | **Diluted EPS** | **$0.13** | **($0.29)** | **N/A** | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to $62.2 million for H1 2023, while investing activities used $85.4 million, reducing cash and equivalents to $203.7 million Summary of Cash Flows (in thousands) | Activity | Twenty-Six Weeks Ended June 28, 2023 | Twenty-Six Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | **$62,191** | **$35,164** | | **Net Cash Used in Investing Activities** | **($85,415)** | **($55,454)** | | **Net Cash Used in Financing Activities** | **($3,596)** | **($3,782)** | | **Decrease in Cash and Cash Equivalents** | **($26,824)** | **($24,074)** | | **Cash and Cash Equivalents at End of Period** | **$203,697** | **$278,332** | [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, 471 system-wide Shacks, revenue sources, $250 million convertible notes, and $235.4 million in Tax Receivable Agreement liabilities - As of June 28, 2023, there were **471 Shacks** in operation system-wide, consisting of **270 domestic Company-operated Shacks**, **35 domestic licensed Shacks**, and **166 international licensed Shacks**[32](index=32&type=chunk) Revenue Disaggregation (in thousands) | Revenue Type | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | Shack sales | $261,810 | $223,054 | | Sales-based royalties | $9,712 | $7,486 | | Initial territory and opening fees | $283 | $212 | | **Total Revenue** | **$271,805** | **$230,752** | - The company has **$250 million** in aggregate principal of 0% Convertible Senior Notes due 2028. The fair value of these notes was approximately **$199.1 million** as of June 28, 2023[58](index=58&type=chunk)[60](index=60&type=chunk) - Total obligations under the Tax Receivable Agreement were **$235.4 million** as of June 28, 2023[96](index=96&type=chunk)[110](index=110&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights 21.2% system-wide sales growth, 3.0% same-Shack sales increase, improved Shack-level operating profit margin, and increased Adjusted EBITDA [Recent Business Trends](index=34&type=section&id=Recent%20Business%20Trends) Q2 2023 trends include a 3.0% Same-Shack sales increase driven by price/mix, average weekly sales of $77,000, and digital sales comprising 33.2% of Shack sales - **Same-Shack sales** for Q2 2023 increased **3.0% YoY**, driven by a **4.3% increase in price/mix** and a **1.3% decrease in guest traffic**[129](index=129&type=chunk) - Average weekly sales were **$77,000** for Q2 2023, up from **$76,000** in Q2 2022, primarily due to higher menu prices[130](index=130&type=chunk) - Digital sales, including app, website, and third-party delivery, accounted for **33.2% of Shack sales** in Q2 2023[130](index=130&type=chunk) [Development Highlights](index=35&type=section&id=Development%20Highlights) In Q2 2023, the company expanded its footprint by opening 10 new domestic company-operated and 13 new international licensed Shacks - In Q2 2023, Shake Shack opened **10 new domestic company-operated Shacks** and **13 new international licensed Shacks**[131](index=131&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q2 2023 total revenue increased 17.8% to $271.8 million, driven by Shack sales and licensing growth, with improved operating expense percentages leading to an operating income of $4.7 million Key Operating Metrics as a % of Shack Sales (Q2 2023 vs Q2 2022) | Expense Category | Q2 2023 (% of Shack Sales) | Q2 2022 (% of Shack Sales) | | :--- | :--- | :--- | | Food and paper costs | 29.0% | 29.6% | | Labor and related expenses | 28.7% | 29.5% | | Other operating expenses | 13.8% | 14.4% | | Occupancy and related expenses | 7.6% | 7.5% | - The increase in Shack sales for Q2 2023 was primarily due to the opening of **40 new domestic Company-operated Shacks** since Q2 2022, contributing **$31.2 million**, and increased menu prices, contributing **$17.2 million**[137](index=137&type=chunk) - General and administrative expenses increased **6.7%** to **$31.5 million**, partly due to **$1.7 million** in professional fees for a non-recurring matter[153](index=153&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) Q2 2023 non-GAAP metrics improved, with Shack-level operating profit increasing to $54.9 million (21.0% margin) and Adjusted EBITDA growing to $37.1 million (13.6% margin) Non-GAAP Financial Highlights (in thousands) | Metric | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | **Shack-level operating profit** | **$54,942** | **$42,408** | | Shack-level operating profit margin | 21.0% | 19.0% | | **Adjusted EBITDA** | **$37,050** | **$22,887** | | Adjusted EBITDA margin | 13.6% | 9.9% | | **Adjusted pro forma net income** | **$7,880** | **$131** | [Liquidity and Capital Resources](index=49&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of June 28, 2023, the company held $203.7 million in cash, with operating activities generating $62.2 million and investing activities using $85.4 million for H1 2023 - The company ended Q2 2023 with **$203.7 million** in cash and cash equivalents[195](index=195&type=chunk) - Net cash provided by operating activities for the first twenty-six weeks of 2023 was **$62.2 million**, a significant increase from **$35.2 million** in the same period of 2022[201](index=201&type=chunk)[202](index=202&type=chunk) - Capital expenditures for the first half of 2023 totaled **$74.8 million**, up from **$55.3 million** in the prior year period, reflecting increased investment in new store development[28](index=28&type=chunk)[204](index=204&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risk exposure have occurred since the last annual report - There have been no material changes to the company's market risk exposure since the last annual report[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[214](index=214&type=chunk) - No material changes were made to internal control over financial reporting during the quarter ended June 28, 2023[215](index=215&type=chunk) Part II – Other Information [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to ordinary course legal proceedings, with no material ultimate liability expected as of June 28, 2023 - Information regarding legal proceedings is incorporated by reference from Note 13, which states that the ultimate liability from ongoing legal matters is not material[108](index=108&type=chunk)[218](index=218&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported for the quarter - No material changes to the company's risk factors were reported for the quarter[219](index=219&type=chunk) [Item 5. Other Information](index=54&type=section&id=Item%205.%20Other%20Information) Director Jeff Flug adopted a Rule 10b5-1 trading arrangement on May 18, 2023, for the potential sale of 5,960 shares - Director Jeff Flug adopted a Rule 10b5-1 trading plan on May 18, 2023, covering the sale of **5,960 shares**[217](index=217&type=chunk)[220](index=220&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and various corporate agreements

Shake Shack Inc. (NYSE:SHAK) Q1 2023 Earnings Conference Call May 4, 2023 8:00 AM ET Company Participants Annalee Leggett - Director of Investor Relations & FP&A Randy Garutti - Chief Executive Officer Katie Fogertey - Chief Financial Officer Conference Call Participants Jeffrey Bernstein - Barclays Capital Michael Tamas - Oppenheimer & Co. Jake Bartlett - Truist Securities Drew North - Robert W. Baird & Co. Jim Sanderson - Northcoast Research Maggie O'Hearn - Raymond James John Ivankoe - JPMorgan Chase & C ...

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 29, 2023 OR 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 othe ...

Expansion and Growth - Shake Shack has expanded to over 400 locations globally, including over 260 in the U.S. and more than 140 international locations[13]. - In fiscal 2022, Shake Shack added 67 net new system-wide Shacks, reaching a total of 436 Shacks worldwide[96]. - The company expanded its domestic Company-operated footprint by opening 36 net new Shacks in 2022, representing a 17% increase from the prior fiscal year, totaling 254 domestic Company-operated Shacks[98]. - For 2023, Shake Shack is targeting to open approximately 40 new Company-operated Shacks as part of its multi-format strategy[100]. - In fiscal 2022, Shake Shack opened 25 international Shacks, including 13 in China and Hong Kong, and plans to expand into new markets like Guadalajara and Wuhan in 2023[106]. Workforce and Talent Development - As of December 28, 2022, Shake Shack employed 11,704 team members, with 11,316 being hourly team members and Shack-level managers[25]. - Shake Shack aims to improve its talent acquisition strategy by leveraging data and analytics to attract top talent in a competitive labor market[26]. - The company initiated a tipping program in 2022, allowing team members to increase their hourly pay through tips[32]. - Shake Shack has set 5-year diversity targets to increase representation of women and people of color within its leadership teams[34]. - In fiscal 2022, Shake Shack promoted 2,604 employees, with 55% being women and 77% underrepresented minorities[44]. - The Shift Up program had 86 participants in fiscal year 2022, achieving an 88% completion rate and a 91% retention rate[45]. Digital and Customer Experience - The company is focused on enhancing its digital capabilities and expanding delivery services, including investments in kiosks and drive-thrus[8]. - Digital guest experience improvements included the launch of a new Android app version with enhanced order modes and Google Pay integration[53][55]. - The company saw significant growth in digital sessions and mobile orders year over year, attributed to investments in guest experiences[49]. - Shake Shack introduced digital gift card redemption in Q4 2022, enhancing the guest experience and enabling B2B sales opportunities[57]. - The company implemented a new customer engagement platform, Gladly, improving hospitality case resolution time since its launch in August 2022[56]. - Shake Shack's digital marketing strategy, utilizing Braze, led to increased email and push notification subscriptions since its launch in June 2022[52]. Culinary Innovation and Menu Development - Shake Shack's culinary innovation includes collaborations with award-winning chefs and the introduction of limited-time offerings, such as the Bourbon Bacon Cheddar Burger and Chicken in May 2022[91]. - The company launched a non-dairy chocolate shake and frozen custard in May 2022, partnering with NotCo to cater to growing demand for plant-based options[94]. - Shake Shack's Innovation Kitchen allows for the exploration of new menu items and culinary creativity, contributing to the overall guest experience[90]. Community Engagement and Social Responsibility - The HUG Fund provided financial grants to 41 team members in fiscal 2022 to assist with financial burdens caused by catastrophic events[39]. - Shake Shack's community engagement included matching $1 for every sandwich purchased on new Shack opening days to local nonprofit partners[66]. - Shake Shack is committed to environmental responsibility, sourcing ingredients from suppliers that share its values, including non-GMO products and sustainable packaging[17]. Financial and Operational Insights - The average investment cost for a new Shack in fiscal 2022 was approximately $2.7 million, with costs ranging from $1.3 million to $4.1 million[110]. - Shake Shack plans to source 100% cage-free eggs for its global supply chain by 2025, already achieving this for the U.S. and U.K. supply chains[116]. - The company is focused on improving overall Shack margins back to pre-pandemic levels, emphasizing the need for full staffing and optimized throughput[115]. - Shake Shack has registered 23 trademarks domestically and core marks in 81 countries as of December 28, 2022, to protect its intellectual property[130]. - The company is subject to extensive regulations related to food safety, nutritional content, and employment, with compliance costs expected to rise in the future[132]. Risks and Challenges - Seasonal fluctuations impact sales, with year-over-year results affected by the timing of new Shack openings and potential changes in consumer behavior due to the COVID-19 pandemic[134]. - The company is exposed to commodity price risks, with significant increases in ingredient prices potentially impacting operating results if not offset by menu price increases[428]. - Foreign exchange risk affects international sales and licensing revenue, with a hypothetical 10% currency fluctuation potentially impacting operating income by approximately $2.5 million in 2022[429]. - Interest rate risk is present due to fluctuations on debt obligations, although the company had no outstanding borrowings under its Revolving Credit Facility as of December 28, 2022[430]. - Inflation impacts various operational costs, and simultaneous cost increases may hinder the company's ability to adjust prices without affecting consumer demand[431].

Shake Shack Inc. (NYSE:SHAK) Q4 2022 Earnings Conference Call February 16, 2023 8:00 AM ET Company Participants Annalee Leggett - Senior Manager of Investor Relations & FP&A Randy Garutti - Chief Executive Officer Katie Fogertey - Chief Financial Officer Conference Call Participants Lauren Silberman - Credit Suisse Mike Tamas - Oppenheimer & Co. Sharon Zackfia - William Blair Jake Bartlett - Truist Securities Peter Saleh - BTIG Andrew Charles - Cowen & Company David Tarantino - Baird Jim Sanderson - Northco ...

SHAKE 👍🏻 SHACK * I C R C O N F E R E N C E J A N U A R Y 1 0 , 2 0 2 3 f CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact included in this p ...