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. All statements other
than statements of historical fact are forward-looking statements.
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current fact, such as our expected financial outlook for
fiscal 2020, our expected operating performance for fiscal 2020, expected Shack
construction and openings, expected same-Shack sales growth and trends in our
business, including statements relating to the effects of COVID-19 and our
mitigation efforts. Forward-looking statements can also be identified by words
such as "aim," "anticipate," "believe," "estimate," "expect," "forecast,"
"future," "intend," "outlook," "plan," "potential," "predict," "project,"
"seek," "may," "can," "will," "would," "could," "should," the negatives thereof
and other similar expressions. Forward-looking statements are not guarantees of
future performance and actual results may differ significantly from the results
discussed in the forward-looking statements. All forward-looking statements are
expressly qualified in their entirety by these cautionary statements. Factors
that might cause such differences include, but are not limited to, those
discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal
year ended December 25, 2019 ("2019 Form 10-K") and Part II, Item 1A of this
Quarterly Report on Form 10-Q. The following discussion should be read in
conjunction with our 2019 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. We undertake no obligation to revise or update any forward-looking
statements for any reason, except as required by law.
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 June 24, 2020, there were 292
Shacks in operation system-wide, of which 171 were domestic company-operated
Shacks, 22 were domestic licensed Shacks and 99 were international licensed
Shacks.
COVID-19 Update
We have experienced gradual improvement in the business during the second
quarter of 2020, and third quarter to date. The speed of our recovery has
differed depending on the location of our Shacks, with those Shacks concentrated
in urban areas, such as New York City, most impacted by the COVID-19 outbreak.
Urban Shacks represent approximately half the Shacks in the comparable base, yet
accounted for approximately 60% of our same-Shack sales prior to the COVID-19
outbreak. During the second quarter of 2020, same-Shack sales in our urban
Shacks were down 57% and suburban Shacks were down 38% compared to the same
period last year. Subsequent to the second quarter of 2020, in fiscal July 2020,
same-Shack sales for our urban Shacks were down 50% and suburban Shacks were
down 24% compared to the same period last year. As of July 22, approximately 95%
of domestic company-operated Shacks were open.
As in-Shack ordering has increased over recent weeks, digital sales mix has
continued to shift. During the second quarter total digital sales represented
75% of total Shack sales and more than doubled compared to the first quarter of
2020. Our native web and app channels more than tripled compared to the same
period last year, and when combined, continued to be the fastest growing
channels throughout Q2 and into July. For fiscal July, digital sales represented
62% of total Shack sales, retaining over 90% of the digital sales that were
achieved during fiscal May even as in-Shack sales have gradually returned. In
addition, we have welcomed over 800,000 first time purchasers via our own
digital channels since early March, which is nearly four times higher than in
the same period last year. We expect digital channels to remain a significant
component of sales and ongoing growth.
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The following table presents fiscal monthly information about our current trends
in Shack sales.
                                   First Quarter                         Second Quarter                                               Third Quarter

(dollar amounts in thousands)         March 25            April 22           May 20            June 24           July 22
Average weekly sales*             $        56            $     32          $     50          $     52          $     56
Total year-over-year sales growth
(decline)                                 (11)   %            (56) %            (32) %            (32) %            (23) %
Same-Shack sales %                        (29)   %            (64) %            (42) %            (42) %            (39) %



*Average weekly sales is calculated by dividing total Shack sales by the number
of operating weeks for all Shacks in operation during the period. For Shacks
that are not open for the entire period, fractional adjustments are made to the
number of operating weeks open such that it corresponds to the period of
associated sales.

Our licensed business has shown gradual improvement across all regions as
approximately 80% of licensed Shacks have reopened. All Shacks in Hong Kong,
mainland China, Japan and Korea (with the exception of the Incheon Airport
Shack) are now open although in most cases with limited hours and smaller
capacity dining rooms. In the Middle East, the majority of Shacks have re-opened
primarily for take-out and delivery with dining rooms slowly starting to open
across the region. Approximately half the Shacks in the United Kingdom are fully
reopened. Nearly all domestic stadium and event venues remain closed. Half of
all airport locations are open but operating at severely reduced sales levels
while air travel remains at a fraction of its volume prior to the COVID-19
outbreak. As an example of the dynamic and quickly evolving environment, the
Shack located in Terminal 3 of the LAX airport will not reopen, as the airport
has chosen to take this time to tear down and replace the terminal entirely.

The following table presents fiscal monthly information about our licensed sales
trends.
                                    First Quarter                        Second Quarter                                              Third Quarter

(dollar amounts in millions)          March 25            April 22           May 20           June 24           July 22
Weekly licensed sales(1)           $        4.6          $    2.0          $   2.4          $    3.5          $    4.6
Total year-over-year licensed                13  %            (65) %           (58) %            (47) %            (32) %
sales growth (decline)
Number of open licensed Shacks               96                56               59                91                98


* Weekly licensed sales is an operating measure and consists of sales from
domestic licensed Shacks and international licensed Shacks. We do not recognize
the sales from licensed Shacks as revenue. Of these amounts, revenue is limited
to licensing revenue based on a percentage of sales from domestic and
international licensed Shacks, as well as certain up-front fees such as
territory fees and opening fees.
Development Highlights
During the second quarter ended June 24, 2020, we opened four new domestic
Shacks with new locations in Topanga, Sacramento, Charlotte and St. Louis. With
gradual sales recovery, primarily across most markets outside of New York City,
we have restarted new Shack development. We expect to open between 6 and 11
additional domestic company-operated Shacks, back weighted towards the end of
this year, for a total of 15 to 20 for the full year. However, given the ongoing
uncertainties around construction, local government restrictions, and the
broader operating environment during COVID-19, this number may be subject to
change as target dates potentially shift.
During the second quarter ended June 24, 2020, we opened one new international
licensed Shack in China at the Shanghai Hongqiao International Airport. In
fiscal June, we expanded our partnership with licensee Maxim's Caterers Limited
which targets a development agreement of 15 Shacks in South China by 2030,
including locations in Shenzhen, Guangzhou and more. Through this expanded
partnership, this agreement increases development targets for mainland China to
55 Shacks by 2030, of which five Shacks are open today.

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Financial Highlights for the Second Quarter 2020 compared to the Second Quarter
2019:
?Total revenue decreased 39.9% to $91.8 million.
?Shack sales decreased 39.5% to $89.5 million.
?Same-Shack sales decreased 49.0%.
?Licensed revenue decreased 53.1% to $2.3 million.
?Shack system-wide sales decreased 45.2% to $123.8 million.
?Operating loss of $24.1 million compared to operating income of $11.9 million
in the prior year second quarter.
?Shack-level operating profit*, a non-GAAP measure, decreased 94.7% to $1.9
million, or 2.2% of Shack sales.
?Net loss was $18.0 million and adjusted EBITDA*, a non-GAAP measure, was a loss
of $8.8 million, compared to net income of $11.2 million and adjusted EBITDA of
$25.9 million in the prior year second quarter.
?Net loss attributable to Shake Shack Inc. was $16.2 million and adjusted pro
forma net loss*, a non-GAAP measure, was $18.3 million, or a loss of $0.45 per
fully exchanged and diluted share, compared to net income attributable to Shake
Shack Inc. of $9.0 million, adjusted pro forma net income of $10.2 million, or
$0.27 per fully exchanged and diluted share, in the prior year second quarter.
?Five system-wide Shack openings, comprised of four domestic company-operated
Shacks and one licensed Shack.
?As of June 24, 2020, we had $190.8 million in cash and marketable securities on
hand.

* Shack-level operating profit, adjusted EBITDA and adjusted pro forma net
income (loss) are non-GAAP measures. Reconciliations of Shack-level operating
profit to operating income (loss) and adjusted EBITDA to net income (loss), the
most directly comparable financial measures presented in accordance with GAAP,
are set forth in the schedules within "Non-GAAP Financial Measures," herein.
FISCAL 2020 OUTLOOK


Given the substantial uncertainty and subsequent material economic impact caused
by the COVID-19 pandemic, we have withdrawn our guidance for the fiscal year
ending December 30, 2020.
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RESULTS OF OPERATIONS


The following table summarizes our results of operations for the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019:


                                                                                                                       Thirteen Weeks Ended                                                                                   Twenty-Six Weeks Ended
                                                                                                                                    June 24                                                         June 26                                  June 24             June 26
(dollar amounts in thousands)                                                                                                          2020                                                            2019                                     2020                2019
Shack sales                                                                                           $  89,519         97.5  %             $ 147,876         96.8  %             $ 227,567         96.9  %             $ 276,445      96.9  %
Licensing revenue                                                                                         2,267          2.5  %                 4,837          3.2  %                 7,389          3.1  %                 8,877       3.1  %
TOTAL REVENUE                                                                                            91,786        100.0  %               152,713        100.0  %               234,956        100.0  %               285,322     100.0  %
Shack-level operating expenses(1):
                         Food and paper costs                                               30,027         33.5  %                42,899         29.0  %                69,591         30.6  %                80,890         29.3  %
                         Labor and related expenses                                         30,933         34.6  %                40,197         27.2  %                72,699         31.9  %                77,290         28.0  %
                         Other operating expenses                                           14,304         16.0  %                16,755         11.3  %                32,083         14.1  %                32,323         11.7  %
                         Occupancy and related expenses                                     12,323         13.8  %                11,873          8.0  %                24,881         10.9  %                22,772          8.2  %
General and administrative expenses                                                                      14,017         15.3  %                15,393         10.1  %                30,208         12.9  %                29,330      10.3  %
Depreciation expense                                                                                     12,089         13.2  %                 9,799          6.4  %                23,857         10.2  %                18,765       6.6  %
Pre-opening costs                                                                                         1,734          1.9  %                 3,549          2.3  %                 3,977          1.7  %                 6,191       2.2  %
Impairment and loss on disposal of assets                                                                   434          0.5  %                   377          0.2  %                 2,522          1.1  %                   728       0.3  %
TOTAL EXPENSES                                                                                          115,861        126.2  %               140,842         92.2  %               259,818        110.6  %               268,289      94.0  %
OPERATING INCOME (LOSS)                                                                                 (24,075)       (26.2) %                11,871          7.8  %               (24,862)       (10.6) %                17,033       6.0  %
Other income, net                                                                                           394          0.4  %                   447          0.3  %                   301          0.1  %                 1,011       0.4  %
Interest expense                                                                                           (442)        (0.5) %                   (97)        (0.1) %                  (554)        (0.2) %                  (169)     (0.1) %
INCOME (LOSS) BEFORE INCOME TAXES                                                                       (24,123)       (26.3) %                12,221          8.0  %               (25,115)       (10.7) %                17,875       6.3  %
Income tax expense (benefit)                                                                             (6,092)        (6.6) %                 1,050          0.7  %                (6,005)        (2.6) %                 3,097       1.1  %
NET INCOME (LOSS)                                                                                       (18,031)       (19.6) %                11,171          7.3  %               (19,110)        (8.1) %                14,778       5.2  %
Less: net income (loss) attributable to non-controlling interests                                        (1,820)        (2.0) %                 2,141          1.4  %                (1,939)        (0.8) %                 3,202       1.1  %
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.                                                    $ (16,211)       (17.7) %             $   9,030          5.9  %             $ (17,171)        (7.3) %             $  11,576       4.1  %


(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 for the comparable Shack base, which we define as the
number of domestic company-operated Shacks open for 24 months or longer.
                                                                                        Thirteen Weeks Ended                                                   Twenty-Six Weeks Ended
                                                                                                     June 24                June 26                    June 24                June 26
(dollar amounts in thousands)                                                                           2020                   2019                       2020                   2019
Shack sales                                                                                      $ 89,519              $ 147,876                 $  227,567              $ 276,445
               Percentage of total revenue                                               97.5  %               96.8  %                   96.9  %                 96.9  %
               Dollar change compared to prior year                                 $ (58,357)                                      $ (48,878)
               Percentage change compared to prior year                                 (39.5) %                                        (17.7) %


The decrease in Shack sales for the thirteen and twenty-six weeks ended June 24,
2020 was primarily due to lost sales related to the impact from the COVID-19
pandemic, Furthermore, Shack sales were negatively impacted by an estimated $3.2
million due to nationwide protests and resulting curfews causing temporary Shack
closures and reduced operating hours during the two

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week period from May 28th through June 10th. These decreases were partially
offset by the opening of 31 new domestic company-operated Shacks between June
26, 2019 and June 24, 2020.
Same-Shack sales decreased 49.0% in the second quarter of 2020 and 31.3% in the
twenty-six weeks ended June 24, 2020, driven by the adverse impact of reduced
traffic resulting from the COVID-19 pandemic, with Shacks located in typically
dense urban locations acutely impacted by the outbreak. The decrease in
same-Shack sales for the quarter was driven by a 60.1% decrease in traffic
partially offset by an increase in price mix of 11.1%. This increase in price
mix was driven by a 28% increase to total average check as a result of the
significant shift into digital channels over the last few months, which have
historically carried a higher average check than in-Shack. The decrease in
same-Shack sales for the twenty-six weeks ended June 24, 2020 was primarily
driven by 38.0% decrease in guest traffic partially offset by an increase in
price mix of 6.7%. In the second quarter of 2020, same-Shack sales improved from
a 64% decline in fiscal April 2020, to a 42% decline in each of fiscal May and
June 2020. As noted herein, fiscal June Shack sales were negatively impacted by
nationwide protest activity and resulting curfews. After adjusting for the
impact of the protests, same-Shack sales showed sequential improvement, with a
39% decline in fiscal June 2020. For the purpose of calculating same-Shack sales
growth, Shack sales for 95 Shacks were included in the comparable Shack base.

Average weekly sales for domestic company-operated Shacks decreased to $45,000
for the second quarter of 2020 compared to $85,000 for the same quarter last
year, due to the impact of COVID-19. Average weekly sales have, however,
experienced steady increases from $32,000 in fiscal April 2020, to $52,000 in
fiscal June 2020 and $56,000 for fiscal July, representing an increase of 2.3
times the low point of the COVID-19 outbreak.
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                                              Twenty-Six Weeks Ended
                                                                                                 June 24            June 26                    June 24               June 26
(dollar amounts in thousands)                                                                       2020               2019                       2020                  2019
Licensing revenue                                                                             $ 2,267            $ 4,837                $    7,389                $ 8,877
               Percentage of total revenue                                             2.5  %             3.2  %                 3.1  %                    3.1  %
               Dollar change compared to prior year                               $ (2,570)                                 $ (1,488)
               Percentage change compared to prior year                              (53.1) %                                  (16.8) %


The decreases in licensing revenue for the thirteen and twenty-six weeks ended
June 24, 2020 were primarily due to lost sales related to the COVID-19 pandemic,
partially offset by a net increase of 24 Shacks opened between June 26, 2019 and
June 24, 2020. Licensing revenue showed gradual improvement, with a 65% decline
in fiscal April 2020, a 47% decline in fiscal June 2020, and a 32% decline in
fiscal July 2020.
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, changing with sales volume, and are impacted by menu mix and
fluctuations in commodity costs, as well as geographic scale and proximity.
                                                                                       Thirteen Weeks Ended                                                  Twenty-Six Weeks Ended
                                                                                                    June 24               June 26                     June 24               June 26
(dollar amounts in thousands)                                                                          2020                  2019                        2020                  2019
Food and paper costs                                                                            $ 30,027              $ 42,899                 $    69,591              $ 80,890
               Percentage of Shack sales                                                33.5  %               29.0  %                  30.6  %                  29.3  %
               Dollar change compared to prior year                                $ (12,872)                                     $ (11,299)
               Percentage change compared to prior year                                (30.0) %                                       (14.0) %


The decreases in food and paper costs for the second quarter of June 24, 2020
were primarily due to a decline in sales volume related to the COVID-19
pandemic, partially offset by the opening of 31 new domestic company-operated
Shacks between June 26, 2019 and June 24, 2020.
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As a percentage of Shack sales, the increase in food and paper costs for the
thirteen and twenty-six weeks ended June 24, 2020 was primarily due to sales
deleverage resulting from the impact of COVID-19, significant inflation in beef
prices, increased paper and packaging costs, a number of incremental payroll
costs and higher delivery commissions. For the large part of the second quarter
of 2020, we experienced significant inflation in beef, with cost nearly double
that of last year for most of June. Beef prices have since returned to more
normalized levels, however this increase negatively impacted Food and Paper
costs by approximately $2.5 million. Furthermore, the Company had significantly
higher paper and packaging costs, with all orders packaged in sealed bags,
impacting Food and Paper costs by approximately $1.4 million. For the twenty-six
weeks ended June 24, 2020, as a percentage of Shack sales, the increase in food
and paper costs were due to sales deleverage resulting from the COVID-19
pandemic, lower chicken costs primarily from lapping the promotional launch of
Chick'n Bites, which carried higher costs, and was partially offset by
significant inflation in beef prices, higher paper and packaging costs and a
non-recurring inventory adjustment, as described in the "Non-GAAP Financial
Measures" section, herein.
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                                                 Twenty-Six Weeks Ended
                                                                                                   June 24               June 26                    June 24               June 26
(dollar amounts in thousands)                                                                         2020                  2019                       2020                  2019
Labor and related expenses                                                                     $ 30,933              $ 40,197                $    72,699              $ 77,290
               Percentage of Shack sales                                               34.6  %               27.2  %                 31.9  %                  28.0  %
               Dollar change compared to prior year                                $ (9,264)                                     $ (4,591)
               Percentage change compared to prior year                               (23.0) %                                       (5.9) %


The decreases in labor and related expenses for the thirteen and twenty-six
weeks ended June 24, 2020 were primarily due to significant reductions in
staffing expenses across all Shacks associated with the impact of COVID-19.
These decreases were partially offset by the opening of 31 new domestic
company-operated Shacks between June 26, 2019 and June 24, 2020, and incremental
payroll costs of $2.4 million as a result of a temporary 10% premium pay raise
to hourly employees, guaranteed bonuses for Shack managers, and payments related
to scheduling changes for hourly team members as teams navigated the challenging
operating conditions caused by COVID-19, during the second quarter of 2020.
As a percentage of Shack sales, the increase in labor and related expenses for
the thirteen and twenty-six weeks ended June 24, 2020 was primarily due to sales
deleverage associated with the impact of COVID-19 and, to a lesser extent,
increases in starting wages, partially offset by the reduction of labor hours.
Other Operating Expenses
Other operating expenses consist of Shack-level marketing expenses, repairs and
maintenance, utilities and other operating expenses incidental to operating our
domestic company-operated Shacks, such as non-perishable supplies, credit card
fees and property insurance.
                                                                                     Thirteen Weeks Ended                                               Twenty-Six Weeks Ended
                                                                                                  June 24               June 26                  June 24               June 26
(dollar amounts in thousands)                                                                        2020                  2019                     2020                  2019
Other operating expenses                                                                      $ 14,304              $ 16,755              $    32,083              $ 32,323
               Percentage of Shack sales                                              16.0  %               11.3  %               14.1  %                  11.7  %
               Dollar change compared to prior year                               $ (2,451)                                     $ (240)
               Percentage change compared to prior year                              (14.6) %                                     (0.7) %


The decreases in other operating expenses for the thirteen and twenty-six weeks
ended June 24, 2020 were primarily due to the reduction in expenses across all
Shacks associated with the impact of COVID-19, partially offset by the opening
of 31 new domestic company-operated Shacks between June 26, 2019 and June 24,
2020, and higher delivery expense associated with increased penetration of
delivery sales during the quarter.

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As a percentage of Shack sales, the increase in other operating expenses for the
thirteen and twenty-six weeks ended June 24, 2020 was primarily due to higher
delivery commission associated with increased delivery sales and sales
deleverage associated with the impact of COVID-19, as described herein.
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                                           

Twenty-Six Weeks Ended


                                                                                                 June 24             June 26                   June 24             June 26
(dollar amounts in thousands)                                                                       2020                2019                      2020                2019
Occupancy and related expenses                                                               $ 12,323            $ 11,873               $    24,881

$ 22,772


               Percentage of Shack sales                                             13.8  %              8.0  %                10.9  %                 

8.2 %


               Dollar change compared to prior year                                 $ 450                                    $ 2,109
               Percentage change compared to prior year                               3.8  %                                     9.3  %


This increases in occupancy and related expenses for the thirteen and twenty-six
weeks ended June 24, 2020 were primarily due to the opening of 31 new domestic
company-operated Shacks between June 26, 2019 and June 24, 2020.
As a percentage of Shack sales, the increase in occupancy and related expenses
for the thirteen and twenty-six weeks ended June 24, 2020 was primarily due to
sales deleverage associated with the impact of COVID-19.
General and Administrative Expenses
General and administrative expenses consist of costs associated with corporate
and administrative functions that support Shack development and operations, as
well as equity-based compensation expense.
                                                                                         Thirteen Weeks Ended                                              Twenty-Six Weeks Ended
                                                                                                      June 24               June 26                 June 24               June 26
(dollar amounts in thousands)                                                                            2020                  2019                    2020                  2019
General and administrative expenses                                                               $ 14,017              $ 15,393             $    30,208              $ 29,330
                  Percentage of total revenue                                             15.3  %               10.1  %              12.9  %                  10.3  %
                  Dollar change compared to prior year                                $ (1,376)                                     $ 878
                  Percentage change compared to prior year                                (8.9) %                                     3.0  %


The decrease in general and administrative expenses for the thirteen and
twenty-six weeks ended June 24, 2020 were primarily due to reduced staffing
levels, and cuts across the majority of discretionary spend categories,
partially offset by increased technology expense to support further digital
enhancements, as well as higher professional fees of approximately $0.3 million
related to the April equity offering and the implementation of the CARES Act,
with additional costs expected in the third quarter of 2020.
As a percentage of total revenue, the increases in general and administrative
expenses for the thirteen and twenty-six weeks ended June 24, 2020 were
primarily due to sales deleverage associated with the impact of COVID-19.
Depreciation Expense
Depreciation expense consists of the depreciation of fixed assets, including
leasehold improvements and equipment.
                                                                                    Thirteen Weeks Ended                                           Twenty-Six Weeks Ended
                                                                                                 June 24            June 26                   June 24             June 26
(dollar amounts in thousands)                                                                       2020               2019                      2020                2019
Depreciation expense                                                                         $ 12,089            $ 9,799               $    23,857            $ 18,765
               Percentage of total revenue                                           13.2  %              6.4  %               10.2  %                 

6.6 %


               Dollar change compared to prior year                               $ 2,290                                   $ 5,092
               Percentage change compared to prior year                              23.4  %                                   27.1  %

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The increases in depreciation expense for the thirteen and twenty-six weeks
ended June 24, 2020 were primarily due to incremental depreciation of capital
expenditures related to the opening of 31 new domestic company-operated Shacks
between June 26, 2019 and June 24, 2020.
As a percentage of total revenue, the increases in depreciation expense for the
thirteen and twenty-six weeks ended June 24, 2020 were primarily due to sales
deleverage associated with the impact of COVID-19.
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                                              Twenty-Six Weeks Ended
                                                                                                 June 24            June 26                    June 24               June 26
(dollar amounts in thousands)                                                                       2020               2019                       2020                  2019
Pre-opening costs                                                                             $ 1,734            $ 3,549                $    3,977                $ 6,191
               Percentage of total revenue                                             1.9  %             2.3  %                 1.7  %                    2.2  %
               Dollar change compared to prior year                               $ (1,815)                                 $ (2,214)
               Percentage change compared to prior year                              (51.1) %                                  (35.8) %


The decreases in pre-opening costs for the thirteen and twenty-six weeks ended
June 24, 2020 were due to the lower number of new domestic company-operated
Shacks opened during the current period compared to the prior-year period.
Impairment and Loss on Disposal of Property and Equipment
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.
                                                                            Thirteen Weeks Ended                                                Twenty-Six Weeks Ended
                                                                                         June 24             June 26                    June 24                June 26
(dollar amounts in thousands)                                                               2020                2019                       2020                   2019
Impairment and loss on disposal of property and equipment                            $    434            $    377               $     2,522

$ 728


         Percentage of total revenue                                          0.5  %              0.2  %                 1.1  %                       

0.3 %


         Dollar change compared to prior year                               $  57                                    $ 1,794
         Percentage change compared to prior year                            15.1  %                                   246.4  %


The increase in impairment and loss on disposal of property and equipment for
the thirteen and twenty-six weeks ended June 24, 2020 was primarily due to the
number of Shacks maturing in our base and renovations. For the twenty-six weeks
ended June 24, 2020, the increase was also due to an asset impairment charge of
$1.1 million in the current period.
Other Income, Net
Other income, net consists of interest income, dividend income and net
unrealized and realized gains and losses from the sale of marketable securities.

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                                                                                Thirteen Weeks Ended                                            Twenty-Six Weeks Ended
                                                                                             June 24            June 26                June 24                 June 26
(dollar amounts in thousands)                                                                   2020               2019                   2020                    2019
Other income, net                                                                         $   394            $   447              $    301                  $ 1,011
               Percentage of total revenue                                         0.4  %             0.3  %               0.1  %                   

0.4 %


               Dollar change compared to prior year                             $  (53)                                 $ (710)
               Percentage change compared to prior year                          (11.9) %                                (70.2) %


The decrease in other income, net for the thirteen weeks ended June 24, 2020 was
primarily due to a decrease in dividend income partially offset by unrealized
gains related to our investments in marketable securities. For the twenty-six
weeks ended June 24, 2020, the decrease was primarily due to a decrease in
dividend income and unrealized losses related to our investments in marketable
securities.
Interest Expense
Interest expense primarily consists of interest on the current portion of our
liabilities under the Tax Receivable Agreement, imputed interest related to our
financing equipment leases, amortization of deferred financing costs, imputed
interest on deferred compensation, imputed interest on our deemed landlord
financing liability, and interest and fees on our Revolving Credit Facility.
                                                                                    Thirteen Weeks Ended                                                Twenty-Six Weeks Ended
                                                                                                 June 24              June 26                  June 24                 June 26
(dollar amounts in thousands)                                                                       2020                 2019                     2020                    2019
Interest expense                                                                               $ (442)             $   (97)             $     (554)                  $ (169)
               Percentage of total revenue                                             (0.5) %             (0.1) %              (0.2) %                      (0.1) %
               Dollar change compared to prior year                                  $ (345)                                  $ (385)
               Percentage change compared to prior year                               355.7  %                                 227.8  %


The increases in interest expense for the thirteen and twenty-six weeks ended
June 24, 2020 was primarily due to an increase in interest and fees associated
with our Revolving Credit Facility in the current year.
Income Tax Expense
We are the sole managing member of SSE Holdings, which 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 generated by SSE Holdings.
                                                                                    Thirteen Weeks Ended                                           

Twenty-Six Weeks Ended


                                                                                                 June 24            June 26                     June 24            June 26
(dollar amounts in thousands)                                                                       2020               2019                        2020               2019
Income tax expense                                                                           $ (6,092)           $ 1,050                $    (6,005)

$ 3,097


               Percentage of total revenue                                           (6.6) %              0.7  %                (2.6) %                 

1.1 %


               Dollar change compared to prior year                              $ (7,142)                                  $ (9,102)
               Percentage change compared to prior year                            (680.2) %                                  (293.9) %



Our effective income tax rates for the thirteen weeks ended June 24, 2020 and
June 26, 2019 were 25.3% and 8.6%, respectively. The increase was primarily
driven by lower pre-tax book income resulting in a loss, causing the tax credits
to have an increasing effect on the tax rate, as well as the recognition of a
valuation allowance against foreign tax credits that are not expected to be
realized before the expiration of the carryforward period. 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 92.3% and 81.0% for the thirteen weeks ended June 24, 2020
and June 26, 2019, respectively.
Our effective income tax rates for the twenty-six weeks ended June 24, 2020 and
June 26, 2019 were 23.9% and 17.3%, respectively. The increase was primarily
driven by lower pre-tax book income resulting in a loss, causing the tax credits
to have an increasing effect on the tax rate, as well as the recognition of a
valuation allowance against foreign tax credits that are not
36 | Shake Shack Inc. [[Image Removed: shak-20200624_g2.jpg]] Form 10-Q
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  Table of Contents
expected to be realized before the expiration of the carryforward period. These
were partially offset by a reduction in the tax effect of changes related to the
adoption of new accounting standards, for which there were none during the
twenty-six weeks ended June 24, 2020. Additionally, as noted above, 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 92.0% and 80.3% for the twenty-six weeks ended June 24, 2020 and
June 26, 2019, respectively.
Net Income (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, representing the portion of net
income 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 and other comprehensive income to Shake Shack Inc. and the
non-controlling interest holders.
                                                                                                 Thirteen Weeks Ended                                            Twenty-Six Weeks Ended
                                                                                                              June 24            June 26                     June 24            June 26
(dollar amounts in thousands)                                                                                    2020               2019                        2020               2019
Net income (loss) attributable to non-controlling interests                                               $ (1,820)           $ 2,141                $    (1,939)            $ 3,202
                           Percentage of total revenue                                            (2.0) %              1.4  %                (0.8) %                  1.1  %
                           Dollar change compared to prior year                               $ (3,961)                                  $ (5,141)
                           Percentage change compared to prior year                             (185.0) %                                  (160.6) %


The decreases in net income (loss) attributable to non-controlling interests for
the thirteen and twenty-six weeks ended June 24, 2020 were primarily due to a
decline in net results causing a loss for the period, and a decrease in the
non-controlling interest holders' weighted average ownership, which was 7.7% and
19.0% for the thirteen weeks ended June 24, 2020 and June 26, 2019,
respectively, and 8.0% and 19.7% for the twenty-six weeks ended June 24, 2020
and June 26, 2019, respectively.
NON-GAAP FINANCIAL MEASURES


To supplement the consolidated financial statements, which are prepared and
presented in accordance with U.S. generally accepted accounting principles
("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 (loss) and adjusted pro
forma earnings (loss) 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 we believe are useful measures to evaluate the
performance and profitability of our Shacks. Additionally, Shack-level operating
profit and Shack-level operating profit margin are key metrics used internally
by our management to develop internal budgets and forecasts, as well as assess
the performance of our Shacks relative to budget and against prior periods. It
is also used to evaluate employee compensation as it serves as a metric in
certain of our performance-based employee bonus arrangements. We believe
presentation of Shack-level operating profit and Shack-level operating profit
margin provides investors with a supplemental view of our operating performance
that can provide meaningful insights to the underlying operating performance of
our Shacks, as these measures depict the operating results that are directly
impacted by our Shacks and exclude items that may not be indicative of, or are
unrelated to, the ongoing operations of our Shacks. It may also assist investors
to evaluate our performance relative to peers of various sizes and maturities
and provides greater transparency with respect to how our management evaluates
our business, as well as our 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 our Shacks. Therefore, this measure may
not provide a complete understanding of the operating results of our company as
a whole and Shack-level operating profit and Shack-level operating profit margin
should be reviewed in conjunction with our GAAP financial results. A
reconciliation of Shack-level operating profit to operating income, the most
directly comparable GAAP financial measure, is as follows.
                                                                                          Thirteen Weeks Ended                                                    Twenty-Six Weeks Ended
                                                                                       June 24                      June 26                      June 24                      June 26
(dollar amounts in thousands)                                                             2020                         2019                         2020                         2019
Operating income (loss)                                                           $ (24,075)                   $  11,871                    $ (24,862)
                 $  17,033
Less:
                  Licensing revenue                                      2,267                        4,837                        7,389                        8,877
Add:
                  General and administrative expenses                   14,017                       15,393                       30,208                       29,330
                  Depreciation expense                                  12,089                        9,799                       23,857                       18,765
                  Pre-opening costs                                      1,734                        3,549                        3,977                        6,191
                  Loss on disposal of property and equipment               434                          377                        2,522                          728
Shack-level operating profit                                                      $   1,932                    $  36,152                    $  28,313                    $  63,170

Total revenue                                                                     $  91,786                    $ 152,713                    $ 234,956                    $ 285,322
Less: licensing revenue                                                               2,267                        4,837                        7,389                        8,877
Shack sales                                                                       $  89,519                    $ 147,876                    $ 227,567                    $ 276,445

Shack-level operating profit margin                                                     2.2  %                      24.4  %                      12.4  %                      22.9  %


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EBITDA and Adjusted EBITDA
EBITDA is defined as net income before interest expense (net of interest
income), income tax expense and depreciation and amortization expense. Adjusted
EBITDA is defined as EBITDA (as defined above) excluding equity-based
compensation expense, deferred lease cost, losses on the disposal of property
and equipment, amortization of cloud-based software implementation costs, as
well as certain non-recurring items that we don't believe directly reflect our
core operations and may not be indicative of our 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 we believe are
useful measures to facilitate comparisons to historical performance and
competitors' operating results. Adjusted EBITDA is a key metric used internally
by our management to develop internal budgets and forecasts and also serves as a
metric in our performance-based equity incentive programs and certain of our
bonus arrangements. We believe presentation of EBITDA and adjusted EBITDA
provides investors with a supplemental view of our operating performance that
facilitates analysis and comparisons of our ongoing business operations because
they exclude items that may not be indicative of our 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 our performance and should be reviewed in conjunction with our
GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net
income, the most directly comparable GAAP measure, is as follows.
                                                              Thirteen Weeks Ended                                          Twenty-Six Weeks Ended
                                                               June 24                 June 26                  June 24                 June 26
(in thousands)                                                    2020                    2019                     2020                    2019
Net income (loss)                                         $ (18,031)               $ 11,171                $ (19,110)               $ 14,778
Depreciation expense                                         12,089                   9,799                   23,857                  18,765
Interest expense, net                                           442                      97                      554                     169
Income tax expense                                           (6,092)                  1,050                   (6,005)                  3,097
EBITDA                                                      (11,592)                 22,117                     (704)                 36,809

Equity-based compensation                                     1,419                   2,235                    2,719                   3,955
Amortization of cloud-based software
implementation costs(1)                                         368                       -                      628                       -
Deferred lease costs(2)                                         479                     715                      149                   1,300
Impairment and loss on disposal of property
and equipment(3)                                                434                     377                    2,522                     728
Other income related to adjustment of
liabilities under tax receivable agreement                        -                       -                        -                     (14)
Executive transition costs(4)                                    34                      88                       68                     126
Project Concrete(5)                                              24                     213                     (237)                    685

Hong Kong office(6)                                               -                     171                        -                     171

Other(7)                                                          -                       -                      285                       -

Adjusted EBITDA                                           $  (8,834)               $ 25,916                $   5,430                $ 43,760

Adjusted EBITDA margin(8)                                      (9.6) %                 17.0  %                   2.3  %                 15.3  %

Shake Shack Inc. [[Image Removed: shak-20200624_g2.jpg]] Form 10-Q | 39 --------------------------------------------------------------------------------

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(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) For the twenty-six weeks ended June 24, 2020, this amount includes a
non-cash impairment charge of $1.1 million related to one Shack.
(4) Represents fees paid in connection with the search and hiring of certain
executive and key management positions.
(5) Represents consulting and advisory fees related to the our enterprise-wide
system upgrade initiative called Project Concrete.
(6)  Represents costs associated with establishing our first international
office in Hong Kong.
(7) Represents incremental expenses incurred related to an inventory adjustment
and certain employee-related expenses.
(8) Calculated as a percentage of total revenue, which was $91,786 and $234,956
for the thirteen and twenty-six weeks ended June 24, 2020, respectively, and
$152,713 and $285,322 for the thirteen and twenty-six weeks ended June 26, 2019,
respectively.

Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings (Loss) Per
Fully Exchanged and Diluted Share
Adjusted pro forma net income (loss) 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 do not believe are directly
related to our core operations and may not be indicative of our recurring
business operations. Adjusted pro forma earnings (loss) 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 the
dilutive effect of outstanding equity-based awards.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, adjusted pro forma net
income (loss) and adjusted pro forma earnings (loss) 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
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 (loss) per fully
exchanged and diluted share may differ from 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 (loss) 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 attributable to Shake
Shack Inc. Adjusted pro forma net income (loss) and adjusted pro forma earnings
(loss) per fully exchanged and diluted share should be evaluated in conjunction
with our GAAP financial results. A reconciliation of adjusted pro forma net
income (loss) to net income (loss) attributable to Shake Shack Inc., the most
directly comparable GAAP measure, and the computation of adjusted pro forma
earnings (loss) per fully exchanged and diluted share are set forth below.
40 | Shake Shack Inc. [[Image Removed: shak-20200624_g2.jpg]] Form 10-Q
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                                                                                                                          Thirteen Weeks Ended                                                    Twenty-Six Weeks Ended
                                                                                                                                       June 24                   June 26                   June 24               June 26
(in thousands, except per share amounts)                                                                                                  2020                      2019                      2020                  2019
Numerator:
                  Net income (loss) attributable to Shake Shack Inc.                                                 $ (16,211)                $  9,030                  $ (17,171)                $ 11,576
                  Adjustments:
                                          Reallocation of net income attributable to
                                          non-controlling interests from the assumed exchange of
                                          LLC Interests(1)                                                 (1,820)                    2,141                    (1,939)                    3,202
                                          Executive transition costs(2)                                        34                        88                        68                       126
                                          Project Concrete(3)                                                  24                       213                      (237)                      685

                                          Hong Kong office(4)                                                   -                       171                         -                       171

                                          Other(5)                                                              -                         -                       285                         -

                                          Other income related to

adjustment of liabilities under


                                          tax receivable agreement                                              -                         -                         -                       (14)
                                          Tax effect of change in tax basis related to the
                                          adoption of new accounting standards(6)                               -                         -                         -                     1,161
                                          Income tax expense(7)                                              (286)                   (1,397)                    1,533                    (1,712)
                  Adjusted pro forma net income (loss)                                                               $ (18,259)                $ 10,246                  $ (17,461)                $ 15,195

Denominator:
                  Weighted-average shares of Class A common stock outstanding-diluted                                   37,309                   31,015                     35,876                   30,703
                  Adjustments:
                                          Assumed exchange of LLC Interests for shares of Class A
                                          common stock(1)                                                   3,117                     7,088                     3,131                     7,314
                  Adjusted pro forma fully exchanged weighted-average 

shares of Class A common


                  stock outstanding-diluted                                                                             40,426                   38,103                     39,007                   38,017

Adjusted pro forma earnings (loss) per fully exchanged share-diluted

$   (0.45)               $     0.27                 $   (0.45)               $ 0.40



                                                                 Thirteen Weeks Ended                                               Twenty-Six Weeks Ended
                                                                              June 24             June 26                   June 24                June 26
                                                                                 2020                2019                      2020                   2019

Earnings (loss) per share of Class A common stock - diluted

$ (0.43)             $ 0.29              $     (0.48)                 $ 0.38
      Assumed exchange of LLC Interests for shares of
      Class A common stock(1)                                     (0.01)                   -               (0.01)                        0.01
      Non-GAAP adjustments(8)                                     (0.01)               (0.02)               0.04                         0.01
Adjusted pro forma earnings (loss) per fully exchanged
share-diluted                                                              $ (0.45)             $ 0.27              $     (0.45)                 $ 0.40



(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 income (loss) attributable to non-controlling interests.
(2) Represents costs incurred in connection with our executive search, including
fees paid to an executive recruiting firm.
(3) Represents consulting and advisory fees related to our enterprise-wide
system upgrade initiative called Project Concrete.
(4) Represents costs associated with establishing our first international office
in Hong Kong.
(5) Represents incremental expenses incurred related to an inventory adjustment
and certain employee-related expenses.
(6) Represents tax effect of change in tax basis related to the adoption of the
new lease accounting standard for the thirteen and twenty-six weeks ended
June 26, 2019.
(7) Represents the tax effect of the aforementioned adjustments and pro forma
adjustments to reflect corporate income taxes at assumed effective tax rates of
24.1% and 30.2% for the thirteen and twenty-six weeks ended June 24, 2020,
respectively, and 19.3% and 19.4% for the thirteen and twenty-six weeks ended
June 26, 2019, respectively. Additionally, the thirteen and twenty-six weeks
ended June 24, 2020 includes the establishment of a valuation allowance.
(8) 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.

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  Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
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. As of June 24, 2020, we maintained a cash and cash equivalents
balance of $174.0 million and a short-term investments balance of $16.8 million.
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 infrastructure.
In addition, we are obligated to make payments to certain members of SSE
Holdings under the Tax Receivable Agreement. As of June 24, 2020, such
obligations totaled $228.1 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.
COVID-19 Pandemic
In response to the uncertain market conditions resulting from the COVID-19
pandemic, we have taken the following actions.
•On April 17, 2020, we announced an 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
provides for a number of enhanced modifications to reflect the current and
ongoing impact from COVID-19. 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. As of
June 24, 2020, we were in compliance with all covenants.
We believe our existing cash and marketable securities balances, combined with
the actions we have taken in response to COVID-19, 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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