Market Overview

Shake Shack Announces Second Quarter 2018 Financial Results

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- Total Revenue Grew 27.3% to $116.3 Million -

- System-wide Year-Over-Year Unit Growth of 34% -

- Same-Shack Sales Increased 1.1% -

Shake Shack Inc. ("Shake Shack" or the "Company") (NYSE:SHAK)
today reported its financial results for the second quarter ended
June 27, 2018, a period that included 13 weeks.

Financial Highlights for the Second Quarter 2018:

  • Total revenue increased 27.3% to $116.3 million.
  • Shack sales increased 28.3% to $112.9 million.
  • Same-Shack sales increased 1.1%.
  • Operating income increased 10.9% to $13.0 million, or 11.2% of total
    revenue.
  • Shack-level operating profit*, a non-GAAP measure, increased 25.5% to
    $31.8 million, or 28.2% of Shack sales. Excluding a one-time benefit
    to deferred rent related to certain historical leases with co-tenancy
    provisions, Shack-level operating profit would have been 27.5%.
  • Net income increased 29.2% to $10.6 million and net income
    attributable to Shake Shack Inc. was $7.6 million, or $0.26 per
    diluted share.
  • Adjusted EBITDA*, a non-GAAP measure, increased 12.9% to $21.9 million.
  • Adjusted pro forma net income*, a non-GAAP measure, increased 50.8% to
    $11.0 million, or $0.29 per fully exchanged and diluted share.
  • Eleven system-wide Shack openings, comprising five domestic
    company-operated Shacks and six licensed Shacks.

* Shack-level operating profit, adjusted EBITDA and adjusted pro
forma net income are non-GAAP measures. Reconciliations of Shack-level
operating profit to operating income, adjusted EBITDA to net income, and
adjusted pro forma net income to net income attributable to Shake Shack
Inc., the most directly comparable financial measures presented in
accordance with GAAP, are set forth in the schedules accompanying this
release. See "Non-GAAP Financial Measures."

Randy Garutti, Chief Executive Officer of Shake Shack, stated, "We
continue to deliver strong top and bottom line results as we execute our
strategic growth plan. We delivered year-over-year revenue growth of
27%, including a 1.1% increase in same-Shack sales, and grew adjusted
EBITDA by 13%. These results were driven by the strength of both new and
existing Shacks, as well as our focus and continued investment across
our key digital initiatives and foundational infrastructure."

Garutti concluded, "Our development pipeline remains robust both
domestically and across our international licensed regions. As of today,
we've opened 12 new domestic company-operated Shacks so far this year,
and remain on track to open 32 to 35 in 2018, although our opening
schedule is heavily back-end weighted to the fourth quarter. We're very
excited about this class of Shacks and are looking forward to their
contribution to our future sales growth. Our global license partners
have opened 11 new Shacks to date, including our first Shack in Hong
Kong, and we continue to expect 16 to 18 net new licensed Shacks for the
year with continued growth in Asia. Additionally, digital innovation
remains a key focus to better connect with our guests and enhance the
Shake Shack experience, while delivering ongoing menu innovation and
investing in our foundational infrastructure to execute on the
significant long-term growth ahead."

Development Highlights

During the quarter, the Company opened five domestic company-operated
Shacks, consisting of its first Shacks in North Carolina at Charlotte's
Park Road Shopping Center; in Ohio at Pinecrest, Cleveland's premier
shopping, dining, entertainment and residential development; and at the
Staten Island Mall in New York; as well as additional Shacks in the
existing markets of Orlando and Connecticut. The Company also opened six
international licensed Shacks, consisting of its first Shack in Hong
Kong at the Central IFC Mall, as well as additional Shacks in the
existing markets of South Korea, Japan and the Middle East.

Location     Type     Opening Date
Seoul, South Korea — Central City International Licensed April 12
Orlando, FL — The Mall at Millenia Domestic Company-Operated April 13
Riyadh, KSA — Granada Center International Licensed April 26
Charlotte, NC — Park Road Domestic Company-Operated April 26
West Hartford, CT — West Hartford Domestic Company-Operated April 27
Hong Kong, China — Central, IFC Mall International Licensed May 1
Fujisawa, Japan — Terrace Mall Shonan International Licensed May 10
Osaka, Japan — Hanshin Umeda International Licensed June 1
Orange Village, OH — Pinecrest Domestic Company-Operated June 7
Fahaheel, Kuwait — Al Kout Mall International Licensed June 7
Staten Island, NY — Staten Island Mall Domestic Company-Operated June 10
 

Subsequent to the end of the quarter, the Company opened a Shack in
Williamsburg, New York and a second Shack in Denver, as well as an
international licensed Shack in London at Mansion House.

Second Quarter 2018 Review

Total revenue, which includes Shack sales and licensing revenue,
increased 27.3% to $116.3 million in the second quarter of 2018, from
$91.3 million in the second quarter of 2017. Shack sales for the second
quarter of 2018 were $112.9 million compared to $88.0 million in the
same quarter last year, an increase of $24.9 million, or 28.3%, due
primarily to the opening of 25 new domestic company-operated Shacks, as
well as same-Shack sales growth. Licensing revenue for the second
quarter was $3.4 million, an increase of 2.1% from $3.3 million in the
same quarter last year, due primarily to the opening of 20 new licensed
Shacks, with strong performance in the Shacks throughout Asia, balanced
by continued softness in the Middle East.

Same-Shack sales increased 1.1% for the second quarter of 2018 versus a
1.8% decline in the second quarter last year. The increase in same-Shack
sales, consisted of a combined increase in price and sales mix of 3.7%
offset by a 2.6% decrease in guest traffic. The comparable Shack base
includes those restaurants open for 24 full fiscal months or longer. For
the second quarter of 2018, the comparable Shack base included 50 Shacks
versus 37 Shacks for the second quarter of 2017.

Average weekly sales for domestic company-operated Shacks decreased to
$89,000 for the second quarter of 2018 compared to $92,000 for the same
quarter last year, primarily due to the addition of newer Shacks at a
broader range of average unit volumes.

Operating income increased 10.9% to $13.0 million for the second quarter
of 2018 from $11.7 million in the same quarter last year. Operating
income margins decreased 170 basis points to 11.2%. Shack-level
operating profit, a non-GAAP measure, increased 25.5% to $31.8 million
for the second quarter of 2018 from $25.3 million in the same quarter
last year. As a percentage of Shack sales, Shack-level operating profit
margins decreased 60 basis points to 28.2%. Excluding the impact from a
one-time benefit to deferred rent related to certain historical leases
with co-tenancy provisions, Shack-level operating profit would have been
27.5%. These decreases were primarily due to increased labor and related
expenses resulting from ongoing increases in minimum wages, commissions
paid as part of integrated delivery pilots and higher repair and
maintenance costs related to some mature, high-volume Shacks. A
reconciliation of Shack-level operating profit to operating income, the
most directly comparable GAAP financial measure, is set forth in the
schedules accompanying this release. See "Non-GAAP Financial Measures."

General and administrative expenses increased to $12.6 million for the
second quarter of 2018 from $9.7 million in the same quarter last year.
The increase was primarily due to the Company's investment across the
business, particularly in the addition of headcount to support its
ongoing growth initiatives. As a percentage of total revenue, general
and administrative expenses increased to 10.8% for the second quarter of
2018 from 10.6% in the second quarter last year.

Net income attributable to Shake Shack Inc. was $7.6 million, or 6.5% of
total revenue, for the second quarter of 2018, compared to $4.9 million,
or 5.3% of total revenue, for the same period last year. Earnings per
diluted share was $0.26 for the second quarter of 2018 compared to $0.19
for the same period last year.

Adjusted EBITDA, a non-GAAP measure, increased 12.9% to $21.9 million.
As a percentage of total revenue, adjusted EBITDA margins decreased
approximately 240 basis points to 18.8% compared to 21.2% for the year
ago period. A reconciliation of adjusted EBITDA to net income, the most
directly comparable GAAP financial measure, is set forth in the
schedules accompanying this release. See "Non-GAAP Financial Measures."

Adjusted pro forma net income, a non-GAAP measure, increased 50.8% to
$11.0 million, or $0.29 per fully exchanged and diluted share during the
second quarter of 2018, compared to $7.3 million, or $0.20 per fully
exchanged and diluted share during the second quarter of 2017. A
reconciliation of adjusted pro forma net income to net income
attributable to Shake Shack Inc., the most directly comparable GAAP
financial measure, is set forth in the schedules accompanying this
release. See "Non-GAAP Financial Measures."

Updated 2018 Outlook

For the fiscal year ending December 26, 2018, the Company is providing
the following financial outlook:

  • Total revenue between $446 million and $450 million.
  • Licensing revenue between $12 million and $13 million.
  • Same-Shack sales of 0% to 1% year over year.
  • Between 32 and 35 new domestic company-operated Shacks to be opened in
    fiscal 2018.
  • Between 16 and 18 net new licensed Shacks to be opened in fiscal 2018.
  • Average annual sales volume for total domestic company-operated Shacks
    between $4.1 million and $4.2 million.
  • Shack-level operating profit margin between 24.5% and 25.5%.
  • General and administrative expenses between $49 million and $51
    million, excluding approximately $6 million to $8 million of costs,
    across the remainder of this year and well into 2019, related to
    Project Concrete, the Company's enterprise-wide system upgrade
    initiative (vs. $4 million to $6 million).
  • Depreciation expense between $31 million and $32 million (vs.
    approximately $32 million).
  • Pre-opening costs of approximately $13 million (vs. $12.0 million to
    $13.0 million ).
  • Interest expense of approximately $2.5 million (vs. $2.0 million to
    $2.2 million).
  • Adjusted pro forma effective tax rate between 26% and 27%.

Earnings Conference Call

As previously announced, the Company will host a conference call to
discuss its second quarter 2018 financial results today at 5:00 p.m. ET.

The conference call can be accessed live over the phone by dialing (866)
548-4713 or for international callers by dialing (323) 794-2093. A
replay will be available after the call and can be accessed by dialing
(844) 512-2921 or for international callers by dialing (412) 317-6671;
the passcode is 1060393. The replay will be available until August 9,
2018.

The conference call will also be webcast live from the Company's
Investor Relations website at http://investor.shakeshack.com.
An archive of the webcast will be available at the same location on the
website shortly after the call has concluded.

Definitions

The following definitions apply to these terms as used in this release:

"Shack sales" is defined as the aggregate sales of food, beverages and
Shake Shack branded merchandise at domestic company-operated Shacks and
excludes sales from licensed Shacks.

"Same-Shack sales" represents Shack sales for the comparable Shack base,
which is defined as the number of domestic company-operated Shacks open
for 24 full fiscal months or longer.

"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.

"Shack-level operating profit," a non-GAAP measure, 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.

"Shack-level operating profit margin," a non-GAAP measure, 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 as a percentage of Shack sales.

"EBITDA," a non-GAAP measure, is defined as net income before interest
expense (net of interest income), income tax expense, and depreciation
and amortization expense.

"Adjusted EBITDA," a non-GAAP measure, is defined as EBITDA (as defined
above), excluding equity-based compensation expense, deferred rent
expense, losses on the disposal of property and equipment, as well as
certain non-recurring items that the Company does not believe directly
reflect its core operations and may not be indicative of the Company's
recurring business operations.

"Adjusted EBITDA margin," a non-GAAP measure, is defined as net income
before net interest, taxes, depreciation and amortization, which also
excludes equity-based compensation expense, deferred rent expense,
losses on the disposal of property and equipment, as well as certain
non-recurring items that the Company does not believe directly reflect
its core operations, as a percentage of revenue.

"Adjusted pro forma net income," a non-GAAP measure, represents net
income 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 the Company does not believe directly reflect its core
operations.

About Shake Shack

Shake Shack is a modern day "roadside" burger stand known for its 100%
all-natural Angus beef burgers, chicken sandwiches and flat-top Vienna
beef dogs (no hormones or antibiotics - ever), spun-fresh frozen
custard, crinkle cut fries, craft beer and wine and more. With its
fresh, simple, high-quality food at a great value, Shake Shack is a fun
and lively community gathering place with widespread appeal. Shake
Shack's mission is to Stand for Something Good®, from its premium
ingredients and caring hiring practices to its inspiring designs and
deep community investment. Since the original Shack opened in 2004 in
NYC's Madison Square Park, the company has expanded to more than 180
locations in 23 U.S. States and the District of Columbia, including 70
international locations including London, Hong Kong, Istanbul, Dubai,
Tokyo, Moscow, Seoul and more.

Forward-Looking Statements

This press release 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. All statements other than statements of historical
fact included in this press release are forward-looking statements,
including, but not limited to, expected financial outlook for fiscal
2018, expected Shack openings, expected same-Shack sales growth and
trends in the Company's operations. Forward-looking statements discuss
the Company's current expectations and projections relating to their
financial position, results of operations, plans, objectives, future
performance and business. You can identify forward-looking statements by
the fact that they do not relate strictly to historical or current
facts. These statements may include words such as "aim," "anticipate,"
"believe," "estimate," "expect," "forecast," "outlook," "potential,"
"project," "projection," "plan," "intend," "seek," "may," "could,"
"would," "will," "should," "can," "can have," "likely," the negatives
thereof and other similar expressions. All forward-looking statements
are expressly qualified in their entirety by these cautionary
statements. You should evaluate all forward-looking statements made in
this press release in the context of the risks and uncertainties
disclosed in the Company's Annual Report on Form 10-K for the fiscal
year ended December 27, 2017, and subsequent Quarterly Reports on Form
10-Q filed with the Securities and Exchange Commission ("SEC"). All of
the Company's SEC filings are available online at www.sec.gov,
www.shakeshack.com
or upon request from Shake Shack Inc. The forward-looking statements
included in this press release are made only as of the date hereof. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement as a result of new information, future events
or otherwise, except as otherwise required by law.

 
SHAKE SHACK INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(in thousands, except per share amounts)

 
  Thirteen Weeks Ended   Twenty-Six Weeks Ended
June 27, 2018   June 28, 2017 June 27, 2018   June 28, 2017
Shack sales $ 112,898 97.1 % $ 88,003 96.4 % $ 208,987 97.0 % $ 162,158 96.5 %
Licensing revenue 3,384   2.9 % 3,313   3.6 % 6,411   3.0 % 5,907   3.5 %
TOTAL REVENUE 116,282 100.0 % 91,316 100.0 % 215,398 100.0 % 168,065 100.0 %
Shack-level operating expenses(1):
Food and paper costs 31,678 28.1 % 24,712 28.1 % 58,633 28.1 % 45,886 28.3 %
Labor and related expenses 29,732 26.3 % 22,426 25.5 % 56,419 27.0 % 42,886 26.4 %
Other operating expenses 12,281 10.9 % 8,486 9.6 % 23,040 11.0 % 16,151 10.0 %
Occupancy and related expenses 7,401 6.6 % 7,043 8.0 % 15,076 7.2 % 13,219 8.2 %
General and administrative expenses 12,587 10.8 % 9,678 10.6 % 24,396 11.3 % 18,148 10.8 %
Depreciation expense 6,968 6.0 % 5,258 5.8 % 13,466 6.3 % 10,006 6.0 %
Pre-opening costs 2,421 2.1 % 1,876 2.1 % 4,450 2.1 % 4,291 2.6 %
Loss on disposal of property and equipment 196   0.2 % 100   0.1 % 386   0.2 % 113   0.1 %
TOTAL EXPENSES 103,264   88.8 % 79,579   87.1 % 195,866   90.9 % 150,700   89.7 %
OPERATING INCOME 13,018 11.2 % 11,737 12.9 % 19,532 9.1 % 17,365 10.3 %
Other income, net 406 0.3 % 198 0.2 % 634 0.3 % 393 0.2 %
Interest expense (613 ) (0.5 )% (366 ) (0.4 )% (1,178 ) (0.5 )% (669 ) (0.4 )%
INCOME BEFORE INCOME TAXES 12,811 11.0 % 11,569 12.7 % 18,988 8.8 % 17,089 10.2 %
Income tax expense 2,240   1.9 % 3,385   3.7 % 3,438   1.6 % 5,043   3.0 %
NET INCOME 10,571 9.1 % 8,184 9.0 % 15,550 7.2 % 12,046 7.2 %
Less: net income attributable to non-controlling interests 2,967   2.6 % 3,305   3.6 % 4,438   2.1 % 4,900   2.9 %
NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC. $ 7,604   6.5 % $ 4,879   5.3 % $ 11,112   5.2 % $ 7,146   4.3 %
 
Earnings per share of Class A common stock:
Basic $ 0.27 $ 0.19 $ 0.41 $ 0.28
Diluted $ 0.26 $ 0.19 $ 0.39 $ 0.27
Weighted-average shares of Class A common stock outstanding:
Basic 27,796 25,798 27,418 25,587
Diluted 28,754 26,312 28,288 26,133
________________

(1)

   

As a percentage of Shack sales.

 
 
SHAKE SHACK INC.
SELECTED BALANCE SHEET DATA AND OPERATING DATA
(UNAUDITED)
 

(in thousands)

     

     June 27, 2018     

  December 27, 2017
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $ 30,879 $ 21,507
Marketable securities $ 61,399 $ 63,036
Total assets $ 536,735 $ 470,606
Total liabilities $ 280,288 $ 246,127
Total equity $ 256,447 $ 224,479
 
  Thirteen Weeks Ended   Twenty-Six Weeks Ended
June 27,   June 28, June 27,   June 28,

(dollar amounts in thousands)

2018 2017 2018 2017
SELECTED OPERATING DATA:
Same-Shack sales growth 1.1 % (1.8 )% 1.3 % (2.1 )%
Shacks in the comparable base 50 37 50 37
 
Shack system-wide sales(1) $ 169,582 $ 133,847 $ 315,849 $ 249,275
 
Average weekly sales
Domestic company-operated $ 89 $ 92 $ 85 $ 89
 
Shack-level operating profit(2) $ 31,806 $ 25,336 $ 55,819 $ 44,016
Shack-level operating profit margin(2) 28.2 % 28.8 % 26.7 % 27.1 %
 
Adjusted EBITDA(2) $ 21,874 $ 19,378 $ 38,040 $ 31,550
Adjusted EBITDA margin(2) 18.8 % 21.2 % 17.7 % 18.8 %
 
Capital expenditures $ 18,646 $ 11,854 $ 36,364 $ 24,986
 
Shack counts (at end of period):
System-wide 179 134 179 134
Domestic company-operated 100 75 100 75
Domestic licensed 10 9 10 9
International licensed 69 50 69 50
________________

(1)

   

Shack system-wide sales is an operating measure and consists of
sales from domestic company-operated Shacks, domestic licensed
Shacks and international licensed Shacks. The Company does not
recognize the sales from licensed Shacks as revenue. Of these
amounts, revenue is limited to Shack sales from domestic
company-operated Shacks and 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.

(2)

Shack-level operating profit and adjusted EBITDA are non-GAAP
measures. Reconciliations of Shack-level operating profit to
operating income and adjusted EBITDA to net income, the most
directly comparable financial measures presented in accordance
with GAAP, are set forth in the schedules accompanying this
release. See "Non-GAAP Financial Measures."

 

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

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

Shack-Level Operating Profit

Shack-level operating profit is defined as Shack sales less Shack-level
operating expenses including food and paper costs, labor and related
expenses, other operating expenses and occupancy and related expenses.

How This Measure Is Useful

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

Limitations of the Usefulness of this Measure

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

   
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 27,   June 28, June 27,   June 28,

(dollar amounts in thousands)

2018 2017 2018 2017
Operating income $ 13,018 $ 11,737 $ 19,532 $ 17,365
Less:
Licensing revenue 3,384 3,313 6,411 5,907
Add:
General and administrative expenses 12,587 9,678 24,396 18,148
Depreciation expense 6,968 5,258 13,466 10,006
Pre-opening costs 2,421 1,876 4,450 4,291
Loss on disposal of property and equipment 196   100   386   113  
Shack-level operating profit $ 31,806   $ 25,336   $ 55,819   $ 44,016  
 
Total revenue $ 116,282 $ 91,316 $ 215,398 $ 168,065
Less: licensing revenue 3,384   3,313   6,411   5,907  
Shack sales $ 112,898   $ 88,003   $ 208,987   $ 162,158  
 
Shack-level operating profit margin 28.2 % 28.8 % 26.7 % 27.1 %
 

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

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 rent expense, losses on the
disposal of property and equipment, as well as certain non-recurring
items that the Company does not believe directly reflect its core
operations and may not be indicative of the Company's recurring business
operations.

How These Measures Are Useful

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

Limitations of the Usefulness of These Measures

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

   
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 27,   June 28, June 27,   June 28,

(in thousands)

2018 2017 2018 2017
Net income $ 10,571 $ 8,184 $ 15,550 $ 12,046
Depreciation expense 6,968 5,258 13,466 10,006
Interest expense, net 613 347 1,171 630
Income tax expense 2,240   3,385   3,438   5,043  
EBITDA 20,392 17,174 33,625 27,725
 
Equity-based compensation 1,303 1,285 2,740 2,534
Deferred rent (361 ) 302 (292 ) 527
Loss on disposal of property and equipment 196 100 386 113
Executive and management transition costs(1) 248 517 248 651
Project Concrete(2) 77 316
Costs related to relocation of Home Office(3) 19     1,017    
ADJUSTED EBITDA $ 21,874   $ 19,378   $ 38,040   $ 31,550  
 
Adjusted EBITDA margin 18.8 % 21.2 % 17.7 % 18.8 %
________________

(1)

   

For the thirteen and twenty-six weeks ended June 27, 2018,
represents fees paid in connection with the search for the
Company's open executive and key management positions, and other
transition costs, including related equity-based compensation. For
the thirteen and twenty-six weeks ended June 28, 2017, represents
fees paid to an executive recruiting firm and a non-recurring
signing bonus paid upon the hiring of the Company's chief
financial officer.

(2)

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

(3)

Costs incurred in connection with the Company's relocation to a
new Home Office, which is comprised of: (i) $326 of duplicative
non-cash deferred rent, (ii) $672 net loss on the sublease of the
Company's prior Home Office, including the write-off of certain
fixed assets and (iii) $19 of administrative costs.

 

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

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

Adjusted pro forma net income represents net income 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 the
Company doesn't believe directly reflect its core operations and may not
be indicative of recurring business operations. Adjusted pro forma
earnings per fully exchanged and diluted share is calculated by dividing
adjusted pro forma net income 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 and adjusted pro forma earnings per fully exchanged and
diluted share are supplemental measures of operating performance that
the Company believes are useful measures to evaluate performance period
over period and relative to its competitors. By assuming the full
exchange of all outstanding LLC Interests, the Company believes 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 its ownership of
SSE Holdings, which are unrelated to the Company's operating
performance, and excludes items that are non-recurring or may not be
indicative of ongoing operating performance.

Limitations of the Usefulness of These Measures

Adjusted pro forma net income and adjusted pro forma earnings per fully
exchanged and diluted share 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 per fully exchanged and diluted share should not be considered
alternatives to net income and earnings per share, as determined under
GAAP. While these measures are useful in evaluating the Company's
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 and adjusted pro forma earnings per
fully exchanged and diluted share should be evaluated in conjunction
with GAAP financial results. A reconciliation of adjusted pro forma net
income to net income attributable to Shake Shack Inc., the most directly
comparable GAAP measure, and the computation of adjusted pro forma
earnings per fully exchanged and diluted share are set forth below.

   
Thirteen Weeks Ended Twenty-Six Weeks Ended

(in thousands, except per share
amounts)

June 27, 2018   June 28, 2017 June 27, 2018   June 28, 2017
Numerator:
Net income attributable to Shake Shack Inc. 7,604 4,879 11,112 7,146
Adjustments:
Reallocation of net income attributable to non-controlling interests
from the assumed exchange of LLC Interests(1)
2,967 3,305 4,438 4,900
Executive and management transition costs(2) 248 517 248 651
Project Concrete(3) 77 316
Costs related to relocation of Home Office(4) 19 1,017
Tax effect of change in tax basis related to the adoption of ASC 606 (311 )
Income tax expense(5) 47   (1,432 ) (199 ) (1,753 )
Adjusted pro forma net income $ 10,962   $ 7,269   $ 16,621   $ 10,944  
 
Denominator:
Weighted-average shares of Class A common stock outstanding—diluted 28,754 26,312 28,288 26,133
Adjustments:
Assumed exchange of LLC Interests for shares of Class A common stock(1) 9,144   10,869   9,452   10,977  
Adjusted pro forma fully exchanged weighted-average shares of Class
A common stock outstanding—diluted
37,898   37,181   37,740   37,110  
 
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.29   $ 0.20   $ 0.44   $ 0.29  
________________

(1)

   

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

(2)

For the thirteen and twenty-six weeks ended June 27, 2018,
represents fees paid in connection with the search for the
Company's open executive and key management positions, and other
transition costs, including related equity-based compensation. For
the thirteen and twenty-six weeks ended June 28, 2017, represents
fees paid to an executive recruiting firm and a non-recurring
signing bonus paid upon the hiring of the Company's chief
financial officer.

(3)

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

(4)

Costs incurred in connection with the Company's relocation to a
new Home Office, which is comprised of: (i) $326 of duplicative
non-cash deferred rent, (ii) $672 net loss on the sublease of the
Company's prior Home Office, including the write-off of certain
fixed assets and (iii) $19 of administrative costs.

(5)

Represents the tax effect of the aforementioned adjustments and
pro forma adjustments to reflect corporate income taxes at assumed
effective tax rates of 16.7% and 19.2% for the thirteen and
twenty-six weeks ended June 27, 2018, respectively, and 39.9% and
38.3% for the thirteen and twenty-six weeks ended June 28, 2017,
respectively. Amounts include provisions for U.S. federal and
certain state and local income taxes, assuming the highest
statutory rates apportioned to each applicable state and local
jurisdiction.

 

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