UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 24, 2020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from _______ to ______
Commission file number: 001-36823
SHAKE SHACK INC.
(Exact name of registrant as specified in its charter)
| Delaware | 47-1941186 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||||||||
| 225 Varick Street | |||||||||||
| Suite 301 | |||||||||||
| New York, | New York | 10014 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(646) 747-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Class A Common Stock, par value $0.001 | SHAK | New York Stock Exchange | ||||||
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule-405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☑ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
As of July 22, 2020, there were 38,237,019 shares of Class A common stock outstanding and 3,117,002 shares of Class B common stock outstanding.
SHAKE SHACK INC.
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, including risks related to the COVID-19 outbreak, 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. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.
While we believe that our assumptions are reasonable, it is very difficult to predict the impact of known factors, and it is impossible to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2019 filed with the U.S. Securities and Exchange Commission (the "SEC") under the heading "Risk Factors" and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarterly period ended June 24, 2020.
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Shake Shack Inc. 
Form 10-Q | 1
Form 10-Q | 1PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
| Page | |||||
2 | Shake Shack Inc. Form 10-Q
Form 10-QSHAKE SHACK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts)
| June 24 2020 | December 25 2019 | ||||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 173,984 | $ | 37,099 | |||||||||||||
| Marketable securities | 16,833 | 36,508 | |||||||||||||||
| Accounts receivable | 8,291 | 9,970 | |||||||||||||||
| Inventories, net | 2,346 | 2,221 | |||||||||||||||
| Prepaid expenses and other current assets | 2,622 | 1,877 | |||||||||||||||
| Total current assets | 204,076 | 87,675 | |||||||||||||||
| Property and equipment, net | 322,162 | 314,862 | |||||||||||||||
| Operating lease assets | 298,602 | 274,426 | |||||||||||||||
| Deferred income taxes, net | 286,887 | 279,817 | |||||||||||||||
| Other assets | 12,208 | 11,488 | |||||||||||||||
| TOTAL ASSETS | $ | 1,123,935 | $ | 968,268 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 20,735 | $ | 14,300 | |||||||||||||
| Accrued expenses | 19,807 | 24,140 | |||||||||||||||
| Accrued wages and related liabilities | 7,649 | 11,451 | |||||||||||||||
| Operating lease liabilities, current | 37,082 | 30,002 | |||||||||||||||
| Other current liabilities | 11,400 | 19,499 | |||||||||||||||
| Total current liabilities | 96,673 | 99,392 | |||||||||||||||
| Long-term operating lease liabilities | 332,751 | 304,914 | |||||||||||||||
| Liabilities under tax receivable agreement, net of current portion | 228,096 | 226,649 | |||||||||||||||
| Other long-term liabilities | 15,130 | 15,328 | |||||||||||||||
| Total liabilities | 672,650 | 646,283 | |||||||||||||||
| Commitments and contingencies (Note 15) | |||||||||||||||||
| Stockholders' equity: | |||||||||||||||||
| Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of June 24, 2020 and December 25, 2019. | — | — | |||||||||||||||
| Class A common stock, $0.001 par value—200,000,000 shares authorized; 38,236,538 and 34,417,302 shares issued and outstanding as of June 24, 2020 and December 25, 2019, respectively. | 38 | 35 | |||||||||||||||
| Class B common stock, $0.001 par value—35,000,000 shares authorized; 3,117,002 and 3,145,197 shares issued and outstanding as of June 24, 2020 and December 25, 2019, respectively. | 3 | 3 | |||||||||||||||
| Additional paid-in capital | 384,338 | 244,410 | |||||||||||||||
| Retained earnings | 37,196 | 54,367 | |||||||||||||||
| Accumulated other comprehensive income | 3 | 2 | |||||||||||||||
| Total stockholders' equity attributable to Shake Shack Inc. | 421,578 | 298,817 | |||||||||||||||
| Non-controlling interests | 29,707 | 23,168 | |||||||||||||||
| Total equity | 451,285 | 321,985 | |||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,123,935 | $ | 968,268 | |||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Shake Shack Inc. Form 10-Q | 3
Form 10-Q | 3SHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except per share amounts)
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | ||||||||||||||||||||||||||
| Shack sales | $ | 89,519 | $ | 147,876 | $ | 227,567 | $ | 276,445 | |||||||||||||||||||||
| Licensing revenue | 2,267 | 4,837 | 7,389 | 8,877 | |||||||||||||||||||||||||
| TOTAL REVENUE | 91,786 | 152,713 | 234,956 | 285,322 | |||||||||||||||||||||||||
| Shack-level operating expenses: | |||||||||||||||||||||||||||||
| Food and paper costs | 30,027 | 42,899 | 69,591 | 80,890 | |||||||||||||||||||||||||
| Labor and related expenses | 30,933 | 40,197 | 72,699 | 77,290 | |||||||||||||||||||||||||
| Other operating expenses | 14,304 | 16,755 | 32,083 | 32,323 | |||||||||||||||||||||||||
| Occupancy and related expenses | 12,323 | 11,873 | 24,881 | 22,772 | |||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||
| Impairment and loss on disposal of assets | 434 | 377 | 2,522 | 728 | |||||||||||||||||||||||||
| TOTAL EXPENSES | 115,861 | 140,842 | 259,818 | 268,289 | |||||||||||||||||||||||||
| OPERATING INCOME (LOSS) | (24,075) | 11,871 | (24,862) | 17,033 | |||||||||||||||||||||||||
| Other income (loss), net | 394 | 447 | 301 | 1,011 | |||||||||||||||||||||||||
| Interest expense | (442) | (97) | (554) | (169) | |||||||||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (24,123) | 12,221 | (25,115) | 17,875 | |||||||||||||||||||||||||
| Income tax expense (benefit) | (6,092) | 1,050 | (6,005) | 3,097 | |||||||||||||||||||||||||
| NET INCOME (LOSS) | (18,031) | 11,171 | (19,110) | 14,778 | |||||||||||||||||||||||||
| Less: net income (loss) attributable to non-controlling interests | (1,820) | 2,141 | (1,939) | 3,202 | |||||||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $ | (16,211) | $ | 9,030 | $ | (17,171) | $ | 11,576 | |||||||||||||||||||||
| Earnings (loss) per share of Class A common stock: | |||||||||||||||||||||||||||||
| Basic | $ | (0.43) | $ | 0.30 | $ | (0.48) | $ | 0.39 | |||||||||||||||||||||
| Diluted | $ | (0.43) | $ | 0.29 | $ | (0.48) | $ | 0.38 | |||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding: | |||||||||||||||||||||||||||||
| Basic | 37,309 | 30,122 | 35,876 | 29,842 | |||||||||||||||||||||||||
| Diluted | 37,309 | 31,015 | 35,876 | 30,703 | |||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4 | Shake Shack Inc. Form 10-Q
Form 10-QSHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | ||||||||||||||||||||||||||
| Net income (loss) | $ | (18,031) | $ | 11,171 | $ | (19,110) | $ | 14,778 | |||||||||||||||||||||
Other comprehensive income, net of tax(1): | |||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | 1 | — | |||||||||||||||||||||||||
| Net change | — | — | 1 | — | |||||||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME | — | — | 1 | — | |||||||||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | (18,031) | 11,171 | (19,109) | 14,778 | |||||||||||||||||||||||||
| Less: comprehensive income (loss) attributable to non-controlling interest | (1,820) | 2,141 | (1,939) | 3,202 | |||||||||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $ | (16,211) | $ | 9,030 | $ | (17,170) | $ | 11,576 | |||||||||||||||||||||
(1) Net of tax expense of $0 for the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019.
See accompanying Notes to Condensed Consolidated Financial Statements.
Shake Shack Inc. Form 10-Q | 5
Form 10-Q | 5SHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands, except share amounts)
For the Thirteen Weeks Ended June 24, 2020 and June 26, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Non- Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, MARCH 25, 2020 | 34,523,400 | $ | 35 | 3,117,002 | $ | 3 | $ | 246,970 | $ | 53,407 | $ | 3 | $ | 22,188 | $ | 322,606 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | (16,211) | (1,820) | (18,031) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | 1,429 | 1,429 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock compensation plans | 63,601 | — | (164) | 72 | (92) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of LLC Interests | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis | 385 | 385 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs | 3,649,537 | 3 | 135,718 | 9,276 | 144,997 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to non-controlling interest holders | (9) | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 24, 2020 | 38,236,538 | $ | 38 | 3,117,002 | $ | 3 | $ | 384,338 | $ | 37,196 | $ | 3 | $ | 29,707 | $ | 451,285 | ||||||||||||||||||||||||||||||||||||||||
| BALANCE, MARCH 27, 2019 | 29,698,228 | $ | 31 | 7,453,515 | $ | 7 | $ | 199,315 | $ | 37,086 | $ | — | $ | 49,299 | $ | 285,738 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 9,030 | 2,141 | 11,171 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | 2,263 | 2,263 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock compensation plans | 137,151 | (43) | 657 | 614 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of LLC Interests | 722,306 | (722,306) | 4,886 | (4,886) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis | 2,445 | 2,445 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to non-controlling interest holders | (1,558) | (1,558) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 26, 2019 | 30,557,685 | $ | 31 | 6,731,209 | $ | 7 | $ | 208,866 | $ | 46,116 | $ | — | $ | 45,653 | $ | 300,673 | ||||||||||||||||||||||||||||||||||||||||
6 | Shake Shack Inc. Form 10-Q
Form 10-QFor the Twenty-Six Weeks Ended June 24, 2020 and June 26, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Non- Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 25, 2019 | 34,417,302 | $ | 35 | 3,145,197 | $ | 3 | $ | 244,410 | $ | 54,367 | $ | 2 | $ | 23,168 | $ | 321,985 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | (17,171) | (1,939) | (19,110) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change in foreign currency translation adjustment | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | 2,742 | 2,742 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock compensation plans | 141,504 | — | 260 | (289) | (29) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of LLC Interests | 28,195 | — | (28,195) | — | 195 | (195) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis | 1,013 | 1,013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs | 3,649,537 | 3 | 135,718 | 9,276 | 144,997 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to non-controlling interest holders | (314) | (314) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 24, 2020 | 38,236,538 | $ | 38 | 3,117,002 | $ | 3 | $ | 384,338 | $ | 37,196 | $ | 3 | $ | 29,707 | $ | 451,285 | ||||||||||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 26, 2018 | 29,520,833 | $ | 30 | 7,557,347 | $ | 8 | $ | 195,633 | $ | 30,404 | $ | — | $ | 47,380 | $ | 273,455 | ||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of accounting changes | 4,136 | 1,059 | 5,195 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 11,576 | 3,202 | 14,778 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | 4,010 | 4,010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock compensation plans | 210,714 | — | 932 | 1,159 | 2,091 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of LLC Interests | 826,138 | 1 | (826,138) | (1) | 5,480 | (5,480) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis | 2,811 | 2,811 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to non-controlling interest holders | (1,667) | (1,667) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 26, 2019 | 30,557,685 | $ | 31 | 6,731,209 | $ | 7 | $ | 208,866 | $ | 46,116 | $ | — | $ | 45,653 | $ | 300,673 | ||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Shake Shack Inc. Form 10-Q | 7
Form 10-Q | 7SHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Twenty-Six Weeks Ended | ||||||||||||||||||||||||||
| June 24 2020 | June 26 2019 | |||||||||||||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||||||||||||
| Net income (loss) (including amounts attributable to non-controlling interests) | $ | (19,110) | $ | 14,778 | ||||||||||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||||||||||||||||
| Depreciation expense | 23,857 | 18,765 | ||||||||||||||||||||||||
| Amortization of cloud computing asset | 628 | — | ||||||||||||||||||||||||
| Non-cash operating lease cost | 22,220 | 18,765 | ||||||||||||||||||||||||
| Equity-based compensation | 2,719 | 3,872 | ||||||||||||||||||||||||
| Deferred income taxes | 11,225 | 317 | ||||||||||||||||||||||||
| Non-cash interest expense | 16 | — | ||||||||||||||||||||||||
| Gain on sale of marketable securities | (79) | (22) | ||||||||||||||||||||||||
| Impairment and loss on disposal of assets | 2,522 | 728 | ||||||||||||||||||||||||
| Unrealized (gain) loss on available-for-sale securities | 22 | (231) | ||||||||||||||||||||||||
| Other non-cash expense | 897 | 2 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||||||||
| Accounts receivable | 1,679 | 7,252 | ||||||||||||||||||||||||
| Inventories | (125) | 57 | ||||||||||||||||||||||||
| Prepaid expenses and other current assets | (745) | (3,908) | ||||||||||||||||||||||||
| Other assets | (1,542) | (5,354) | ||||||||||||||||||||||||
| Accounts payable | 5,802 | (5,202) | ||||||||||||||||||||||||
| Accrued expenses | (15,179) | 3,870 | ||||||||||||||||||||||||
| Accrued wages and related liabilities | (3,802) | (1,271) | ||||||||||||||||||||||||
| Other current liabilities | (782) | 862 | ||||||||||||||||||||||||
| Long-term operating lease liabilities | (12,649) | (17,408) | ||||||||||||||||||||||||
| Other long-term liabilities | 419 | 19 | ||||||||||||||||||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 17,993 | 35,891 | ||||||||||||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||||||||||||
| Purchases of property and equipment | (37,637) | (55,998) | ||||||||||||||||||||||||
| Purchases of marketable securities | (268) | (715) | ||||||||||||||||||||||||
| Sales of marketable securities | 20,000 | 27,000 | ||||||||||||||||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (17,905) | (29,713) | ||||||||||||||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||||||||
| Proceeds from revolving credit facility | 50,000 | — | ||||||||||||||||||||||||
| Payments on revolving credit facility | (50,000) | — | ||||||||||||||||||||||||
| Deferred financing costs | (64) | — | ||||||||||||||||||||||||
| Proceeds from issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs | 144,997 | — | ||||||||||||||||||||||||
| Payments on principal of finance leases | (1,150) | (912) | ||||||||||||||||||||||||
| Distributions paid to non-controlling interest holders | (314) | (1,667) | ||||||||||||||||||||||||
| Payments under tax receivable agreement | (6,643) | (707) | ||||||||||||||||||||||||
| Proceeds from stock option exercises | 1,740 | 3,427 | ||||||||||||||||||||||||
| Employee withholding taxes related to net settled equity awards | (1,769) | (1,336) | ||||||||||||||||||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 136,797 | (1,195) | ||||||||||||||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 136,885 | 4,983 | ||||||||||||||||||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 37,099 | 24,750 | ||||||||||||||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 173,984 | $ | 29,733 | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
8 | Shake Shack Inc. Form 10-Q
Form 10-QSHAKE SHACK INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
| Page | ||||||||
Note 16 | Related Party Transactions | |||||||
Shake Shack Inc. Form 10-Q | 9
Form 10-Q | 9NOTE 1: NATURE OF OPERATIONS
Shake Shack Inc. ("we," "us," "our," "Shake Shack" and the "Company") was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings"). We are the sole managing member of SSE Holdings and, as sole managing member, we operate and control all of the business and affairs of SSE Holdings. As a result, we consolidate the financial results of SSE Holdings and report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of June 24, 2020 we owned 92.5% of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings.
We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, hot dogs, chicken, crinkle-cut fries, shakes, frozen custard, beer, wine and more. As of 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. As of June 24, 2020, 8 domestic company-operated Shacks and 27 licensed Shacks were temporarily closed due to COVID-19.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 25, 2019 ("2019 Form 10-K"). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our 2019 Form 10-K. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, we consolidate SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of June 24, 2020 and December 25, 2019, the net assets of SSE Holdings were $394,424 and $270,542, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. See Note 8 for more information.
Fiscal Year
We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal 2020 contains 53 weeks and ends on December 30, 2020. Fiscal 2019 contained 52 weeks and ended on December 25, 2019. Unless otherwise stated, references to years in this report relate to fiscal years.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
10 | Shake Shack Inc. Form 10-Q
Form 10-QRecently Adopted Accounting Pronouncements
We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2020.
| Accounting Standards Update (“ASU”) | Description | Date Adopted | ||||||
Measurement of Credit Losses on Financial Instruments (ASU 2016-13) | This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of this standard did not have a material impact to our consolidated financial statements. | December 26, 2019 | ||||||
| Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) | This standard provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The adoption of this standard did not have a material impact to our consolidated financial statements. | Effective upon issuance (March 12, 2020) | ||||||
Recently Issued Accounting Pronouncements
| Accounting Standards Update (“ASU”) | Description | Expected Impact | Effective Date | ||||||||
| Simplifying the Accounting for Income Taxes (ASU 2019-12) | This standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. | We are currently evaluating the impact this standard will have on our consolidated financial statements. | December 31, 2020 Early adoption is permitted. | ||||||||
NOTE 3: REVENUE
Revenue Recognition
Revenue consists of Shack sales and licensing revenue. Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.
Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from our gift cards is deferred and recognized upon redemption.
Licensing revenues include initial territory fees, Shack opening fees, and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant goods or services transferred to the licensee in our contracts, and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the licenses and considered as one performance obligation per Shack. We determine the transaction price for each contract, which is comprised of the initial territory fee, and an estimate of the total Shack opening fees we expect to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack. Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial territory fee is received upon execution of the licensing agreement,
Shake Shack Inc. Form 10-Q | 11
Form 10-Q | 11and payment for the restaurant opening fees are received either in advance of or upon opening the related restaurant. These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period.
Revenue from sales-based royalties is recognized as the related sales occur.
Revenue recognized during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019, disaggregated by type is as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | ||||||||||||||||||||
| Shack sales | $ | 89,519 | $ | 147,876 | $ | 227,567 | $ | 276,445 | |||||||||||||||
| Licensing revenue: | |||||||||||||||||||||||
| Sales-based royalties | 2,133 | 4,741 | 7,076 | 8,645 | |||||||||||||||||||
| Initial territory and opening fees | 134 | 96 | 313 | 232 | |||||||||||||||||||
| Total revenue | $ | 91,786 | $ | 152,713 | $ | 234,956 | $ | 285,322 | |||||||||||||||
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of June 24, 2020 was $15,794. We expect to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties.
Contract Balances
Opening and closing balances of contract liabilities and receivables from contracts with customers is as follows:
| June 24 2020 | December 26 2019 | |||||||||||||
| Shack sales receivables | $ | 3,713 | $ | 4,265 | ||||||||||
| Licensing receivables | 2,664 | 4,510 | ||||||||||||
| Gift card liability | 2,188 | 2,258 | ||||||||||||
| Deferred revenue, current | 552 | 511 | ||||||||||||
| Deferred revenue, long-term | 11,221 | 11,310 | ||||||||||||
Revenue recognized during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019 that was included in their respective liability balances at the beginning of the period is as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | ||||||||||||||||||||
| Gift card liability | $ | 46 | $ | 105 | $ | 345 | $ | 383 | |||||||||||||||
| Deferred revenue | 134 | 85 | 305 | 219 | |||||||||||||||||||
NOTE 4: FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of June 24, 2020 and December 25, 2019, and indicate the classification within the fair value hierarchy.
Shake Shack Inc. Form 10-Q | 12
Form 10-Q | 12Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of June 24, 2020 and December 25, 2019:
| June 24, 2020 | ||||||||||||||||||||||||||||||||||||||
| Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||||||||||||||||||||
| Cash | $ | 173,984 | $ | — | $ | — | $ | 173,984 | $ | 173,984 | $ | — | ||||||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||||||||||||||
| Money market funds | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Mutual funds | 16,783 | 50 | — | 16,833 | — | 16,833 | ||||||||||||||||||||||||||||||||
| Total | $ | 190,767 | $ | 50 | $ | — | $ | 190,817 | $ | 173,984 | $ | 16,833 | ||||||||||||||||||||||||||
| December 25, 2019 | ||||||||||||||||||||||||||||||||||||||
| Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||||||||||||||||||||
| Cash | $ | 32,094 | $ | — | $ | — | $ | 32,094 | $ | 32,094 | $ | — | ||||||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||||||||||||||
| Money market funds | 5,005 | — | — | 5,005 | 5,005 | — | ||||||||||||||||||||||||||||||||
| Mutual funds | 36,436 | 72 | — | 36,508 | — | 36,508 | ||||||||||||||||||||||||||||||||
| Total | $ | 73,535 | $ | 72 | $ | — | $ | 73,607 | $ | 37,099 | $ | 36,508 | ||||||||||||||||||||||||||
A summary of other income (loss) from equity securities recognized during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019 is as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | |||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Dividend income | $ | 66 | $ | 351 | $ | 250 | $ | 743 | ||||||||||||||||||
| Realized gain (loss) on sale of investments | — | 36 | 79 | 22 | ||||||||||||||||||||||
| Unrealized gain (loss) on equity securities | 334 | 74 | (22) | 231 | ||||||||||||||||||||||
| Total | $ | 400 | $ | 461 | $ | 307 | $ | 996 | ||||||||||||||||||
A summary of equity securities sold and gross realized gains and losses recognized during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019 is as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||
| June 24 2020 | June 26 2019 | June 24 2020 | June 26 2019 | |||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Gross proceeds from sales and redemptions | $ | — | $ | 12,000 | $ | 20,000 | $ | 27,000 | ||||||||||||||||||
| Cost basis of sales and redemptions | — | 11,964 | 19,921 | 26,978 | ||||||||||||||||||||||
| Gross realized gains included in net income (loss) | — | 36 | 79 | 36 | ||||||||||||||||||||||
| Gross realized losses included in net income (loss) | — | — | — | (14) | ||||||||||||||||||||||
Realized gains and losses are determined on a specific identification method and are included in other income, net on the Condensed Consolidated Statements of Income (Loss). As of June 24, 2020 and December 25, 2019, there was no decline in the market value of our marketable securities investment portfolio.
Shake Shack Inc. Form 10-Q | 13
Form 10-Q | 13Other Financial Instruments
The carrying value of our other financial instruments, including accounts receivable, accounts payable, and accrued expenses as of June 24, 2020 and December 25, 2019 approximated their fair value due to the short-term nature of these financial instruments.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. During the twenty-six weeks ended June 24, 2020, we recognized an impairment charge of $1,132 at one location. Of the total impairment charge, $736 was attributed to property and equipment held and used, $383 was attributed to operating lease right-of-use assets, and $13 was attributed to finance lease right-of-use assets. The asset impairment charge is included in Impairment and loss on disposal of assets on the Condensed Consolidated Statement of Income (Loss). The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. There were no impairment charges recognized during the thirteen weeks ended June 24, 2020.
NOTE 5: INVENTORIES
Inventories are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. We make adjustments to our inventory reserves for inventories that are deemed to be obsolete or slow moving. As of June 24, 2020 and December 25, 2019, no adjustment was deemed necessary to reduce inventory to net realizable value due to the rapid turnover and high utilization of inventory. Inventories as of June 24, 2020 and December 25, 2019 consisted of the following:
| June 24 2020 | December 25 2019 | ||||||||||