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Shake Shack Inc. (SHAK) SEC Filing 10-Q Quarterly report for the period ending Wednesday, June 24, 2020

Shake Shack Inc.

CIK: 1620533 Ticker: SHAK
Exhibit 99.1

 shak-imgshakeshacklogo.jpg

Shake Shack Announces Second Quarter 2020 Financial Results
Average Weekly Sales show sequential improvement across both licensed and company-operated locations
Strong digital channel performance, at 75% of total Shack sales, with sales doubling compared to first quarter 2020
Suburban Shacks outperforming those in dense urban locations which remain heavily impacted by business, travel and tourism
 
NEW YORK, NY (Business Wire) — July 30, 2020 —
Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE: SHAK) today reported its financial results for the second quarter ended June 24, 2020, a period that included 13 weeks.
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “Throughout this difficult time, I remain incredibly proud of our team. They've continued to show up, to support each other, our guests, our communities and our suppliers. They’ve had an unwavering commitment to excellence and hospitality in the face of an incredibly challenging operating environment. We owe them a debt of gratitude, and remain committed to their safety, well-being and ongoing development and growth."

Garutti concluded, “Despite the challenging environment, total sales and average weekly sales have shown continued improvement throughout the second quarter and the third quarter through July 22. We’ve got the strongest balance sheet we’ve ever had, and with gradual recovery underway across the country, we’re bullish on our long-term growth opportunity which remains as strong as ever. We’ve restarted new Shack development, opening nine domestic company operated Shacks to date this year and targeting a total of 15 to 20 for the full year. We’ve also accelerated work on new Shack formats, adding to our long-term real estate pipeline and sales opportunity. We've created our "Shack Track" pickup model which will be incorporated in many of our new Shack designs as well as retrofitted in certain existing Shacks, and have started the design process for our first ever drive-thru location, planned to open in 2021. We have a strong identified pipeline of leases in negotiation and believe additional and improved development opportunities may be available over time due to the impact of COVID-19 on the overall retail and real estate environment.”

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, the Company 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 accompanying this release. See “Non-GAAP Financial Measures.”


The following information was filed by Shake Shack Inc. (SHAK) on Thursday, July 30, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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
shak-20200624_g1.jpg
SHAKE SHACK INC.
(Exact name of registrant as specified in its charter)
Delaware47-1941186
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
225 Varick Street
Suite 301
New York,New York10014
(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 $0.001SHAKNew 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 FilerAccelerated 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.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
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SHAKE 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 securities16,833  36,508  
Accounts receivable8,291  9,970  
Inventories, net2,346  2,221  
Prepaid expenses and other current assets2,622  1,877  
Total current assets204,076  87,675  
Property and equipment, net322,162  314,862  
Operating lease assets298,602  274,426  
Deferred income taxes, net286,887  279,817  
Other assets12,208  11,488  
TOTAL ASSETS$1,123,935  $968,268  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$20,735  $14,300  
Accrued expenses19,807  24,140  
Accrued wages and related liabilities7,649  11,451  
Operating lease liabilities, current37,082  30,002  
Other current liabilities11,400  19,499  
Total current liabilities96,673  99,392  
Long-term operating lease liabilities332,751  304,914  
Liabilities under tax receivable agreement, net of current portion228,096  226,649  
Other long-term liabilities15,130  15,328  
Total liabilities672,650  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.  
Additional paid-in capital384,338  244,410  
Retained earnings37,196  54,367  
Accumulated other comprehensive income  
Total stockholders' equity attributable to Shake Shack Inc.421,578  298,817  
Non-controlling interests29,707  23,168  
Total equity451,285  321,985  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,123,935  $968,268  
See accompanying Notes to Condensed Consolidated Financial Statements.
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SHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except per share amounts)
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 24
2020
June 26
2019
June 24
2020
June 26
2019
Shack sales$89,519  $147,876  $227,567  $276,445  
Licensing revenue2,267  4,837  7,389  8,877  
TOTAL REVENUE91,786  152,713  234,956  285,322  
Shack-level operating expenses:
Food and paper costs30,027  42,899  69,591  80,890  
Labor and related expenses30,933  40,197  72,699  77,290  
Other operating expenses14,304  16,755  32,083  32,323  
Occupancy and related expenses12,323  11,873  24,881  22,772  
General and administrative expenses14,017  15,393  30,208  29,330  
Depreciation expense12,089  9,799  23,857  18,765  
Pre-opening costs1,734  3,549  3,977  6,191  
Impairment and loss on disposal of assets434  377  2,522  728  
TOTAL EXPENSES115,861  140,842  259,818  268,289  
OPERATING INCOME (LOSS)(24,075) 11,871  (24,862) 17,033  
Other income (loss), net394  447  301  1,011  
Interest expense(442) (97) (554) (169) 
INCOME (LOSS) BEFORE INCOME TAXES(24,123) 12,221  (25,115) 17,875  
Income tax expense (benefit)(6,092) 1,050  (6,005) 3,097  
NET INCOME (LOSS)(18,031) 11,171  (19,110) 14,778  
Less: net income (loss) attributable to non-controlling interests(1,820) 2,141  (1,939) 3,202  
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.$(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:
Basic37,309  30,122  35,876  29,842  
Diluted37,309  31,015  35,876  30,703  
See accompanying Notes to Condensed Consolidated Financial Statements.



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SHAKE SHACK INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 24
2020
June 26
2019
June 24
2020
June 26
2019
Net income (loss)$(18,031) $11,171  $(19,110) $14,778  
Other comprehensive income, net of tax(1):
Change in foreign currency translation adjustment—  —   —  
Net change—  —   —  
OTHER COMPREHENSIVE INCOME—  —   —  
COMPREHENSIVE INCOME (LOSS)(18,031) 11,171  (19,109) 14,778  
Less: comprehensive income (loss) attributable to non-controlling interest(1,820) 2,141  (1,939) 3,202  
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.$(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.
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SHAKE 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 EarningsAccumulated Other Comprehensive IncomeNon-
Controlling
Interest
Total
Equity
SharesAmountSharesAmount
BALANCE, MARCH 25, 202034,523,400  $35  3,117,002  $ $246,970  $53,407  $ $22,188  $322,606  
Net loss (16,211) (1,820) (18,031) 
Other comprehensive income:
Net change in foreign currency translation adjustment—  
Equity-based compensation1,429  1,429  
Activity under stock compensation plans63,601  —  (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 basis385  385  
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs3,649,537   135,718  9,276  144,997  
Distributions paid to non-controlling interest holders(9) (9) 
BALANCE, JUNE 24, 202038,236,538  $38  3,117,002  $ $384,338  $37,196  $ $29,707  $451,285  
BALANCE, MARCH 27, 201929,698,228  $31  7,453,515  $ $199,315  $37,086  $—  $49,299  $285,738  
Net income 9,030  2,141  11,171  
Equity-based compensation2,263  2,263  
Activity under stock compensation plans137,151  (43) 657  614  
Redemption of LLC Interests722,306  (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 basis2,445  2,445  
Distributions paid to non-controlling interest holders(1,558) (1,558) 
BALANCE, JUNE 26, 201930,557,685  $31  6,731,209  $ $208,866  $46,116  $—  $45,653  $300,673  





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For 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 EarningsAccumulated Other Comprehensive IncomeNon-
Controlling
Interest
Total
Equity
SharesAmountSharesAmount
BALANCE, DECEMBER 25, 201934,417,302  $35  3,145,197  $ $244,410  $54,367  $ $23,168  $321,985  
Net loss (17,171) (1,939) (19,110) 
Other comprehensive income:
Net change in foreign currency translation adjustment  
Equity-based compensation2,742  2,742  
Activity under stock compensation plans141,504  —  260  (289) (29) 
Redemption of LLC Interests28,195  —  (28,195) —  195  (195) —  
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis1,013  1,013  
Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs3,649,537   135,718  9,276  144,997  
Distributions paid to non-controlling interest holders(314) (314) 
BALANCE, JUNE 24, 202038,236,538  $38  3,117,002  $ $384,338  $37,196  $ $29,707  $451,285  
BALANCE, DECEMBER 26, 201829,520,833  $30  7,557,347  $ $195,633  $30,404  $—  $47,380  $273,455  
Cumulative effect of accounting changes4,136  1,059  5,195  
Net income 11,576  3,202  14,778  
Equity-based compensation4,010  4,010  
Activity under stock compensation plans210,714  —  932  1,159  2,091  
Redemption of LLC Interests826,138   (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 basis2,811  2,811  
Distributions paid to non-controlling interest holders(1,667) (1,667) 
BALANCE, JUNE 26, 201930,557,685  $31  6,731,209  $ $208,866  $46,116  $—  $45,653  $300,673  
See accompanying Notes to Condensed Consolidated Financial Statements.

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SHAKE 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 expense23,857  18,765  
Amortization of cloud computing asset628  —  
Non-cash operating lease cost22,220  18,765  
Equity-based compensation2,719  3,872  
Deferred income taxes11,225  317  
Non-cash interest expense16  —  
Gain on sale of marketable securities(79) (22) 
Impairment and loss on disposal of assets2,522  728  
Unrealized (gain) loss on available-for-sale securities22  (231) 
Other non-cash expense897   
Changes in operating assets and liabilities:
Accounts receivable1,679  7,252  
Inventories(125) 57  
Prepaid expenses and other current assets(745) (3,908) 
Other assets(1,542) (5,354) 
Accounts payable5,802  (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 liabilities419  19  
NET CASH PROVIDED BY OPERATING ACTIVITIES17,993  35,891  
INVESTING ACTIVITIES
Purchases of property and equipment(37,637) (55,998) 
Purchases of marketable securities(268) (715) 
Sales of marketable securities20,000  27,000  
NET CASH USED IN INVESTING ACTIVITIES(17,905) (29,713) 
FINANCING ACTIVITIES
Proceeds from revolving credit facility50,000  —  
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 costs144,997  —  
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 exercises1,740  3,427  
Employee withholding taxes related to net settled equity awards(1,769) (1,336) 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES136,797  (1,195) 
NET INCREASE IN CASH AND CASH EQUIVALENTS136,885  4,983  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD37,099  24,750  
CASH AND CASH EQUIVALENTS AT END OF PERIOD$173,984  $29,733  
See accompanying Notes to Condensed Consolidated Financial Statements.
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SHAKE SHACK INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
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NOTE 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.
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Recently Adopted Accounting Pronouncements   
We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2020.
Accounting Standards Update (“ASU”)DescriptionDate
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”)DescriptionExpected ImpactEffective 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,
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and 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 EndedTwenty-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 royalties2,133  4,741  7,076  8,645  
Initial territory and opening fees134  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 receivables2,664  4,510  
Gift card liability2,188  2,258  
Deferred revenue, current552  511  
Deferred revenue, long-term11,221  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 EndedTwenty-Six Weeks Ended
June 24
2020
June 26
2019
June 24
2020
June 26
2019
Gift card liability$46  $105  $345  $383  
Deferred revenue134  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.


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Cash, 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 EquivalentsMarketable Securities
Cash$173,984  $—  $—  $173,984  $173,984  $—  
Level 1:
Money market funds—  —  —  —  —  —  
Mutual funds16,783  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 EquivalentsMarketable Securities
Cash$32,094  $—  $—  $32,094  $32,094  $—  
Level 1:
Money market funds5,005  —  —  5,005  5,005  —  
Mutual funds36,436  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 EndedTwenty-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 securities334  74  (22) 231  
Total$400  $461  $307  $996  
A summary of equity securities sold and gross realized gains and losses recognized during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019 is as follows:
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 24
2020
June 26
2019
June 24
2020
June 26
2019
Equity securities:
Gross proceeds from sales and redemptions$—  $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.
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Other 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