Shake Shack 2015 Annual Report Download - page 43

Table of Contents
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
EBITDA and Adjusted EBITDA are non-
GAAP supplemental measures of operating performance that do not represent and should not be considered alternatives to net income (loss) or
cash flow from operations, as determined by GAAP. EBITDA and Adjusted EBITDA are used by management to measure the operating performance of their business, excluding
specifically identified items that management believes do not directly reflect their core operations. A reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most
directly comparable GAAP measure, is set forth below.
LIQUIDITY AND CAPITAL RESOURCES
We desire to maintain a strong balance sheet to support our growth initiatives and increase same Shack sales with financial flexibility; to provide the financial resources necessary to
protect and enhance the competitiveness of our brand and guest experience at our Shacks; and to provide a prudent level of financial capacity to manage the risks and uncertainties of
operating our business in the current volatile economic environment and through future economic and industry cycles.
We have continued to experience increases in Shack-level operating profit margin, Adjusted EBITDA, the number of domestic company-operated Shack openings, same-
Shack sales
growth and AUVs. However, the restaurant industry continues to be challenged, and uncertainty exists as to the sustainability of these favorable trends. We believe that cash provided
by operating activities, cash on hand and the Revolving Credit Facility are adequate to fund our debt service requirements, operating lease obligations, capital expenditures and working
capital obligations for at least the next 12 months and the foreseeable future.
Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investment in our
corporate infrastructure. In addition, we are obligated to make payments under the Tax Receivable Agreement. Although the actual timing and amount of any payments that may be
made under the Tax Receivable Agreement will vary, we expect that the payments that we will be required to make to the Continuing SSE Equity Owners will be significant. Any
payments made by us to Continuing SSE Equity Owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been
available to us or to SSE Holdings and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be
deferred and will accrue interest until paid by us.
42
2014¹ 2013 2012
Net income
$
2,118
$
5,423
$
4,133
Depreciation expense
5,809
3,541
2,162
Interest expense, net
363
52
156
Income tax expense
662
460
397
EBITDA
8,952
9,476
6,848
Equity-based compensation
2
165
93
450
Deferred compensation
3
—
2,054
—
Pre-opening costs
4
4,024
1,737
1,623
Deferred rent
5
2,830
975
839
Loss on disposal of property and equipment
6
105
25
—
IPO-related expenses
7
2,675
— —
Other non-cash items
8
135
99
238
ADJUSTED EBITDA
$
18,886
$
14,459
$
9,998
(1) We operate on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year. Fiscal 2014 was a 53-week year with the extra operating week (the " 53rd week
") falling in our fiscal
fourth quarter. Fiscal 2013 and 2012 each contained 52 weeks.
(2)
Non
-cash charges related to equity-
based compensation programs, which vary from period to period depending on the timing of awards.
(3)
For the periods presented, represents amounts accrued under a bonus agreement we entered into with an employee pursuant to which we agreed to a pay a bonus in a future period.
(4)
Non
-
capital expenditures associated with opening new Shacks exclusive of deferred rent incurred prior to opening.
(5) Reflects the extent to which our straight-
line rent expense has been above or below our cash rent payments.
(6)
Includes the loss on disposal of property and equipment in the ordinary course of business.
(7)
Costs incurred in connection with our initial public offering, including legal, accounting and other related expenses.
(8) For the periods presented, represents non-
cash charges related to certain employee benefits.