Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Shake Shack Third Quarter 2015 Earnings Conference Call. At this time all the participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation. Please note that this conference is being recorded today, November 5, 2015. On the call today, we have Randy Garutti, Chief Executive Officer of Shake Shack; and Jeff Uttz, Chief Financial Officer. And now, I’d like to turn the conference over to Jeff Uttz.

Thank you operator and good evening everyone. By now you should all have access to our third quarter 2015 earnings release. If not, it can be found at shakeshack.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties, including those discussed in the risk factor section of our Annual Report on Form 10-K, which was filed on March 27, 2015, our subsequent Quarterly Reports on Form 10-Q, our perspectives, which was filed on August 13, 2015, and our Registration Statement on Form S-1, which was filed with the SEC on October 8, 2015. Additionally, any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. During today’s call we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, reconciliations to comparable GAAP measures are available in the earnings release. With that I’d like to now turn the call over to Randy.

Thanks Jeff, and good evening to everyone on the call today. I want to start by celebrating the extraordinary hard work of our team in the recent quarter and throughout all of 2015. The results we’re sharing today have surpassed our expectations in nearly all areas. I’ve been working with Shake Shack since we sold our first hotdog to support an art project in Madison Square Park 14 years ago, when none of us ever dreamed we’d be talking to you today. We took the company public earlier this year. Even I, with more confidence in who we are and where we’re headed than anyone, never expected the results we’re sharing today. Both our existing guests and so many new guests have connected to our brand in record numbers, and it shows in our results. We’re going to continue to take care of our team first, continue to innovate and continue to lead one burger at a time. It’s that enlightened hospitality culture that got us here and it’s what we’ll always use as our compass while we continue to build a great company. Guests today care more about their food choices. They want to know more about where their food comes from. They want to connect and share their experiences instantly with people the world over. Shake Shack is providing our guests with a community gathering place their neighborhoods need. Now to a few notable highlights from the quarter. Total revenue grew 67% to $53.3 million. Same-Shack sales increased 17.1%. Shack level operating profit in non-GAAP measure increased 106% to $15.6 million, representing a 30.4% Shack level operating profit margin. Adjusted EBITDA in non-GAAP measure increased 128% to $13 million. On an adjusted pro forma basis, net income increased 252% and we earned $0.12 for fully exchanged and diluted…

Thanks, Randy. I’m really excited to be able to share with all of you the results of our 13-week third quarter ended September 30, 2015. Total revenue which includes Shack sales and licensing revenues increased 67.4% at $53.3 million during the third quarter from $31.8 million in the third quarter of last year. Shack sales increased 70% at $51.3 million during the quarter versus $30.2 million in the year-ago period. This increase was largely due to the addition of new domestic company operated shacks over the past few years as well as our shorter than expected same-Shack sales growth. Same-Shack sales increased 17.1% on a calendar basis during the third quarter versus 1.2% increase in the same quarter of last year. This increase consisted of an 8.1% increase in traffic combined with a 9% increase in pricing mix. Our strong growth from the third quarter was positively impacted by the factors Randy noted earlier, including increased brand awareness from the IPO, return of crinkle cut fries; a positive mix shift from many invasion including the Roadside Shack and our Shake of the Week and many price increases approximately 3% taken in early September 2014, which we have now rolled over another 3% taken in January 2015 to offset commodity cost pressures. When we discuss comp, it’s important to remind everyone the balance of these numbers and the context of our relatively small comp base. Our comparable Shack base includes only those Shacks that are open for 24 months or longer. The comparable Shack base in the third quarter of 2013 included only 16 Shacks compared to 12 Shacks in the third quarter of 2014. Also 16 Shacks in the base, only six of them are in our original market of New York City. We want to highlight that our same-Shack…

Thanks, Jeff. I want to take a moment now to talk about net share. And how you should think about our business. Make no mistake, we have to set the bar high for ourselves. We’ve been consistent in delivering on what we certainly would do, we plan to continue to execute on our plan. I do want a call timeout and recalibrate our message as we look forward. So far this year has been extraordinary, for all the reasons we’ve mentioned before and for all the people who continue to come to Shake Shack in record numbers. The world is telling us this is a product they love, this is a company whose ethos they want to share and this is a place they want to gather. The results speak for themselves. I’m incredibly proud of our team in the results for the year so far. And at the same time, we remain cautious about the challenges ahead. I want to reiterate Jeff’s comments on a label pressures ahead, as we expect rising wages to remain a headwind for us and the entire restaurant industry. Shake Shack is always taking care of our team, and competitively wages to attract and keep a sincere hospitable and high performance team. We’ll continue to take the high road and offer completive wage packages, while focusing on growing revenue and attracting the best talents in our company. What we do takes as talented human beings, it takes able hands and full hearts. And we remain committed to delivering the genuine hospitality to our guests have come to respect from us. Moving forward, it’s really important to balance our own, as well as your expectations of our growth, especially as it relates to our small comp base. We set the performance bar extremely high in…

[Operator Instruction] We’ll take our first question from John Ivankoe with JPMorgan.

Hi, first, congratulations. Very impressive quarter. So you made your remarks, some comments around the fourth quarter, basically saying you’re losing 3 points of pricing, you’re lapping the crinkle cut fries. It’s a really big trend change relative to the 17% that you saw in the third quarter to what I think you’re implying to be something like a mid-single digit comp in the fourth quarter. So I guess confirm that’s the comp that you’re talking about, if you are seeing that. And I realize there’s only 16 restaurants in the comp base. But are you seeing a significant change in your compensation between the third quarter and the fourth quarter? And I’m sure you know some of your peers have talked about a pretty slow October.

Hey, John, this is Jeff. I’m going to just guide you back in the 11% to 12% versus talking really about numbers that we’re seeing in Q4 with typically. So we’re doing a number of factors that went into – that 11% to 12% number, the things were rolling over and we previously mentioned a few times on the call, as well as we were five weeks into Q4, and really what we are seeing in Q4. So I want to get a specific number mid-quarter where we are at Q4, but we do expect that 11% to 12% range for the year.

If you look at, John, the 17% versus the previous of nearly 13% [ph], third quarter was just an extraordinary quarter for a lot of reasons. And I think just knowing that we lapped that 3% price, knowing that we were lapping crinkle cuts, knowing that we’re lapping crinkle cuts, knowing that at the Madison Square Park is now back out of the base and that has really contributed for the quarter. So there is a reason for the 11% to 12% guidance on that.

Okay, you just said that point. Madison Square Park was a big contributor in the third quarter?

Yes as we talked about, as I talk about early in the script here, Madison Square Park and all the New York Shacks were contributors to the comp. But as we’ve said again nationwide across geographies the comp base is small. But of all the 16 much more weighted outside of New York all those Shacks performed very well.

And then John just to give a little bit more color on it, there’s five Shacks that will be coming into the base in Q4. So it will be 21 Shacks in the comp base by the end of this year.

Okay, that’s helpful. If I can continue, in your comp guidance for fiscal 2016, is there any additional pricing that you’re anticipating especially in the context of higher labor costs across the industry?

Well, as Jeff noted, we’re hoping that we can hold on the comp line to slightly elevated for next year which is going to allow us use price to really pay for, partially offset, the deleveraging we see on the labor line. We’re intending a low single-digit price increase in mid-January right now. Haven’t finalized that plan yet. We’ll keep you posted.

Okay. I may have missed that. And you mentioned there was a mix of a flagship and fill in restaurants. I think one-third flagship and two-thirds fill-in. I don’t think you use the word fill-in but that’s what I’m calling it. Should we think about significant average unit volume difference between the two? For example, maybe the fill-in restaurants do the $2.8 million to $3.2 million that you previously guided and flagship is something like $5 million plus? Are you willing to talk about the different average unit volumes that you expect of these different classes of units?

John we won’t talk about it differently but I think that’s not the right way to think about it. So a flagship launch in a new market is not neisserially need a higher volume. For example, we are having the Manhattan Shack next year in Harold Square. So we expect that to be a high-volume restaurant but that would categorize as a fill-in, right? So not every Shacks just I would new market needs high volume. So that’s where we come off a long-term $2.8 million to $3.2 million if we believe in past 2016 but for short of Class A of 2016 as far as we know today, we’re projecting a higher segment in that range around $3.3 million on average. So, there will be stuff below that. There will be restaurants above it.

Understood. And a final one for me. Hopefully, there are all small enough questions. I think there was some confusion in the press around your registration for the shares bringing class B to class A. You didn’t mention it really in your prepared remarks. But is there anything that you would like to clarify in terms of what that means? When that stock could be sold by the existing shareholders? Is there any lockups that we should be sensitive to blackout periods, what have you, in terms of when that stock could be in the public market?

Well thanks for asking that John, appreciate it, asking, giving us a chance to clarify that. I think there was some miss understanding to that. Let me direct you, first of all the best information you are going to get the registration statement that’s on filled with SEC. But I will say we believe the reason I was doing it, is there’s efficiency to achieve by us registering the class A shares at once. We have a unique up sea structure here, okay? That registration allows any pre-IPO owner to sell from time to time as they might choose. It is not an indication but anything more than that. This filing does not over overshadow the confidence of Danny Myer, our Board, our management, myself, our directors have in the long-term outlook of this business.

Okay. Thank you.

Thanks, John.

[Operator Instructions] Next we’ll hear from Paul Westra with Stifel.

Great. Thanks, good afternoon.

Hey, Paul.

Great quarter. Congrats. Just to follow up on your cost of goods sold commentary and specifically, beef. If I understood it right on the call, it sounds like you're not experiencing too much of drop in ground beef although others are and I know you guys have different cuts of beef. Any more granularity on the outlook there? And then, I think your commentary qualitatively for next year's because you had hold or elevated cost of goods sold, does that mean a flattish commodity basket before price?

Yes. We think flat to slightly up. Beef is still a quarter-over-quarter, Q3 over Q3. But based on what we're seeing today, it's started to level out. It's so high, it hasn’t come down. I mean as I said earlier, we don't expect to really see it come down quite a bit until early 2017. But it has started to level out on us a little bit. And because it as I think in previous calls I said that we expected sequential in mid-digit inflation quarter-over-quarter and now we are seeing flat to just slightly up sequentially quarter-over-quarter.

And Paul reminder that, we are not buying commodity beef, we're not being trimmings. We're buying the whole muscle, hormone antibiotic free never ever beef. And that doesn't follow exactly the same rules as the commodity does. So we've been fortunate I’ve said to be sort of leveling in this last quarter, fill up from last year, and we don't see it going down anytime soon. But we're hoping that it can kind of hold as far as we can tell into this next few quarters.

So, even with the rest of the beef complex coming down, I get the whole meat, most cuts are down. But as of now, I guess the overall supply of that type of cut is relatively small enough that's the best you can hope for at this point?

What we might call it, it's less than 10% of the overall beef market, so it doesn't necessarily behave the same as everybody else, what everybody else is buying.

Yes. We’d be happy to see flat this quarter and through next year.

Fair enough. Okay. And can you just remind me in the Madison Square Park store, when did it leave, when did it come back out? I think I got tripped up on that. Just remind me when that comes in and out of the comp base?

The out is basically October to May. So it was out in October of 2014 to May of 2015. And then it came out again in October of 2015 and will stay out until May of 2016. And then back in and all that noise is gone.

Okay. Thank you. Lastly, if I may, just one more word on the minimum wage hikes especially with New York City. A lot of uncertainty for all players in the city in particular. Any thoughts about – in relation to your price increases? Will it be regional? That’s low single-digit? Is that a weighted average national? Maybe a little bit more in New York City? I know you were preemptive on your taking wages higher generally this calendar year. Maybe just refresh us on that and what you’re thinking about New York City in particular?

Yes, Paul, it’s up. It’s headed up. We’ve always paid above minimum wage. As Jeff mentioned, we’ve been experimenting for a couple months at being a couple dollars above minimum wage. Washington DC at $12 an hour. We’re paying $11 hour in Texas, well above minimum wage. And we’re going to continue to think about that. We haven’t decide on the dates but we do know that we’ll be increasing our wages. We want to get the best team. We want to have the best people, driving sales, and driving our restaurant. So we’re going to pay the right wage in each market to do that, to be determined when. We don’t believe the low single digit price we intend to take roll, fully offset that. So we expect even further pressure than this grew the labor line for our hourly team members.

Great. Thanks and congrats on a great quarter.

Thanks, Paul.

We’ll take our next question from Sharon Zackfia with William Blair.

Hi, good afternoon. I’ll add my congratulations. I think the mixed component really tipped up materially sequentially between the second and the third quarter. And I know you talked about all of the things that are adding to the average check. But I’m just curious as you looked at that summer versus spring season, what really accelerated for you there? Was it just the Shake of the Week or something like that which is more seasonally important in the summer? It’s a pretty big tick up.

Well, you’re right to say that. It’s a little bit of a tick up. Traffic was really up too. I will agree with you, Sharon, when we’re higher volume, that volume does translate to a higher percentage of those LTO’s. If we look at the Roadside Shack versus the Shack Burger, you get nearly 20% kick on that item if somebody were to trade to that. For the shakes that we talked about, no question. That’s our summer season. We sell more shakes in the summer. You’re absolutely right to hit on that. And that – when we’re selling the new kind of shakes, the special custard’s of the weak shakes, that gives us about a 5% win from ordering a regular vanilla or chocolate shake. So you got it. I think you’re spot on to that and that has been a contributor to the mix continuing to go. That’s also part of why, as we explained to John a few moments ago, why we’re being more cautious about Q4, because with lower volume seasonally, we are a little slower in Q4 than we are in Q3 and Q2. We are a little busier in the summer in our restaurant so that's an impact.

Okay and then you were talking a lot of about focusing on the long-term and the extension opportunities. [indiscernible] our opening the stores in the US and they are obviously well ahead of the volumes used, starting to achieve. Is that change you are thinking around 450 workers over the US, can you go to market? Perhaps, if you can think you could and generate $2. 8 million in sales or is it just too early to talk about that?

I think everything we have seen has been encouraging, but we have 43 domestic company operated Shaks today and we’ve got a long road to 450. So we’ve got our sights on that, we have got our sights on the increase to 14 Shacks for next year, which we are really excited about the quality of those 14 and nothing has changed yet. But we are bolt on future we are excited about all the performance across market I have seen. I have seen.

Okay, thank you,

[Indiscernible]

Okay our next question from John Glass, Morgan Stanley.

Hi, guys this is Courtney Cardwell [ph] for John. Just want a follow up from the common person just racking on this, coming in about the range you had provided for your long-term guidance for next year. And if I am more than a function of the non-United stores performing better than you expected? Or is it the next to Manhattan versus non-Manhattan, I think whether you talk about the stores in Manhattan performing better than the [indiscernible].

You are talking about the 2016 guidance coding for the new Shack [multiple speakers

Yes, it is the $3.3 million in the 22% like that.

Yes, that really has nothing to do with non-Manhattan versus Manhattan Shacks and really what it is we know what there are going to be it is the 2015 pipeline is coming up, we have very good sales estimates for all those and we calculated, we believe the average will be and various function of knowing where the shacks will be and it is not a function of geography per se. it is as Randy said earlier, it is a mix of Shacks in new market and Shacks in existing markets and some will be above the 33, some will be [indiscernible] And just to reiterate the notion that what is Manhattan , non-Manhattan, we continue talk about as we talk about on the IPO, we are thrilled with what is happening outside of New York. This is no longer a New York based company achieved that about in percentage. It is a diverse company spread out around the country and only going father and we are thrilled about the performance that we’ve see in our markets. Now I just want to reiterate that point. Yes, we are going to – as we continue to move further away from our IPO, we are going to talk less than that and about Manhattan versus non Manhattan, just a company as a whole and company in general.

Okay, got you. Sorry, I know you don't want to talk more about it. But how many of the 14 stores next year are you planning to open in Manhattan?

Just two. There's two that we intend to open on Herald Square and Downtown in Portland center. Those should be the two that are in Manhattan. And we've got a couple others in New York and queen. So we’re excited about two more that we'll be doing in Queens.

Okay, great. And just lastly on the minimum wage increases, have you guys quantified at all what the headwind to the labor line should be as a percent of sales?

We haven’t yet. At this stage we haven’t gone down other than the major 2016 guidance we’re given. But it's significant. It's going to be up and we're going to continue to take care of our people and make sure that we're putting the best team out there.

And as the menu price increases that we’ve talked about in the future of the low single-digits. And as Randy mentioned this when he was talking earlier. We don't expect that to fully offset – the labor pressures and we’re going to see. We expect it to partially offset and to help, but certainly not offset completely, what we’re going to see is labor in this country over the two, three, four years.

Great. Thanks guys.

We will take our next question from Jeffrey Bernstein with Barclays.

Great, thank you very much. A couple of questions. Just one actually following up on that last one with regards to price. I think you're going to be running 3% now, and then something very modest I guess in January. Maybe we're talking about 4% plus as we start next year. Just wondering how do you arrive at that number? As you said, Jeff, it doesn't seem to be fully offset in the inflation. I'm wondering why it wouldn't be more? If it was a structural labor issue or maybe you get the sense that there's some pushback? Or you hit a certain point where you just can't fully offset it? What's the thought process in terms of how you arrive at that increase?

So for 2016 Jeff, we talk about a nominal menu price increase, we always say, we've always taken low single-digits. But I need to be clear, that 3% that’s in there, that rolls off at the beginning of January. So first 3% rolled off this past September and the second 3% will roll off in January. So the only thing that we’re going to have in there as we get in the 2016 where we do nominal menu price increases that we plan on taking sometime in January.

So Jeff, it’s not accurate to say that 4% gets us off a year. We start the year before. We raise prices at zero. We lap both.

So it's a nominal increase you take in January that you're going to be running through 2016?

You got it.

Yes, we talked about the 2.5% to 3% comps for next year. Didn't break it out yet between price and mix, traffic, but it will be a nominal menu price increase in nominal traffic.

Got it. I guess the question more being, how do you – what leads you to come up with that price if you acknowledge it doesn't plan to fully offset the labor, and just wondering whether there's any sense of pushback? Because it would seems like the traffic is strong enough for you. You might be able to take more and therefore, better protect the margin.

Yes, we might, but I think the reality for us is we’re got to find the right price. So we feel really good about where we're priced today even with some of the anomalies we're talking about. We feel really good about the level of product that we provide versus the competition. And we just got to keep winning on that. We're not going to get overaggressive and that may mean that we've got to trade a little bit on the next year. As we said about cogs, so that hopefully puts us in a strong position to be flat to just up a little bit. I think the answer is we're willing to take a little bit of a hit on the labor line to get the right people, pay people right and make sure we don’t take too much price. We took 6% in the last year [indiscernible] you would never know anything over 2% to 3%. And our hope is to return to that very cautious price taking. And just continue to excite people with the brand. We're at beginning of this story and there just is no reason to take more price than we need. If we do fine and we need it, we'll consider that down the road, but that’s not our intension on that.

Understood. And then just the comp this quarter, obviously very impressive. I think you said it was really roughly 8% if I got that right, traffic. I'm just wondering one, how that's possible? I mean I've been to your stores. I'm just wondering is it faster through-put? Are you coming up with ways to get through all food faster? Or is it more shoulder periods? I mean, how do you assess how it's possible to get that kind of traffic through your stores already?

In the 13 years, 14 years since I’ve watched this company, nothing seems to surprise me. And neither does 8% traffic at a mature base of restaurant. So we were amazed by that too. Our operators are just doing fantastic work. I think this just continued everything happening. As we mentioned on it just continued awareness, continued extension of the day parts. Remember, one other thing about Shake Shack that’s important to remind everybody, we’ve got an advantage in day part, right. We sell ice cream, frozen custard, shakes. That extends in afternoon day part that might not exists in other restaurants. We sell beer, really good beer, really good wine and that extends a little bit of an evening day park. And we’re hopeful as we continue to look at paying higher people, higher wages to people we are going to continue to get even better staff, even better team members and our hope is that we increase that productivity as we go but look let’s celebrate the grade A percent traffic this year and now we are back to work.

And my last question was just on the unit growth and Randy, I think you've summed it up pretty well. You started by saying 10 a year and then it went to 12, and now it's at 14. It's only natural for people to wonder why next quarter or after that, it might be 16 or 18. So I'm wondering – I'm assuming the brand's reception is pretty strong. I'm wondering what the constraint is? Is it real estate or people? How do you arrive at that number? Just seems like it could continue to go higher.

Well, over time, I certainly hope it will, but let’s put that in the base of where our company is today, domestic company-operated shacks with 14, we’re going to be 30% increase in unit count in 2016. That's some pretty solid growth. And we’re not looking to go too fast if we buy component size and breaking the year end prices. That we believe we have the leadership in place, the supply chain and everything, we’ll look to wrap that up as we have last year or this year and for our guidance in the next year. That is our goal. Right now what we can tell you is we feel really good about 14 great shops next year.

Great. Thank you very much.

Thank you.

Okay. And our next question from Andrew Charles of Cowen and Company.

Great, thanks. As you think about the Shack's strong social media presence and credibility you have with digital, what features do you believe might make the most sense if you were to launch a mobile app?

Hard to say. We got our eyes on it, obviously, the team continues to work on what that might look like and we’re looking forward to what digital feature in the mobile experience will be for Shake Shack, we have the good fortune of strong comp, strong traffic and a lot of people coming to our brand. So we are going to take our time on that. We have nothing to announce yet on that. I think no question our guest continues to be a millennial and even younger guest who’s engaged in digital more than ever. But not having that has not hurt our business. So we are going to keep looking forward to the right way for that experience to find its way to Shake Shack, and we are working on it.

Got it. Jeff, as you know, we think about G&A. I think last quarter you said it might be a $6 million to $7 million run rate. We were a little bit below this quarter. Is that still fair as we look to Q4 in 2016?

Yes, the one thing we talked about that you’re going to see incremental stock-based comp in there. We haven’t guided through the exact number what we’re going to see in terms of additional cost-based comp, but I think we will see leverage as we get into 2017 is really where we have talked about previously. Hopefully we can leverage into 2016, but I would encourage you to think about leverage getting more in 2017.

Yes, I just want to reiterate that. We are building a team right now. We got fantastic team in place today. We are going to continue to invest in that team so we can execute on our plan, and that means that you are not going to see leveraged likely next year in the G&A line, especially because of that option expense we have that is high because where we put the IPO.

High because of lower trading.

And if you look at our run rate G&A is pretty well controlled even though we continue to make big investments.

Thank you.

We will hear next from Karen Holthouse with Goldman Sachs.

Hi, good evening. This is actually Greg Orman for Karen today. Just a quick question for me actually. We've been seeing some warmer weather this winter so far, and I'm just wondering how does weather actually impact your sales dynamics versus other concepts?

It’s a good question. We don’t want to be a company that either blames or uses weather on the upside. That's going to come in and out of our lives, right. Last winter was really cold. So far this fall has been really warm. That for us is not going to be a compelling factor for us to explain to you our results in the future. Just to set that aside, we're going to get out there and take care of people the best we can. I think we're fortunate, some of the other businesses that are more affected by weather, we hope to do over the long-term more to us in our fine casual setup was exactly.

Great, thank you.

That will conclude the question-and-answer-session. I'd like turn the call back to management for any closing comments.

Yes, that hardly affected everyone. It has been a fun quarter for us. We are working hard every day to earn your trust. And with that, its dinnertime, and I hope you all head out to get a shack order tonight. So thanks for joining in. Take care.

That does conclude today’s conference. We thank you for your participation.