The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements as of and for the three ended March 31, 2020 and March 31, 2019 and related notes included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. The following discussion and analysis should also be read together with our audited consolidated financial statements and related notes for the year ended December 31, 2019.





Forward-Looking Statements

This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. Our future results and financial condition may also differ materially from those that we currently anticipate as a result of the factors described in the sections entitled "Risk Factors" in the filings that we make with the U.S. Securities and Exchange Commission (the "SEC"). Throughout this section, unless otherwise noted, "we," "us," "our" and the "Company" refer to The Peck Company Holdings, Inc.

Business Introduction / Overview

The Peck Company Holdings, Inc., the principal office of which is located in South Burlington, Vermont, is one of the largest commercial solar engineering, procurement and construction ("EPC") companies in the country and is expanding across the Northeastern United States ("U.S."). The Company is a second-generation family business founded under the name Peck Electric Co. ("Peck Electric") in 1972 as a traditional electrical contractor. The Company's core values are to align people, purpose, and profitability, and since taking leadership in 1994, Jeffrey Peck, the Company's Chief Executive Officer, has applied such core values to expand into the solar industry. Today, the Company is guided by the mission to facilitate the reduction of carbon emissions through the expansion of clean, renewable energy and we believe that leveraging such core values to deploy resources toward profitable business is the only sustainable strategy to achieve these objectives.

The world recognizes the need to transition to a reliable, renewable energy grid in the next 50 years. Vermont and Hawaii are leading the way in the U.S. with renewable energy goals of 75% by 2032 and 100% by 2045, respectively. California committed to 100% carbon-free energy by 2045. The majority of the other states in the U.S. also have renewable energy goals regardless of current Federal solar policy. We are a member of Renewable Energy Vermont, an organization that advocates for clean, practical and renewable solar energy. The Company intends to use near-term incentives to take advantage of long-term, sustainable energy transformation with a commitment to the environment and to its shareholders. Our triple bottom line, which is geared towards people, environment, and profit, has always been our guide since we began installing renewable energy and we intend that it remain our guide over the next 50 years as we construct our energy future.

After installing more than 125 megawatts of solar energy, we believe that we are well-positioned for what we believe to be the coming transformation to an all renewable energy economy. As a result of the completion of our business combination transaction with Jensyn Acquisition Corp. ("Jensyn") on June 20, 2019, pursuant to which we acquired Peck Electric Co. (the "Reverse Merger and Recapitalization"), we have now opened our family company to the public market as part of our strategic growth plan. We are expanding across the Northeastern U.S. to serve the fast-growing demand for clean renewable energy. We are open to partnering with others to accelerate our growth process, and we are expanding our portfolio of company-owned solar arrays to establish recurring revenue streams for many years to come. We have established a leading presence in the market after five decades of successfully serving our customers, and we are now ready for new opportunities and the next five decades of success.

We have a three-pronged growth strategy that includes (1) organic expansion across the Northeastern United States, (2) conducting accretive merger and acquisition transactions to expand geographically, and (3) investing into company-owned solar assets.

Equity and Ownership Structure

On June 20, 2019, Jensyn consummated the Reverse Merger and Recapitalization, which resulted in the acquisition of 100% of the issued and outstanding equity securities of Peck Electric by Jensyn, and in Peck Electric becoming a wholly-owned subsidiary of Jensyn. Jensyn was originally incorporated as a special purpose acquisition company, formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar Recapitalization. Simultaneously with the Reverse Merger and Recapitalization, we changed our name to "The Peck Company Holdings, Inc." We conduct all of our business operations exclusively through our wholly-owned subsidiary, Peck Electric. Unless the context otherwise requires, "we," "us," "our" and the "Company" refers to The Peck Company Holdings, Inc. and its subsidiary after June 20, 2019, and "Peck Electric" refers to the business of Peck Electric before June 20, 2019. Upon closing of the Reverse Merger and Recapitalization, Peck Electric was deemed the accounting acquirer and takes over the historical information for the Company.





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Critical Accounting Policies

The following discussion and analysis of the Company's financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.





Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimates used to review the Company's, impairments and estimations of long-lived assets, revenue recognition utilizing a cost to cost method, allowances for uncollectible accounts, and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.





Revenue Recognition

We recognize revenue from contracts with customers under Accounting Standards Codification ("ASC") Topic 606 ("Topic 606"). Under Topic 606, revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. We primarily recognize revenue over time utilizing the cost-to-cost measure of progress on contracts for specific projects and for certain master service and other service agreements.

Contracts. We derive revenue primarily from construction projects performed under: (i) master and other service agreements, which are typically priced using either a time and materials or a fixed price per unit basis; and (ii) contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system, which are subject to multiple pricing options, including fixed price, unit price, time and materials, or cost plus a markup.

The total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of our project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management's assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and our profit recognition. Changes in these factors could result in revisions to revenue in the period in which the revisions are determined, which could materially affect our consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined.

Performance Obligations. A performance obligation is a contractual promise to transfer a distinct good or service to a customer and is the unit of account under Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. Our contracts often require significant services to integrate complex activities and equipment into a single deliverable and are therefore generally accounted for as a single performance obligation, even when delivering multiple distinct services. Contract amendments and change orders, which are generally not distinct from the existing contract, are typically accounted for as a modification of the existing contract and performance obligation. The vast majority of our performance obligations are completed within one year.

When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.





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Union Labor

The Company uses union labor in order to construct and maintain the solar, electric and data work that comprise the core activities of its business. As such, contributions were made by the Company to the National Joint Apprenticeship and Training Committee, the National Electrical Benefit Funds, Union Pension Plans and a union Health and Welfare Fund. Each employee contributes monthly to the International Brotherhood of Electrical Workers ("IBEW"). The Company's contract with the IBEW expires May 31, 2022.

The Company's management believes that access to unionized labor provides a unique advantage for growth, because workforce resources can be scaled efficiently utilizing labor unions in other states to meet specific project needs in other states without substantially increasing fixed costs for the Company.

Business Insurance / Captive Insurance Group

In 2018, Peck Electric joined a captive insurance group. The Company's management believes that belonging to a captive insurance group will stabilize business insurance expenses and will lock in lower rates that are not subject to change from year-to-year and instead are based on the Company's favorable experience modification rate.





Revenue Drivers

The Company's business includes the design and construction of solar arrays for its customers. Revenue is recognized for each construction project on a percentage of completion basis. From time to time, the Company constructs solar arrays for its own account or purchases a solar array that must still be constructed. In these instances, no revenue is recognized for the construction of the solar array. In instances where the Company owns the solar array, revenue is recognized for the sale of the electricity generated to third parties. As a result, depending on whether it is building for others or for its own account, the Company's revenue is subject to significant variation.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2019

REVENUE AND COST OF GOODS SOLD

Consolidated revenue for the three months ended March 31, 2020 increased 3.5% to $3.98 million, compared to $3.85 million in the corresponding period in 2019. The Company had several projects that were ceased or delayed due to the current COVID-19 pandemic. The Company anticipates that these projects will continue or begin once the current Vermont Stay at Home orders are lifted or relaxed.

Gross profit decreased 66.1% to $0.3 million for the three months ended March 31, 2020, compared to $0.8 million in the corresponding period in 2019. Gross margin as a percentage of sales was 7.5% for the three months ended March 31, 2020, compared to 23.0% in the corresponding period in 2019. Lower gross margin for the three months ended March 31, 2020 was the result of inefficiencies in labor costs due to the uncertainty of the COVID-19 pandemic. In addition, the Company incurred unplanned expenditures on two large solar projects due to the winter conditions in the Northeast.

Total operating expenses for the three months ended March 31, 2020 were $0.8 million, or 19.9% of sales, compared to $0.5 million in the corresponding period in 2019, or 12.1% of sales. The increase in operating expenses for the three months ended March 31, 2020 was the result of an increase in the operational infrastructure required to support the current growth trajectory as well as the additional expense of being a publicly-listed company.





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Income tax benefit for the three months ended March 31, 2020 was $142,311 compared to the income tax provision for the three months ended March 31, 2019 of $500.

Backlog for the three months ended March 31, 2020 was $23.2 million, compared to the corresponding period in 2019 of $8.5 million. The Company expects to realize nearly all of the backlog within the next 12 months.

SELLING AND MARKETING EXPENSES

We rely on referrals from customers and on its industry reputation, and therefore has not historically incurred significant selling and marketing expenses.

GENERAL AND ADMINISTRATIVE EXPENSES

Total general and administrative ("G&A") expenses were $617,748 for the three months ended March 31, 2020, compared to $257,709 for the three months ended March 31, 2019. As a percentage of revenue, G&A expenses increased to 15.5% of revenue in the three months ended March 31, 2020, compared to 6.7% in the three months ended March 31, 2019. In total dollars, G&A expense increased primarily due to activities related to administrative expenses, consisting of accounting and legal fees, costs of becoming a public company, additional business development and investor/public relations expenses, as well as supporting infrastructure expansion in the three months ended March 31, 2020, compared to the three months ended March 31, 2019.

DEPRECIATION AND AMORTIZATION

Depreciation expenses for the three months ended March 31, 2020 were $155,012, compared to $150,483 for the three months ended March 31, 2019. Depreciation expenses were stable when compared to the three months ended March 31, 2019 as the Company has not had significant capital expenditures for the three months ended March 31, 2020.





OTHER EXPENSES

Warehousing and other operating expenses were $192,942 for the three months ended March 31, 2020, compared to $207,507 for the three months ended March 31, 2019. Warehousing and other operating expenses include Company-owned solar array depreciation and salaries associated with Company-owned solar arrays, general warehousing costs, project-related travel and performance related expenses.





NET INCOME

The net loss for the three months ended March 31, 2020 was $432,632, compared to a net profit of $376,652 for the three months ended March 31, 2019. The net loss was the result of inefficiencies in labor costs due to the uncertainty of the COVID-19 pandemic. In addition, the Company incurred unplanned expenditures on two large solar projects due to the winter conditions in the Northeast.





Certain Non-GAAP Measures

We periodically review the following key non-GAAP measures to evaluate our business and trends, measure our performance, prepare financial projections and make strategic decisions.





EBITD and, Adjusted EBITDA

Included in this presentation are discussions and reconciliations of earnings before interest, income tax and depreciation and amortization ("EBITDA") and EBITDA adjusted for certain non-cash, non-recurring or non-core expenses ("Adjusted EBITDA") to net income in accordance with GAAP. Adjusted EBITDA excludes certain non-cash and other expenses, certain legal services costs, professional and consulting fees and expenses, and one-time Merger expenses and certain adjustments. We believe that these non-GAAP measures illustrate the underlying financial and business trends relating to our results of operations and comparability between current and prior periods. We also use these non-GAAP measures to establish and monitor operational goals.





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These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP. Using only the non-GAAP financial measures, particularly Adjusted EBITDA, to analyze our performance would have material limitations because such calculations are based on a subjective determination regarding the nature and classification of events and circumstances that investors may find significant. We compensate for these limitations by presenting both the GAAP and non-GAAP measures of our operating results. Although other companies may report measures entitled "Adjusted EBITDA" or similar in nature, numerous methods may exist for calculating a company's Adjusted EBITDA or similar measures. As a result, the methods that we use to calculate Adjusted EBITDA may differ from the methods used by other companies to calculate their non-GAAP measures.





The reconciliations of EBITDA to net (loss) income, the most directly comparable
financial measure calculated and presented in accordance with GAAP, are shown in
the table below:



                                        Three months ended March 31,
                                           2020                2019
Net (loss) income                     $      (432,632 )     $   376,652
Depreciation and amortization                 155,012           150,483
Other (income) expense, net                    80,766            44,659
Income tax (benefit) provision               (142,311 )             500

EBITDA                                       (339,165 )         572,294

Weighted Average shares outstanding 5,298,159 3,234,501



Adjusted EPS                          $         (0.06 )     $      0.18




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LIQUIDITY AND CAPITAL RESOURCES

The Company had $56,548 in cash at March 31, 2020, as compared to $95,930 at December 31, 2019.

As of March 31, 2020, The Company's working capital deficit was $207,199, compared to a working capital surplus of $362,586 at December 31, 2019. The Company believes that the aggregate of its existing cash and cash equivalents and working line of credit will be sufficient to meet its operating cash requirements for at least the next 12 months. On April 24, 2020, the Company secured a PPP loan in the amount of $1,487,624 through the CARES Act. The Company anticipates utilizing the forgiveness provisions of the PPP loan to support cashflow needs during the continuing COVID-19 pandemic. The State of Vermont recently relaxed restrictions on outside construction allowing for work crews of up to 10 individuals to operate at a worksite. The Company has implemented the training provided by the Vermont Occupational Safety and Health Administration. The Company has received notice to proceed on several new projects and restarted projects previously paused.

Due to the impact of the COVID-19 pandemic, the Company had several current projects paused and future projects delayed at March 31. 2020. All projects are anticipated to begin promptly once the Stay at Home orders of the State of Vermont expire or are relaxed. The current Stay at Home order is expected to end on May 15, 2020. However, as the Company does support and maintain critical infrastructure, several projects were deemed essential and allowed to continue.

During 2019, the Company entered into an equity line of credit facility with potential to sell at-the-market shares. The Company would receive the cash proceeds of this sale which would help support any cash flow deficiencies that may arise. Under this agreement, Lincoln Park Capital is required to purchase the shares the Company offers in a timely manner. The Company believes the cash proceeds can be raised very quickly in the event there is a liquidity issue. The equity line of credit is in place for $15,000,000. The total number of shares authorized under the Lincoln Park Capital Purchase Agreement total 3,024,194 which would allow the Company to maximize the equity line of credit within 10 business days. As of May 8, 2020, the closing price per share of Common Stock was $4.02 which would allow the Company to utilize the equity line of credit to generate approximately $12 million.

Certain of the Company's loan agreements contain a clause requiring lender approval for changes to the guarantor under such agreements. If this clause is implicated, such lenders may require outstanding indebtedness to become immediately due.

Cash flow used in operating activities was $1,993,300 for the three months ended March 31, 2020, compared to $62,744 of cash provided by operating activities in the three months ended March 31, 2019. The decrease in cash provided by operating activities was primarily the result of the decrease in accounts payable of approximately $1.8 million and the net loss of $574,952 for the three months ended March 31, 2020.

Net cash used in investing activities was $57,230 for the three months ended March 31, 2020, compared to $77,013 used in the three months ended March 31, 2019. The first quarter of the year is typically a slower time period for the Company with relatively small investments being made to prepare for the upcoming year. During the three months ended March 31, 2020, the Company took a conservative approach to investing in property and equipment given the uncertain nature of the current COVID-19 pandemic.

Net cash provided by financing activities was $2,011,148 for the three months ended March 31, 2020 compared to $110,027 used for the three months ended March 31, 2019. Cash provided by financing activities in the first quarter of 2020 consisted of funds received as proceeds from line of credit increase and was partially offset by principal payments for equipment notes and amounts to due to shareholders.





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The Company believes its current cash on hand including the proceeds received under the PPP loan, the availability under the equity line of credits, the collectability of its accounts receivable and project backlog are sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, revenues, results of operations, liquidity, or capital expenditures.

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