Acquisitions

3 Months Ended

Mar. 31, 2024

Business Combination and Asset Acquisition [Abstract]

Acquisitions

5. ACQUISITIONS:

The results of operations of acquired businesses have been included in Quanta’s consolidated financial statements since their respective acquisition dates.

In April 2024, Quanta acquired a business located in the United States that manufactures transmission and distribution equipment for the electric utility industry. The aggregate consideration paid or payable for this transaction was approximately $72 million, consisting of a combination of cash and shares of Quanta common stock. The final amount of consideration also remains subject to certain post-closing adjustments, including with respect to net working capital.

During the three months ended March 31, 2024, Quanta acquired three businesses located in the United States, including: a business that provides specialty environmental solutions to industrial and petrochemical companies (primarily included in the Underground and Infrastructure segment); a business that specializes in testing, manufacturing and distributing safety equipment and supplies (primarily included in the Electric Power and Renewable Energy segments); and a business that specializes in electrical infrastructure services for substations, data centers and governmental entities (primarily included in the Electric Power segment). The consideration for the businesses acquired during the three months ended March 31, 2024

consisted of approximately $382.9 million paid or payable in cash on the acquisition dates and 250,539 shares of Quanta common stock, which had a fair value of $51.8 million as of the acquisition dates. The final amount of consideration for these acquisitions remains subject to certain post-closing adjustments, including with respect to net working capital.

During the year ended December 31, 2023, Quanta acquired five businesses located in the United States, including: a business that provides services related to high-voltage transmission lines, overhead and underground distribution, emergency restoration and industrial and commercial wiring and lighting (primarily included in the Electric Power segment); a business that procures parts, assembles kits for sale, manages logistics and installs solar tracking equipment for utility and development customers (primarily included in the Renewable Energy segment); a business that provides concrete construction services (primarily included in the Electric Power and Renewable Energy segments); a business specializing in power studies, maintenance testing and commissioning primarily for utility and commercial customers (included in the Electric Power segment) and a business that manufactures power transformers for the electric utility, renewable energy, municipal power and industrial markets (included in the Electric Power and Renewable Energy segments). The consideration for these transactions consisted of approximately $785.7 million paid or payable in cash (subject to certain adjustments) and 1,238,576 shares of Quanta common stock, which had a fair value of $158.9 million as of the dates of the acquisitions.

Additionally, the former owners of certain acquired businesses are eligible to receive potential payments of contingent consideration to the extent the acquired businesses achieve certain financial performance targets over specified post-acquisition periods.

Purchase Price Allocation

Quanta is finalizing its purchase price allocations related to certain businesses acquired subsequent to March 31, 2023, and further adjustments to the purchase price allocations may occur, with possible updates primarily related to intangible asset values, property and equipment values, certain contingent liabilities, tax estimates, and the finalization of closing working capital adjustments. The aggregate consideration paid or payable for businesses acquired between March 31, 2023 and March 31, 2024 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $194.2 million to net tangible assets, $207.8 million to identifiable intangible assets and $403.4 million to goodwill.

The following table summarizes the estimated fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed as of their respective acquisition dates as of March 31, 2024 for

acquisitions completed in the three months ended March 31, 2024 (in thousands):

	Three Months Ended
	March 31, 2024
Consideration:
Cash paid or payable	$	382,929
Value of Quanta common stock issued	51,768
Contingent consideration	14,463
Fair value of total consideration transferred or estimated to be transferred	$	449,160
Cash and cash equivalents	$	8,453
Accounts receivable	50,845
Contract assets	162
Inventories	14,127
Prepaid expenses and other current assets	12,176
Property and equipment	92,676
Operating lease right-of-use assets	15,532
Other assets	456
Identifiable intangible assets	122,301
Current maturities of long-term debt	(4,431)
Current portion of operating lease liabilities	(4,134)
Accounts payable and accrued liabilities	(51,325)
Contract liabilities	(390)
Long-term debt, net of current maturities	(4,436)
Operating lease liabilities, net of current portion	(11,398)
Deferred income taxes	(42,363)
Total identifiable net assets	198,251
Goodwill	250,909
Fair value of net assets acquired	$	449,160

As of March 31, 2024, approximately $10.6 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in the three months ended March 31, 2024.

The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in the three months ended March 31, 2024 as of the acquisition dates and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).    

	Three Months Ended
	March 31, 2024
	Estimated Fair Value		Weighted Average Amortization Period in Years
Customer relationships	$	102,106	6.7
Backlog	4,495		1.7
Trade names	14,456		15.0
Non-compete agreements	1,244		5.0
Total intangible assets subject to amortization	$	122,301	7.5

The significant estimates used by management in determining the fair values of customer relationship intangible assets include future revenues, discount rates and customer attrition rates. The following table includes the discount rates and

customer attrition rates used to determine the fair value of customer relationship intangible assets for businesses acquired during the three months ended March 31, 2024 as of the respective acquisition dates:

	Three Months Ended
	March 31, 2024
	Range	Weighted Average
Discount rates	15% to 22%	15%
Customer attrition rates	10% to 23%	12%

Contingent Consideration

As described above, certain business acquisitions have contingent consideration liabilities associated with the transactions. The aggregate fair value of these outstanding contingent consideration liabilities was $172.0 million and $157.1 million as of March 31, 2024 and December 31, 2023, and such amounts are included in “Insurance and other non-current liabilities.”

Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, accretion in present value, changes in estimated fair value, the performance of acquired businesses in post-acquisition periods, and in certain cases, management discretion. These changes are reflected in “Change in fair value of contingent consideration liabilities” in the accompanying consolidated statements of operations.

The fair value determinations for contingent consideration liabilities incorporate significant inputs not observable in the market, including revenue forecasts, operating margins, discount rates and the probability of acquired businesses achieving certain performance targets during designated post-acquisition periods. Accordingly, the level of inputs used for these fair value measurements is Level 3.

All of Quanta’s outstanding contingent consideration liabilities are subject to a maximum payment amount, and the aggregate maximum payment amount of these liabilities totaled $352.6 million as of March 31, 2024. During the three months ended March 31, 2023, Quanta settled certain contingent consideration liabilities with cash payments of $5.0 million.

Pro Forma Results of Operations

The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in the three months ended March 31, 2024 and the year ended December 31, 2023, have been provided for illustrative purposes only and may not be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future (in thousands).

	Three Months Ended
	March 31,
	2024		2023
Revenues	$	5,033,522	$	4,535,366
Net income attributable to common stock	$	118,213	$	86,670

The pro forma combined results of operations for the three months ended March 31, 2024 and 2023 were prepared by adjusting the historical results of Quanta to include the historical results of the businesses acquired in 2024 as if such acquisitions had occurred January 1, 2023. The pro forma combined results of operations for the three months ended March 31, 2023 were prepared by further adjusting the historical results of Quanta to include the historical results of the business acquired in 2023 as if such acquisition had occurred January 1, 2022. These pro forma combined historical results were adjusted for the following: a reduction of interest and other financing expenses as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest and other financing expenses as a result of the cash consideration paid; an increase in amortization expense due to the intangible assets recorded; elimination of inter-company sales; and changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs incurred by Quanta or any cost savings or other synergies that resulted or may result from the acquisitions.

Impact on Consolidated Results of Operations Related to Acquisitions

Included in Quanta’s condensed consolidated results of operations for the three months ended March 31, 2024 were revenues of $67.7 million and a loss before income taxes of $9.1 million, which included $4.8 million of amortization expense

and $5.9 million of acquisition-related costs, related to the acquisitions completed in 2024. Included in Quanta’s condensed consolidated results of operations for the three months ended March 31, 2023 were revenues of $93.5 million and a loss before income taxes of $16.1 million, which included $8.6 million of amortization expense and $17.8 million of acquisition-related costs, related to the acquisitions completed in 2023.