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Leases

9 Months Ended

Sep. 30, 2024

9. LEASES:

Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Lease cost	Classification	2024		2023		2024		2023
Finance lease cost:
Amortization of lease assets	Depreciation (1)	$	2,915	$	1,168	$	8,709	$	3,181
Interest on lease liabilities	Interest and other financing expenses	699		674		2,109		1,181
Lease financing transactions: (2)
Depreciation	Depreciation (1)	2,686		1,950		7,281		5,835
Interest	Interest and other financing expenses	4,645		3,171		12,437		10,029
Operating lease cost	Cost of services and Selling, general and administrative expenses	28,704		23,379		80,274		69,742
Short-term and variable lease cost (3)	Cost of services and Selling, general and administrative expenses	322,287		302,134		894,388		790,080
Total lease cost		$	361,936	$	332,476	$	1,005,198	$	880,048

(1) Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.

(2) Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. When these purchase options are exercised by a third-party lessor on behalf of Quanta, the transaction is deemed to be a financing transaction for accounting purposes, which results in the recognition of an asset equal to the purchase price and a corresponding liability.

(3) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant.

Related party lease expense was $4.5 million for each the three months ended September 30, 2024 and 2023 and $14.0 million and $12.3 million for the nine months ended September 30, 2024 and 2023.

Future minimum lease payments for operating leases and finance leases were as follows (in thousands):


	As of September 30, 2024
	Operating Leases		Finance Leases		Total
Remainder of 2024	$	29,144	$	3,091	$	32,235
2025	103,215		11,525		114,740
2026	81,722		10,566		92,288
2027	56,822		9,116		65,938
2028	36,266		7,717		43,983
Thereafter	47,790		6,688		54,478
Total future minimum payments related to operating leases and finance leases	354,959		48,703		403,662
Less imputed interest	(35,992)		(3,382)		(39,374)
Total	$	318,967	$	45,321	$	364,288

Future minimum lease payments for short-term leases were $20.3 million as of September 30, 2024. As of September 30, 2024, Quanta also had minimum lease payments related to operating lease obligations of $20.9 million for leases that had not yet commenced as of such date, are expected to commence in 2024 and have lease terms of one to ten years. Additionally, as described above, certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. The future payments related to these lease financing transactions totaled $106.4 million and comprise principal and interest payments.

The weighted average remaining lease terms (other than for short-term leases) and discount rates were as follows:


	As of September 30, 2024
Weighted average remaining lease term (in years):
Operating leases	4.35
Finance leases	4.63
Weighted average discount rate:
Operating leases	5.0	%
Finance leases	6.1	%

Quanta has also guaranteed the residual value under certain of its equipment operating leases and real estate finance leases, agreeing to pay any difference between the residual value and the fair market value of the underlying asset at the date of lease termination. Historically, the fair value of the assets at the time of lease termination generally has approximated or exceeded the residual value guarantees, and therefore such guarantees are not expected to result in significant payments.

Leases