Acquisitions

12 Months Ended

Dec. 31, 2018

ACQUISITIONS:

2018 Acquisitions

During the year ended December 31, 2018, Quanta acquired an electrical infrastructure services business specializing in substation construction and relay services, a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen and two communications infrastructure services businesses, all of which are located in the United States. The aggregate consideration for these acquisitions was $106.8 million paid or payable in cash, subject to certain adjustments, and 679,668 shares of Quanta common stock, which had a fair value of approximately $22.9 million as of the respective acquisition dates. Additionally, the acquisitions of the postsecondary educational institution and one of the communications infrastructure services businesses include the potential payment of up to $18.0 million of contingent consideration, payable if the acquired businesses achieve certain performance objectives over five-year and three-year post-acquisition periods. Based on the estimated fair value of the contingent consideration, Quanta recorded $16.5 million of liabilities as of the respective acquisition dates. The results of the acquired businesses have generally been included in Quanta’s Electric Power Infrastructure Services segment and have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates.

Quanta is in the process of finalizing its assessments of the fair values of the acquired assets and assumed liabilities related to businesses acquired during 2018, and further adjustments to the purchase price allocations may occur. As of December 31, 2018, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to certain tax estimates. The aggregate purchase consideration of the businesses acquired during 2018 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $37.5 million to net tangible assets, $52.4 million to identifiable intangible assets and $56.3 million to goodwill.

2017 Acquisitions

On July 20, 2017, Quanta acquired Stronghold, a specialized services business located in the United States that provides high-pressure and critical-path solutions to the downstream and midstream energy markets. The aggregate consideration included $351.0 million in cash, subject to certain adjustments, and 2,693,680 shares of Quanta common stock, which had a fair value of $81.3 million as of the acquisition date. Additionally, the acquisition includes the potential payment of up to $100.0 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a three-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded a $51.1 million liability as of the acquisition date. The results of the acquired business have generally been included in Quanta’s Pipeline and Industrial Infrastructure Services segment and have been included in Quanta’s consolidated financial statements since the acquisition date.

During the year ended December 31, 2017, Quanta also acquired a communications infrastructure services business and an electrical and communications business, both of which are located in the United States. The aggregate consideration for these acquisitions consisted of $12.0 million paid or payable in cash, subject to certain adjustments, and 288,666 shares of Quanta common stock, which had a fair value of $8.3 million on the acquisition date of the applicable acquired business. The results of

the acquired businesses have generally been included in Quanta’s Electric Power Infrastructure Services segment and consolidated financial statements since the respective acquisition dates.

2016 Acquisitions

During 2016, Quanta completed five acquisitions. The results of four of the acquired businesses have been generally included in Quanta’s Electric Power Infrastructure Services segment and have been included in Quanta’s consolidated financial statements since their respective acquisition dates. These businesses included an electrical infrastructure services business located in Australia, a utility contracting business located in Canada, a full service medium- and high-voltage powerline contracting business located in the United States and a communications services business located in Canada. Quanta also acquired a pipeline services contractor located in the United States, the results of the acquired businesses have generally been included in Quanta’s Pipeline and Industrial Infrastructure Services segment since the acquisition date. The aggregate consideration for these acquisitions consisted of $75.9 million paid or payable in cash, subject to certain adjustments, 70,840 shares of Quanta common stock, which had a fair value of $1.5 million as of the settlement date of the applicable acquisition, and contingent consideration payments of up to $39.5 million, payable if certain of the acquired businesses achieve performance objectives over four- or five-year post-acquisition periods. Based on the estimated fair value of the contingent consideration, Quanta recorded a total of $18.7 million in liabilities as of the applicable acquisition dates.

2018, 2017 and 2016 Acquisitions

The following table summarizes the aggregate consideration paid or payable as of December 31, 2018 for the 2018 acquisitions and 2017 acquisitions and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities (in thousands).



	2018			2017
	All Acquisitions			Stronghold			Other Acquisitions
Consideration:
Cash paid or payable	$	106,804		$	351,014		$	11,955
Value of Quanta common stock issued	22,882			81,337			8,267
Contingent consideration	16,471			51,084			—
Fair value of total consideration transferred or estimated to be transferred	$	146,157		$	483,435		$	20,222

Accounts receivable	$	18,405		$	77,478		$	7,157
Contract assets	1,905			11,913			193
Other current assets	8,484			20,914			170
Property and equipment	23,674			51,258			1,480
Other assets	576			1,513			12
Identifiable intangible assets	52,364			95,700			8,091
Contract liabilities	(175		)	(13,489		)	(93		)
Other current liabilities	(11,205		)	(58,346		)	(2,705		)
Deferred tax liabilities, net	(4,208		)	—			—
Other long-term liabilities	—			(48		)	—
Total identifiable net assets	89,820			186,893			14,305
Goodwill	56,337			296,542			5,917
	$	146,157		$	483,435		$	20,222

Goodwill represents the amount by which the purchase price for an acquired business exceeds the net fair value of the assets acquired and liabilities assumed. The 2018, 2017 and 2016 acquisitions strategically expanded Quanta’s Canadian, Australian and domestic electric power, energy and communications service offerings, which Quanta believes contributes to the recognition of the goodwill. Goodwill of $20.1 million and $251.4 million is expected to be deductible for income tax purposes related to the 2018 and 2017 acquisitions.

The following table summarizes the estimated fair values of identifiable intangible assets for the 2018 acquisitions 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).



	Estimated		Weighted Average
	Fair Value		Amortization Period in Years
Customer relationships	$	30,767	5.3
Backlog	2,158		1.0
Trade names	7,689		15.0
Non-compete agreements	2,750		5.0
Curriculum	$	9,000	10.0
Total intangible assets subject to amortization acquired in 2018 acquisitions	$	52,364	7.4

The following unaudited supplemental pro forma results of operations have been provided for illustrative purposes only and do not purport to 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. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts):



	Year Ended December 31,
	2018		2017		2016
Revenues	$	11,238,475	$	9,848,386	$	8,183,104
Gross profit	$	1,506,125	$	1,356,515	$	1,129,661
Selling, general and administrative expenses	$	865,452	$	842,996	$	734,900
Amortization of intangible assets	$	49,262	$	49,918	$	46,579
Net income from continuing operations	$	304,565	$	333,386	$	207,956
Net income from continuing operations attributable to common stock	$	301,904	$	330,139	$	206,241

Earnings per share from continuing operations:
Basic	$	1.97	$	2.08	$	1.29
Diluted	$	1.95	$	2.07	$	1.29

The pro forma combined results of operations for the years ended December 31, 2018 and 2017 were prepared by adjusting the historical results of Quanta to include the historical results of the 2018 acquisitions as if they occurred January 1, 2017. The pro forma combined results of operations for the year ended December 31, 2017 have also been prepared by adjusting the historical results of Quanta to include the historical results of the 2017 acquisitions as if they occurred January 1, 2016. The pro forma combined results of operations for the year ended December 31, 2016 have been prepared by adjusting the historical results of Quanta to include the historical results of the 2017 acquisitions as if they occurred January 1, 2016 and the historical results of the 2016 acquisitions as if they occurred January 1, 2015. These pro forma combined historical results were adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest expense as a result of the cash consideration paid; an increase in amortization expense due to the incremental intangible assets recorded; changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies; an increase in the number of outstanding shares of Quanta common stock; and reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies. The pro forma results of operations do not include any adjustments to eliminate the impact of acquisition-related costs or any cost savings or other synergies that resulted or may result from the acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.

Revenues of approximately $71.1 million and a loss from continuing operations before income taxes of approximately $8.9 million, which included $11.0 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2018 related to the 2018 acquisitions. Revenues of approximately $207.4 million and a loss from continuing operations before income taxes of approximately $8.1 million, which included $5.4 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2017 related to the 2017 acquisitions.

Additionally, revenues of approximately $68.5 million and a loss from continuing operations before income taxes of approximately $5.6 million, which included $0.3 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the year ended December 31, 2016 related to the 2016 acquisitions.