Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill

Goodwill, net of accumulated impairment losses, represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses and is stated at cost. Quanta has recorded goodwill in connection with certain of its historical acquisitions of businesses. Upon acquisition, these businesses were either combined into one of Quanta’s existing operating companies or managed on a stand-alone basis as an individual operating company.

As described in Note 5 above, beginning with the three months ended December 31, 2021, Quanta reports results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions. The Renewable Energy Infrastructure Solutions segment was added due to the acquisition of Blattner in the fourth quarter of 2021. In conjunction with this change, Quanta has reorganized its reporting of goodwill to align with the reportable segments. Goodwill was allocated to reporting units of operating companies based on estimated relative fair value of reporting units within each operating company. From time to time, the goodwill of a reporting unit may be reorganized into a different reportable segment if warranted due to fundamental changes in its predominant

business.

A summary of changes in Quanta’s goodwill by segment is as follows (in thousands):


	Electric Power Infrastructure Solutions Segment		Renewable Energy Infrastructure Solutions Segment		Underground Utility and Infrastructure Solutions Segment		Total









Balance at December 31, 2019:
Goodwill	$	1,365,163	$	—	$	753,938	$	2,119,101
Accumulated impairment	—		—		(96,426)		(96,426)
	1,365,163		—		657,512		2,022,675

Goodwill related to acquisitions completed in 2020	79,889		—		6,308		86,197
Purchase price allocation adjustments	1,730		—		19		1,749
Foreign currency translation adjustments	2,992		—		7,401		10,393

Balance at December 31, 2020:
Goodwill	1,449,774		—		768,868		2,218,642
Accumulated impairment	—		—		(97,628)		(97,628)
	1,449,774		—		671,240		2,121,014

Goodwill related to acquisitions completed in 2021	100,121		1,299,280		12,066		1,411,467
Operating company reorganizations	(161,912)		161,912		—		—
Purchase price allocation adjustments	(1,791)		—		—		(1,791)

Foreign currency translation adjustments	1,226		—		(3,030)		(1,804)

Balance at December 31, 2021:
Goodwill	1,387,418		1,461,192		777,136		3,625,746
Accumulated impairment	—		—		(96,860)		(96,860)
	$	1,387,418	$	1,461,192	$	680,276	$	3,528,886

As of December 31, 2021 and 2020, the inherent assumptions and estimates used in developing future cash flows include projected revenues and margins, weighted average costs of capital, and transaction multiples. As of December 31, 2019, the inherent assumptions and estimates used in developing future cash flows and market valuations include projected revenues and margins, weighted average cost of capital and market multiples. The following table presents the significant estimates used by management in determining the fair values of Quanta’s reporting units for which a quantitative assessment was performed at December 31, 2021, 2020 and 2019:


	2021	2020	2019
Years of cash flows before terminal value	5 years	5 years	5 years
Weighted average cost of capital	12.0%	12.5% to 13.5%	12.5%
Transaction multiple(s) applied to EBITDA	7.0	6.0 to 9.0	6
Guideline public company multiple(s) applied to EBITDA	N/A	N/A	6.5
Five-year revenue compounded annual growth rate(s)	9% to 26%	-8% to 26%	-9%
Weighting of three methods:
Discounted cash flows	100%	100%	70%
Market multiple	0%	0%	15%
Market capitalization	0%	0%	15%

Quanta determined the fair value of its reporting units as of December 31, 2021 and 2020 using only the income approach. Quanta determined that the use of market multiple valuations applied to 2020 and 2021 financial results would not yield valuations reflective of fair market value due to the continued uncertainties and challenges in the energy market and

overall economy caused by the COVID-19 pandemic. The range of compounded annual growth rates in 2021 and 2020 reflects Quanta’s expectation of a recovery over the five-year period used in the goodwill model.

In connection with the annual goodwill assessment performed during the fourth quarter of 2021, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and identified certain reporting units for which a quantitative goodwill impairment assessment was deemed appropriate based on financial performance indicators. The subsequent quantitative analysis indicated that the fair value of each reporting unit was in excess of its carrying amount. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarter of 2021. In connection with the 2020 and 2019 annual goodwill assessments, Quanta assessed qualitative factors to determine whether it was necessary to perform a quantitative fair value impairment analysis and also identified certain reporting units for which quantitative goodwill impairment assessments were deemed appropriate based on financial performance indicators. The subsequent quantitative analyses indicated that the fair values of the reporting units were in excess of their carrying amounts. Accordingly, Quanta did not record any impairment charges related to goodwill during the fourth quarters of 2020 or 2019.

Although no goodwill impairment charges were recorded during the year ended December 31, 2021, the determination of a reporting unit’s fair value requires judgment and the use of significant estimates and assumptions. Quanta believes the estimates and assumptions used in its impairment assessments are reasonable and based on available market information obtained from relevant industry sources; however, variations in any of the assumptions could result in materially different calculations of fair value and impairment determinations. With respect to reporting units within Quanta’s Underground Utility and Infrastructure Solutions segment, the potential impact of uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic is unknown and depends on numerous factors, and therefore the negative impact on these reporting units could continue or increase in future periods. In particular, due to volatility in commodity prices and commodity production volumes over the past few years, the effect of which has been exacerbated by the COVID-19 pandemic, two Canadian pipeline-related businesses with aggregate goodwill and intangible asset balances totaling $76.7 million and $12.8 million as of December 31, 2021 have an increased risk of goodwill impairment in the near and medium term. Management considered the sensitivity of its fair value estimates to changes in certain valuation assumptions for these reporting units. After taking into account a 10% decrease in fair value, these reporting units would have fair values below their carrying amounts. Quanta will continue to monitor the impact of the goodwill associated with these reporting units, and should they suffer additional declines in actual or forecasted financial results, the risk of goodwill impairment would increase.

Other Intangible Assets

Quanta’s intangible assets include customer relationships; backlog; trade names; non-compete agreements; patented rights, developed technology, and process certifications; and curriculum, all of which are subject to amortization, as well as an engineering license, which is not subject to amortization.

As a result of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, Quanta assessed certain potential negative impacts related to its intangible assets, particularly intangible assets associated with reporting units within the Underground Utility and Infrastructure Solutions segment. Quanta concluded that such impact is not likely to result in intangible asset impairments, and therefore no intangible asset impairments were recognized during the year ended December 31, 2021. However, the full potential impact of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic is unknown and depends on numerous factors, and therefore the negative impact on certain of Quanta’s reporting units and related intangible assets could increase in future periods. Quanta will continue to monitor the impact of these events and should any of the reporting units suffer additional declines in actual or forecasted financial results, the risk of intangible asset impairment would increase.

Quanta’s intangible assets and the remaining weighted average amortization periods related to its intangible assets subject to amortization were as follows (in thousands except for weighted average amortization periods, which are in years):


	As of December 31, 2021							As of December 31, 2020
	Remaining Weighted Average Amortization Period in Years	Intangible Assets		Accumulated Amortization		Intangible Assets, Net		Intangible Assets		Accumulated Amortization		Intangible Assets, Net
Customer relationships	6.4	$	1,738,813	$	(379,417)	$	1,359,396	$	616,875	$	(277,647)	$	339,228
Backlog	0.4	286,120		(192,140)		93,980		149,769		(145,476)		4,293
Trade names	14.5	357,103		(41,642)		315,461		101,533		(32,471)		69,062
Non-compete agreements	3.7	54,022		(41,409)		12,613		47,333		(36,973)		10,360
Patented rights, developed technology, and process certifications	3.0	31,520		(23,458)		8,062		22,486		(21,894)		592
Curriculum	6.4	13,100		(4,432)		8,668		12,233		(3,113)		9,120
Total intangible assets subject to amortization	7.4	2,480,678		(682,498)		1,798,180		950,229		(517,574)		432,655
Engineering license		3,000		—		3,000		3,000		—		3,000
Total intangible assets		$	2,483,678	$	(682,498)	$	1,801,180	$	953,229	$	(517,574)	$	435,655

Amortization expense for intangible assets was $165.4 million, $76.7 million and $62.1 million for the years ended December 31, 2021, 2020 and 2019.

The estimated future aggregate amortization expense of intangible assets subject to amortization as of December 31, 2021 is set forth below (in thousands):


Year Ending December 31:
2022	$	347,276
2023	246,919
2024	233,073
2025	218,532
2026	211,648
Thereafter	540,732
Total	$	1,798,180