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Revenue Recognition and Related Balance Sheet Accounts | 9 Months Ended
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Sep. 30, 2022
Revenue from Contract with Customer [Abstract] |
Revenue Recognition and Related Balance Sheet Accounts | 4. REVENUE RECOGNITION AND RELATED BALANCE SHEET ACCOUNTS: Contracts Certain of Quanta’s services are generally provided pursuant to master service agreements (MSAs), repair and maintenance contracts and fixed price and non-fixed price construction contracts. These contracts are classified into three categories: unit-price contracts, cost-plus contracts and fixed price contracts. The following tables present Quanta’s revenue disaggregated by contract type and by geographic location, as determined by the job location (in thousands):
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
By contract type: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unit-price contracts |  | $ | 1,597,640 |  |  | 35.8 | % |  | $ | 1,399,358 |  |  | 41.8 | % |  | 4,407,147 |  |  | 34.8 | % |  | $ | 3,593,644 |  |  | 39.7 | %
Cost-plus contracts |  | 986,262 |  |  | 22.1 | % |  | 825,622 |  |  | 24.6 | % |  | 2,879,492 |  |  | 22.8 | % |  | 2,247,879 |  |  | 24.8 | %
Fixed price contracts |  | 1,875,855 |  |  | 42.1 | % |  | 1,128,298 |  |  | 33.6 | % |  | 5,370,646 |  |  | 42.4 | % |  | 3,215,152 |  |  | 35.5 | %
Total revenues |  | $ | 4,459,757 |  |  | 100.0 | % |  | $ | 3,353,278 |  |  | 100.0 | % |  | $ | 12,657,285 |  |  | 100.0 | % |  | $ | 9,056,675 |  |  | 100.0 | %
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
By primary geographic location:
United States |  | $ | 3,760,019 |  |  | 84.3 | % |  | $ | 2,892,446 |  |  | 86.2 | % |  | $ | 10,751,325 |  |  | 84.9 | % |  | $ | 7,669,360 |  |  | 84.7 | %
Canada |  | 512,803 |  |  | 11.5 | % |  | 382,072 |  |  | 11.4 | % |  | 1,503,174 |  |  | 11.9 | % |  | 1,123,077 |  |  | 12.4 | %
Australia |  | 130,851 |  |  | 2.9 | % |  | 52,804 |  |  | 1.6 | % |  | 275,421 |  |  | 2.2 | % |  | 170,719 |  |  | 1.9 | %
Others |  | 56,084 |  |  | 1.3 | % |  | 25,956 |  |  | 0.8 | % |  | 127,365 |  |  | 1.0 | % |  | 93,519 |  |  | 1.0 | %
Total revenues |  | $ | 4,459,757 |  |  | 100.0 | % |  | $ | 3,353,278 |  |  | 100.0 | % |  | $ | 12,657,285 |  |  | 100.0 | % |  | $ | 9,056,675 |  |  | 100.0 | %
Under fixed-price contracts, as well as unit-price contracts with more than an insignificant amount of partially completed units, revenue is recognized as performance obligations are satisfied over time, with the percentage of completion generally measured as the percentage of costs incurred to total estimated costs for such performance obligation. Approximately 52.4% and 42.5% of Quanta’s revenues recognized during the three months ended September 30, 2022 and 2021 were associated with this revenue recognition method, and 51.5% and 43.4% of Quanta’s revenues recognized during the nine months ended September 30, 2022 and 2021 were associated with this revenue recognition method. Performance Obligations As of September 30, 2022 and December 31, 2021, the aggregate transaction price allocated to unsatisfied or partially satisfied performance obligations was approximately $6.83 billion and $5.90 billion, with 79.2% and 81.8% expected to be recognized in the subsequent twelve months. These amounts represent management’s estimates of the consolidated revenues that are expected to be realized from the remaining portion of firm orders under fixed price contracts not yet completed or for which work had not yet begun as of such dates. For purposes of calculating remaining performance obligations, Quanta includes all estimated revenues attributable to consolidated joint ventures and variable interest entities, revenues from funded and unfunded portions of government contracts to the extent they are reasonably expected to be realized, and revenues from change orders and claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under MSAs and non-fixed price contracts expected to be completed within one year. Contract Estimates and Changes in Estimates Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen or changed circumstances not included in Quanta’s cost estimates or covered by its contracts. Some of the factors that can result in positive changes in estimates on projects include successful execution through project risks, reduction of estimated project costs or increases of estimated revenues. Some of the factors that can result in negative changes in estimates include concealed or unknown site conditions; changes to or disputes with customers regarding the scope of services; changes in estimates related to the length of time to complete a performance obligation; changes or delays with respect to permitting and regulatory requirements and materials; changes in the cost of equipment, commodities, materials or skilled labor; unanticipated costs or claims due to delays or failure to perform by customers or third parties; customer failure to provide required materials or equipment; errors in engineering, specifications or designs; project modifications; adverse weather conditions, natural disasters, and other emergencies (including the COVID-19 pandemic); and performance and quality issues causing delay (including payment of liquidated damages) or requiring rework or replacement. Any changes in estimates could result in changes to profitability or losses associated with the related performance obligations. Additionally, changes in cost estimates on certain contracts may result in the issuance of change orders, which can be approved or unapproved by the customer, or the assertion of contract claims. Quanta recognizes amounts associated with change orders and claims as revenue if it is probable that the contract price will be adjusted and the amount of any such adjustment can be reasonably estimated. As of September 30, 2022 and December 31, 2021, Quanta had recognized revenues of $524.1 million and $367.8 million related to change orders and claims included as contract price adjustments that were in the process of being negotiated in the normal course of business. The largest component of the revenues recognized related to change orders and claims as of September 30, 2022 is associated with a large renewable transmission project in Canada, which was primarily attributable to decreased productivity and additional costs that arose from delays, administrative requirements and labor issues due to the COVID-19 pandemic in 2021 and the first quarter of 2022, including additional governmental requirements and worksite restrictions. Additionally, a wildfire in the region and the remote location of the project exacerbated the operational challenges related to labor force and project efficiency. Due to these challenges, Quanta and the customer agreed on a revised timeline and plan for the project, which requires an additional winter season of work through the spring of 2024 and resulted in a substantial increase to the change order and claim balance during the nine months ended September 30, 2022. Additionally, during the three months ended September 30, 2022, Quanta collected amounts associated with the majority of the change orders and claims from an electric infrastructure project in Canada that was substantially completed during the three months ended March 31, 2022. The change orders and claims associated with this project represented a significant portion of the revenues recognized in prior periods. Changes in estimated revenues, costs and profit are recognized on a cumulative catch-up basis and recorded in the period they are determined to be probable and can be reasonably estimated. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations that were satisfied or partially satisfied in prior periods or the reversal of previously recognized revenue if the currently estimated revenue is less than the previous estimate. The impact of a change in contract estimate is measured as the difference between the revenue or gross profit recognized in the prior period as compared to the revenue or gross profit which would have been recognized had the revised estimate been used as the basis of recognition in the prior period. Changes in estimates can also result in contract losses, which are recognized in full when they are determined to be probable and can be reasonably estimated. Revenues were positively impacted by $76.2 million and $53.2 million during the three months ended September 30, 2022 and 2021 as a result of changes in estimates associated with performance obligations on fixed price contracts partially satisfied prior to June 30, 2022 and 2021. Revenues were positively impacted by $119.7 million and $151.7 million during the nine months ended September 30, 2022 and 2021 as a result of changes in estimates associated with performance obligations on fixed price contracts partially satisfied prior to December 31, 2021 and 2020. Operating results for the three months ended September 30, 2022 were favorably impacted by $70.6 million, or 10.2% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress as of June 30, 2022. The overall favorable impact resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion. Operating results for the nine months ended September 30, 2022 were favorably impacted by $108.1 million, or 5.8% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress as of December 31, 2021. The overall favorable impact resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion. Partially offsetting the aggregate net favorable impact to gross profit was a negative change in estimate of $21.8 million for the nine months ended September 30, 2022, associated with the large renewable transmission project in Canada, described further above. Operating results for the three months ended September 30, 2021 were favorably impacted by $41.9 million, or 7.8% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress at June 30, 2021. Operating results for the nine months ended September 30, 2021 were favorably impacted by $127.4 million, or 9.4% of gross profit, as a result of aggregate changes in contract estimates related to projects that were in progress at December 31, 2020. The net favorable impacts resulted from net positive changes in estimates across a large number of projects, primarily as a result of favorable performance and successful mitigation of risks and contingencies as the projects progressed to completion. Contract Assets and Liabilities Contract assets and liabilities consisted of the following (in thousands):
|  | September 30, 2022 |  | December 31, 2021
Contract assets |  | $ | 1,127,181 |  |  | $ | 803,453 |
Contract liabilities |  | $ | 830,351 |  |  | $ | 802,872 |
Contract assets and liabilities fluctuate period to period based on various factors, including, among others, changes in the number and size of projects in progress at period end; variability in billing and payment terms, such as up-front or advance billings, interim or milestone billings, or deferred billings; and unapproved change orders and contract claims recognized as revenues. The increase in contract assets from December 31, 2021 to September 30, 2022 was primarily due to increased working capital requirements, including the timing of billings and unapproved change orders and claims related to the large renewable transmission project in Canada described above. During the nine months ended September 30, 2022, Quanta recognized revenue of approximately $667.2 million related to contract liabilities outstanding as of December 31, 2021. Accounts Receivable, Allowance for Credit Losses and Concentrations of Credit Risk Quanta’s historical loss ratio and its determination of its risk pool, which are used to calculate expected credit losses, may be adjusted for changes in customer credit concentrations within its portfolio of financial assets, its customers’ ability to pay, and other considerations, such as economic and market changes, changes to regulatory or technological environments affecting customers and the consistency between current and forecasted economic conditions and historical economic conditions used to derive historical loss ratios. At the end of each quarter, management reassesses these and other relevant factors, including the impact of inflationary pressure, ongoing supply chain and other logistical challenges and potential uncertainty and further effects on the energy market and overall economy caused by the COVID-19 pandemic. Activity in Quanta’s allowance for credit losses consisted of the following (in thousands):
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Balance at beginning of period |  | $ | 49,707 |  |  | $ | 39,713 |  |  | $ | 49,749 |  |  | $ | 16,546 |
Increase (decrease) in provision for credit losses |  | 2,343 |  |  | 249 |  |  | 2,048 |  |  | 24,169 |
Write-offs charged against the allowance net of recoveries of amounts previously written off |  | (33,030) |  |  | (253) |  |  | (32,777) |  |  | (1,006) |
Balance at end of period |  | $ | 19,020 |  |  | $ | 39,709 |  |  | $ | 19,020 |  |  | $ | 39,709 |
Provision for credit losses is included in “Selling, general and administrative expenses” in the consolidated statements of operations. During the three months ended September 30, 2022, Quanta determined that $31.7 million of receivables that were fully reserved in previous periods were uncollectible, and as such wrote off the receivables against their related allowances. The receivables were from Limetree Bay Refining, LLC (Limetree Refining), which filed for bankruptcy in July 2021, and an affiliate, customers within Quanta’s Underground Utility and Infrastructure Solutions segment. Provisions for such receivables of $23.6 million and $8.1 million were recognized in the three months ended June 30, 2021 and December 31, 2021. Quanta is subject to concentrations of credit risk related primarily to its net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and contract assets net of advanced billings with the same customer. Quanta grants credit under normal payment terms, generally without collateral, to its customers, which primarily include utilities, renewable energy developers, communications providers, industrial companies and energy delivery companies located primarily in the United States, Canada and Australia. One customer within the Renewable Energy Infrastructure Solutions segment represented 11% of Quanta’s consolidated net receivable position as of September 30, 2022 and December 31, 2021. Another customer, when combined with the net receivable position of a joint venture in which such customer owns a 50% interest, also represented 11% of Quanta’s consolidated net receivable position as of December 31, 2021. Quanta’s projects with this customer are primarily within the Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions segments. No customer represented 10% or more of Quanta’s consolidated revenues for the three and nine months ended September 30, 2022 or 2021. Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on Quanta’s experience in recent years, the majority of these retainage balances are expected to be collected within approximately one year. Retainage balances with expected settlement dates within one year of September 30, 2022 and December 31, 2021 were $339.9 million and $406.7 million, which are included in “Accounts receivable.” Retainage balances with expected settlement dates beyond one year were $134.1 million and $93.9 million and are included in “Other assets, net.” Quanta recognizes unbilled receivables for non-fixed price contracts within “Accounts receivable” in certain circumstances, such as when revenues have been earned and recorded but the amount cannot be billed under the terms of the contract until a later date or when amounts arise from routine lags in billing (for example, work completed during one month but not billed until the next month). These balances do not include revenues recognized for work performed under fixed-price contracts, as these amounts are recorded as “Contract assets.” As of September 30, 2022 and December 31, 2021, unbilled receivables included in “Accounts receivable” were $977.2 million and $679.0 million. The increase in unbilled receivables was primarily due to significant increases in work and certain delays in billing related to certain large customers. Quanta also recognizes unearned revenues for non-fixed price contracts when cash is received prior to recognizing revenues for the related performance obligation. Unearned revenues, which are included in “Accounts payable and accrued expenses,” were $57.4 million and $51.8 million as of September 30, 2022 and December 31, 2021.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI https://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 + Details
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