Investments in Affiliates and Other Entities

12 Months Ended

Dec. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

Investments in Affiliates and Other Entities

INVESTMENTS IN AFFILIATES AND OTHER ENTITIES:

The following table presents Quanta’s equity investments by type (in thousands):


	December 31, 2022		December 31, 2021
Equity method investments - integral unconsolidated affiliates	$	101,251	$	67,820
Equity method investments - non-integral unconsolidated affiliates	55,833		33,372
Marketable equity securities	—		—
Non-marketable equity securities	54,134		130,233
Total investments	$	211,218	$	231,425

Equity Method Investments

Quanta’s integral equity method investment balance includes Quanta’s 50% interest in LUMA. During 2020, the LUMA joint venture was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the

approximately 18,000-mile electric transmission and distribution system in Puerto Rico. Under the operation and maintenance agreement, LUMA will be entitled to reimbursement of specific costs and expenses and receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. LUMA will not assume ownership of the electric transmission and distribution system assets or be responsible for operation of the associated power generation assets. The 15-year term under the operation and maintenance agreement is scheduled to begin upon satisfaction or waiver of several remaining conditions precedent, including the emergence from a Title III debt restructuring process of the utility that owns the electric transmission and distribution system, which have yet to occur. In June 2021, under the terms of an interim services agreement, LUMA took over operation and maintenance of the system from the utility, and during this interim period, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for specific costs and expenses. In November 2022, LUMA, the utility and the administrator agreed to extend the interim services agreement until the utility’s emergence from its Title III debt restructuring process.

Also included within the integral equity method investment balances described above is Quanta’s 44% interest in an entity that provides right-of-way solutions, including site preparation and clearing, materials delivery and installation and management of permitting requirements and traffic control, which Quanta acquired in October 2021, and Quanta’s 44% interest in an entity that provides design/build, construction management, power and gas utility engineering, subsurface utility engineering, structural engineering, highway and road design, program management and surveying services, which Quanta acquired in November 2022 for a purchase price of $30.7 million.

As of December 31, 2022 and 2021, Quanta had receivables of $96.9 million and $60.2 million from its integral unconsolidated affiliates and payables of $9.3 million and $56.3 million to them. During the years ended December 31, 2022 and 2021, Quanta recognized revenues of $154.7 million and $74.1 million primarily for services provided to LUMA at cost. In addition, during the years ended December 31, 2022 and 2021, Quanta recognized costs of sales of $134.5 million and $116.2 million for services provided by other affiliates.

During the fourth quarter of 2022, Quanta entered into an agreement to sell one of its non-integral equity method investments for total consideration of $58.4 million. The transaction was subject to certain customary closing conditions that were satisfied in early 2023. As a result, a $25.9 million gain was recognized in the fourth quarter that was recorded as “Other (expense) income, net,” of which $10.4 million is attributable to a non-controlling interest.

Total equity in earnings from integral unconsolidated affiliates were $52.5 million, $44.1 million, and $11.3 million for the years ended December 31, 2022, 2021 and 2020. Total equity in earnings from non-integral unconsolidated affiliates were earnings of $20.3 million, earnings of $2.1 million and a loss of $10.0 million for the years ended December 31, 2022, 2021 and 2020. At December 31, 2022, retained earnings included $47.0 million related to the undistributed earnings of unconsolidated affiliates.

The difference between Quanta’s carrying value and the underlying equity in the net assets of its equity investments is assigned to the assets and liabilities of the investment, giving rise to a basis difference, which was $37.8 million and $11.5 million as of December 31, 2022 and 2021. The amortization of the basis difference included in “Equity in earnings of integral unconsolidated affiliates” in the accompanying consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020, was $1.9 million, $0.5 million and zero.

Marketable and Non-Marketable Equity Securities

In March 2021, Quanta acquired a preferred non-controlling interest in a broadband technology provider for $90.0 million. This investment was classified as a non-marketable equity security as of December 31, 2021. In March 2022, pursuant to the terms of an agreement and plan of merger with a special purpose acquisition company, the broadband technology provider became Starry Group Holdings, Inc. (Starry), a publicly traded company, and Quanta’s preferred equity interest converted to a common equity interest, without preferential liquidation rights, in the publicly traded company. At that time, Quanta began classifying this investment as a marketable equity security rather than a non-marketable equity security. Additionally, in March 2022, Quanta acquired an additional common equity interest in Starry for $1.5 million. As of December 31, 2022, the fair value of Starry’s common stock was zero, which resulted in a $91.5 million impairment recorded during 2022, and in February 2023, Starry filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended.

In November 2022, Quanta acquired a 6% equity interest in an energy storage solution provider for $25.0 million. The investment is considered a non-marketable equity security.

Investment in Real Property

During the year ended December 31, 2021, Quanta purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, which Quanta has utilized it as its corporate headquarters since September 2022. A portion of this property is currently leased to third-party lessees and is expected to continue to be

leased to third-party lessees for the foreseeable future. As a result, an investment in real estate is recognized at cost for the third-party leased portion of the property. Its carrying amount of $27.5 million and $23.3 million at December 31, 2022 and 2021 is included in “Other assets, net” in the accompanying consolidated balance sheets. See Note 15 for information related to Quanta’s investments associated with its deferred compensation plan.