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Acquisitions | 9 Months Ended
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Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Acquisitions | 5. ACQUISITIONS: The results of operations of acquired businesses have been included in Quanta’s consolidated financial statements since their respective acquisition dates. On July 17, 2024, Quanta completed the acquisition of Cupertino Electric, Inc. (CEI), which provides electrical infrastructure solutions, including engineering, procurement, project management, construction and modularization services, to the technology, renewable energy and infrastructure and commercial industries. CEI is located in the United States, and its results have been included in the Electric Power and Renewable Energy segments since the acquisition date. The consideration for the acquisition was approximately $1.66 billion paid or payable in cash (subject to certain adjustments and including payment for cash held by CEI as of the acquisition date) and 882,926 shares of Quanta common stock, which had a fair value of $216.3 million as of the acquisition date. The cash consideration paid or payable by Quanta, net of cash received from CEI, was $1.24 billion. Additionally, the former equity holders and award holders of CEI are eligible for a potential contingent consideration payment of up to $200.0 million based on exceeding certain financial performance targets during the three-year post-acquisition period beginning in January 2025. To the extent payable, Quanta, at its sole discretion, can pay up to 10% of any such contingent consideration amount in Quanta common stock. The final amount of consideration for the acquisition remains subject to certain post-closing adjustments, including with respect to net working capital (inclusive of cash) and certain assumed liabilities. As of July 17, 2024, the fair value of the contingent consideration liability was $96.1 million. During the nine months ended September 30, 2024, Quanta also acquired seven additional businesses located in the United States, including: a business that provides specialty environmental solutions to industrial and petrochemical companies (primarily included in the Underground and Infrastructure segment); a business that specializes in testing, manufacturing and distributing safety equipment and supplies (primarily included in the Electric Power and Renewable Energy segments); a business that specializes in electrical infrastructure services for substations, data centers and governmental entities (primarily included in the Electric Power segment); a business that manufactures transmission and distribution equipment for the electric utility industry (primarily included in the Electric Power and Renewable Energy segments); a business that provides services and equipment related to aerial telecommunications infrastructure and networks (primarily included in the Electric Power segment); a business that provides services related to fiber optic networks (primarily included in the Electric Power segment); and a business that specializes in designing, manufacturing, and distributing liquid-filled power transformers for industrial and electrical companies and utilities (primarily included in the Electric Power and Renewable Energy segments). The consideration for these businesses consisted of approximately $537.8 million paid or payable in cash on the acquisition dates and 334,472 shares of Quanta common stock, which had a fair value of $74.8 million as of the acquisition dates. The final amount of consideration for these acquisitions remains subject to certain post-closing adjustments, including with respect to net working capital. As of the dates of the respective acquisitions, the fair value of the contingent consideration liabilities related to certain of these acquisitions was $29.2 million. During the year ended December 31, 2023, Quanta acquired five businesses located in the United States, including: a business that provides services related to high-voltage transmission lines, overhead and underground distribution, emergency restoration and industrial and commercial wiring and lighting (primarily included in the Electric Power segment); a business that procures parts, assembles kits for sale, manages logistics and installs solar tracking equipment for utility and development customers (primarily included in the Renewable Energy segment); a business that provides concrete construction services (primarily included in the Electric Power and Renewable Energy segments); a business specializing in power studies, maintenance testing and commissioning primarily for utility and commercial customers (included in the Electric Power segment); and a business that manufactures power transformers for the electric utility, renewable energy, municipal power and industrial markets (included in the Electric Power and Renewable Energy segments). The consideration for certain of these transactions consisted of approximately $777.6 million paid or payable in cash (subject to certain adjustments) and 1,238,576 shares of Quanta common stock, which had a fair value of $158.9 million as of the dates of the acquisitions. Additionally, the former owners of certain acquired businesses are eligible to receive potential payments of contingent consideration to the extent the acquired businesses achieve certain financial performance targets over specified post-acquisition periods. Purchase Price Allocation Quanta is finalizing its purchase price allocations, including the assignment of goodwill to its reporting units, related to certain businesses acquired subsequent to September 30, 2023, and further adjustments to the purchase price allocations may occur, with possible updates primarily related to intangible asset values, property and equipment values, certain contingent liabilities, tax estimates, and the finalization of closing working capital adjustments and other contractually agreed-upon adjustments to consideration. The aggregate consideration paid or payable for businesses acquired between September 30, 2023 and September 30, 2024 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $593.3 million to net tangible assets, $947.0 million to identifiable intangible assets and $1.38 billion to goodwill. The following table summarizes the estimated fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed as of their respective acquisition dates as of September 30, 2024 for acquisitions completed in the nine months ended September 30, 2024 (in thousands):
|  | September 30, 2024
|  | CEI |  | All Others
Consideration: |  |  |  |
Cash paid or payable |  | $ | 1,655,373 |  |  | $ | 537,795 |
Value of Quanta common stock issued |  | 216,264 |  |  | 74,797 |
Contingent consideration |  | 96,086 |  |  | 29,166 |
Fair value of total consideration transferred or estimated to be transferred |  | $ | 1,967,723 |  |  | $ | 641,758 |
Cash and cash equivalents |  | $ | 414,705 |  |  | $ | 30,797 |
Accounts receivable |  | 339,254 |  |  | 74,188 |
Contract assets |  | 89,090 |  |  | 162 |
Inventories |  | — |  |  | 49,806 |
Prepaid expenses and other current assets |  | 29,997 |  |  | 12,432 |
Property and equipment |  | 32,338 |  |  | 90,535 |
Operating lease right-of-use assets |  | 33,032 |  |  | 25,429 |
Other assets |  | 38,785 |  |  | 617 |
Identifiable intangible assets |  | 656,000 |  |  | 213,573 |
Current maturities of long-term debt |  | (1,880) |  |  | (4,534) |
Current portion of operating lease liabilities |  | (11,752) |  |  | (4,908) |
Accounts payable and accrued liabilities |  | (311,469) |  |  | (68,832) |
Contract liabilities |  | (222,538) |  |  | (34,454) |
Long-term debt, net of current maturities |  | (3,719) |  |  | (4,436) |
Operating lease liabilities, net of current portion |  | (21,101) |  |  | (20,522) |
Deferred income taxes |  | (15,606) |  |  | (48,869) |
Insurance and other non-current liabilities |  | (6,740) |  |  | (397) |
Total identifiable net assets |  | 1,038,396 |  |  | 310,587 |
Goodwill |  | 929,327 |  |  | 331,171 |
Fair value of net assets acquired |  | $ | 1,967,723 |  |  | $ | 641,758 |
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 acquisitions completed during the nine months ended September 30, 2024 strategically expanded Quanta’s domestic renewable energy infrastructure solutions and electric power infrastructure solutions and communications service offerings, including electrical systems for data center, commercial and industrial facilities as well as Quanta’s domestic underground utility and infrastructure solutions, which Quanta believes contributes to the recognition of the goodwill. As of September 30, 2024, approximately $49.0 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in the nine months ended September 30, 2024. The fair value of customer relationships is estimated as of the date a business is acquired based on the value-in-use concept utilizing the income approach, specifically the multi-period excess earnings method. This method discounts to present value the projected cash flows attributable to the customer relationships, with consideration given to customer contract renewals and estimated customer attrition rates. The fair value of backlog is estimated as of the acquisition date based upon the contractual nature of the backlog, discounted to present value. The fair value of trade names is estimated using the relief-from-royalty method of the income approach, which is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty for use of the trade name. The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in the nine months ended September 30, 2024 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).
|  | Nine Months Ended September 30, 2024
|  | CEI |  | All Others
|  | Estimated Fair Value |  | Amortization Period in Years |  | Estimated Fair Value |  | Weighted Average Amortization Period in Years
Customer relationships |  | $ | 396,000 |  |  | 8.0 |  | $ | 167,486 |  |  | 7.0
Backlog |  | 90,000 |  |  | 3.3 |  | 20,125 |  |  | 2.8
Trade names |  | 170,000 |  |  | 15.0 |  | 20,242 |  |  | 14.9
Non-compete agreements |  | — |  |  | N/A |  | 3,444 |  |  | 5.0
Patented rights, developed technology, process certifications and other |  | — |  |  | N/A |  | 2,276 |  |  | 15.0
Total intangible assets subject to amortization |  | $ | 656,000 |  |  | 9.2 |  | $ | 213,573 |  |  | 7.4
The significant estimates used by management in determining the fair values of customer relationship intangible assets include future revenues, margins, discount rates and customer attrition rates. The following table includes the discount rates and customer attrition rates used to determine the fair value of customer relationship intangible assets for businesses acquired during the nine months ended September 30, 2024 as of the respective acquisition dates:
|  | Nine Months Ended |  |  |  |
|  | September 30, 2024 |  |  |  |
|  | Range |  | Weighted Average |  |  |  |
Discount rates |  | 15% to 24% |  | 15% |  |  |  |
Customer attrition rates |  | 10% to 25% |  | 11% |  |  |  |
Contingent Consideration As described above, certain business acquisitions have contingent consideration liabilities associated with the transactions. The aggregate fair value of outstanding contingent consideration liabilities for acquisitions completed prior to September 30, 2024 and their classification in the accompanying consolidated balance sheets is as follows (in thousands):
|  | September 30, 2024 |  | December 31, 2023
Accounts payable and accrued expenses |  | $ | 157,843 |  |  | $ | — |
Insurance and other non-current liabilities |  | 120,427 |  |  | 157,073 |
Total contingent consideration liabilities |  | $ | 278,270 |  |  | $ | 157,073 |
Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, accretion in present value, changes in estimated fair value, the performance of acquired businesses in post-acquisition periods, the incremental impact on Quanta’s performance attributable to an acquired business and in certain cases, management discretion. These changes are reflected in “Change in fair value of contingent consideration liabilities” in the accompanying consolidated statements of operations. The fair value determinations for contingent consideration liabilities incorporate significant inputs not observable in the market, including revenue forecasts, operating margins, discount rates and the probability of acquired businesses achieving certain performance targets during designated post-acquisition periods. Accordingly, the level of inputs used for these fair value measurements is Level 3. All of Quanta’s outstanding contingent consideration liabilities are subject to a maximum payment amount, and the aggregate maximum payment amount of these liabilities for acquisitions completed prior to September 30, 2024 totaled $580.7 million as of September 30, 2024. During the nine months ended September 30, 2023, Quanta settled certain contingent consideration liabilities with cash payments of $5.0 million. Pro Forma Results of Operations The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in the nine months ended September 30, 2024 and the year ended December 31, 2023, have been provided for illustrative purposes only and may not 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 (in thousands).
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Revenues |  | $ | 6,595,666 |  |  | $ | 6,255,046 |  |  | $ | 18,310,917 |  |  | $ | 17,004,381 |
Net (loss) income attributable to common stock (1) |  | $ | (45,595) |  |  | $ | 249,828 |  |  | $ | 221,476 |  |  | $ | 447,407 |
(1) The pro forma combined results of operations for the three and nine months ended September 30, 2024 include one-time acquisition-related expenses of $453.8 million ($335.8 million net of tax) for pre-acquisition transaction costs incurred by CEI, primarily related to the vesting and increase in value of stock appreciation rights as a result of the acquisition. The pro forma combined results of operations for the three and nine months ended September 30, 2024 and 2023 were prepared by adjusting the historical results of Quanta to include the historical results of the businesses acquired in 2024 as if such acquisitions had occurred January 1, 2023. The pro forma combined results of operations for the three and nine months ended September 30, 2023 were prepared by further adjusting the historical results of Quanta to include the historical results of the business acquired in 2023 as if such acquisition had occurred January 1, 2022. These pro forma combined historical results were adjusted for the following: a reduction of interest and other financing expenses as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest and other financing expenses as a result of the cash consideration paid; an increase in amortization expense due to the intangible assets recorded; elimination of inter-company sales; and changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs incurred by Quanta or acquired businesses or any cost savings or other synergies that resulted or may result from the acquisitions. Impact on Consolidated Results of Operations Related to Acquisitions Included in Quanta’s condensed consolidated results of operations for the three months ended September 30, 2024 were revenues of $613.2 million and income before income taxes of $4.1 million, which included $40.3 million of amortization expense and $6.6 million of acquisition-related costs, related to the acquisitions completed in 2024. Included in Quanta’s condensed consolidated results of operations for the nine months ended September 30, 2024 were revenues of $757.5 million and a loss before income taxes of $9.7 million, which includes $52.1 million of amortization expense and $16.8 million of acquisition-related costs, related to the acquisitions completed in 2024. Included in Quanta’s condensed consolidated results of operations for the three months ended September 30, 2023 were revenues of $117.4 million and income before income taxes of $3.5 million, which included $7.3 million of amortization expense and $1.8 million of acquisition-related costs, related to the acquisitions completed in 2023. Included in Quanta’s condensed consolidated results of operations for the nine months ended September 30, 2023 were revenues of $354.0 million and income before income taxes of $0.3 million, which includes $22.3 million of amortization expense and $19.6 million of acquisition-related costs, related to the acquisitions completed in 2023.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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