Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)
☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019.



or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .



Commission file no.	001-13831

Quanta Services, Inc.

(Exact name of registrant as specified in its charter)



Delaware	74-2851603
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2800 Post Oak Boulevard, Suite 2600

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 629-7600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	PWR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of July 30, 2019, the number of outstanding shares of Common Stock of the registrant was 142,182,053. As of the same date 36,183 exchangeable shares of a Canadian subsidiary of the Registrant were outstanding.

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX



		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Equity	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	73
ITEM 4.	Controls and Procedures	74

	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	76
ITEM 1A.	Risk Factors	76
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
ITEM 3.	Defaults Upon Senior Securities	77
ITEM 4.	Mine Safety Disclosures	77
ITEM 5.	Other Information	77
ITEM 6.	Exhibits	78
Signature		79

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)



	June 30, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	73,356		$	78,687
Accounts receivable, net of allowances of $8,541 and $5,839	2,632,003			2,354,737
Contract assets	683,665			576,891
Inventories	68,400			107,732
Prepaid expenses and other current assets	294,508			208,057
Total current assets	3,751,932			3,326,104
Property and equipment, net of accumulated depreciation of $1,163,496 and $1,092,440	1,354,467			1,276,032
Operating lease right-of-use assets	284,962			—
Other assets, net	433,872			293,592
Other intangible assets, net of accumulated amortization of $400,358 and $372,081	264,284			280,180
Goodwill	1,932,300			1,899,879
Total assets	$	8,021,817		$	7,075,787
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	52,861		$	65,646
Current portion of operating lease liabilities	92,765			—
Accounts payable and accrued expenses	1,289,393			1,314,520
Contract liabilities	471,214			425,961
Total current liabilities	1,906,233			1,806,127
Long-term debt, net of current maturities	1,517,272			1,040,532
Operating lease liabilities, net of current portion	192,197			—
Deferred income taxes	276,574			219,115
Insurance and other non-current liabilities	353,282			404,560
Total liabilities	4,245,558			3,470,334
Commitments and Contingencies
Equity:
Common stock, $.00001 par value, 600,000,000 shares authorized, 159,222,385 and 157,333,046 shares issued, and 142,166,965 and 141,103,900 shares outstanding	2			2
Exchangeable shares, no par value, 36,183 and 486,112 shares issued and outstanding	—			—
Series G Preferred Stock, $.00001 par value, 0 and 1 share authorized, issued and outstanding	—			—
Additional paid-in capital	1,999,462			1,967,354
Retained earnings	2,612,994			2,477,291
Accumulated other comprehensive loss	(251,329		)	(286,048		)
Treasury stock, 17,055,420 and 16,229,146 common shares	(586,206		)	(554,440		)
Total stockholders’ equity	3,774,923			3,604,159
Non-controlling interests	1,336			1,294
Total equity	3,776,259			3,605,453
Total liabilities and equity	$	8,021,817		$	7,075,787

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues	$	2,839,199		$	2,656,348		$	5,646,458		$	5,073,924
Cost of services (including depreciation)	2,519,694			2,322,977			4,962,972			4,439,505
Gross profit	319,505			333,371			683,486			634,419
Selling, general and administrative expenses	223,944			206,104			455,852			421,526
Amortization of intangible assets	12,610			10,507			25,280			20,912
Change in fair value of contingent consideration liabilities	4,371			(6,279		)	4,287			(6,279		)
Operating income	78,580			123,039			198,067			198,260
Interest expense	(15,821		)	(9,178		)	(29,697		)	(15,956		)
Interest income	267			660			576			806
Other income (expense), net	6,521			(10,426		)	65,480			(22,401		)
Income before income taxes	69,547			104,095			234,426			160,709
Provision for income taxes	41,088			29,389			84,932			47,392
Net income	28,459			74,706			149,494			113,317
Less: Net income attributable to non-controlling interests	1,115			341			1,662			1,338
Net income attributable to common stock	$	27,344		$	74,365		$	147,832		$	111,979

Earnings per share attributable to common stock:
Basic	$	0.19		$	0.49		$	1.02		$	0.72
Diluted	$	0.19		$	0.48		$	1.01		$	0.72

Shares used in computing earnings per share:
Weighted average basic shares outstanding	145,935			153,325			145,525			154,906
Weighted average diluted shares outstanding	147,241			154,595			146,865			156,112

Cash dividends declared per common share	$	0.04		$	—		$	0.08		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income	$	28,459		$	74,706		$	149,494		$	113,317
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0, $0, $0 and $0	15,891			(20,123		)	34,754			(45,137		)
Other, net of tax of $5, $0, $11 and $0	(19		)	—			(35		)	—
Other comprehensive income (loss)	15,872			(20,123		)	34,719			(45,137		)
Comprehensive income	44,331			54,583			184,213			68,180
Less: Comprehensive income attributable to non-controlling interests	1,115			341			1,662			1,338
Total comprehensive income attributable to common stock	$	43,216		$	54,242		$	182,551		$	66,842

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Cash Flows from Operating Activities:
Net income	$	28,459		$	74,706		$	149,494		$	113,317
Adjustments to reconcile net income to net cash provided by (used in) operating activities—
Depreciation	53,811			50,034			106,027			98,753
Amortization of intangible assets	12,610			10,507			25,280			20,912
Change in fair value of contingent consideration liabilities	4,371			(6,279		)	4,287			(6,279		)
Equity in (earnings) losses of unconsolidated affiliates	(1,757		)	11,798			(62,147		)	25,141
Amortization of debt issuance costs	408			288			816			576
(Gain) loss on sale of property and equipment	(2,411		)	982			(2,470		)	1,945
Foreign currency (gain) loss	3			582			1,220			(69		)
Provision for doubtful accounts	416			139			3,239			984
Deferred income tax provision (benefit)	19,573			(2,872		)	44,131			13,505
Non-cash stock-based compensation	14,484			13,485			27,496			28,172
Bargain purchase gain	(3,138		)	—			(3,138		)	—
Changes in operating assets and liabilities, net of non-cash transactions	(235,493		)	3,150			(485,649		)	(114,444		)
Net cash provided by (used in) operating activities	(108,664		)	156,520			(191,414		)	182,513
Cash Flows from Investing Activities:
Capital expenditures	(72,775		)	(81,784		)	(141,401		)	(148,591		)
Proceeds from sale of property and equipment	8,550			7,224			19,393			12,993
Proceeds from insurance settlements related to property and equipment	3			365			11			365
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired	(3,780		)	(15,506		)	(55,333		)	(46,234		)
Investments in unconsolidated affiliates and other entities	(127		)	(731		)	(37,930		)	(1,569		)
Cash received from investments in unconsolidated affiliates and other entities	—			78			—			784
Cash paid for intangible assets	(42		)	(3,000		)	(67		)	(3,000		)
Net cash used in investing activities	(68,171		)	(93,354		)	(215,327		)	(185,252		)
Cash Flows from Financing Activities:
Borrowings under credit facility	1,068,439			1,062,445			2,715,513			2,037,393
Payments under credit facility	(901,396		)	(1,101,561		)	(2,248,838		)	(1,861,930		)
Payments on other long-term debt	(222		)	(385		)	(483		)	(731		)
Net repayments of short-term debt, net of borrowings	7,304			12,942			(15,916		)	12,942
Distributions to non-controlling interests	(1,092		)	(687		)	(1,620		)	(1,667		)
Payments related to tax withholding for stock-based compensation	(1,666		)	(1,583		)	(15,344		)	(14,204		)
Payments of dividends	(5,830		)	—			(11,582		)	—
Repurchase of common stock	(159		)	(15,993		)	(20,092		)	(189,906		)
Net cash provided by (used in) financing activities	165,378			(44,822		)	401,638			(18,103		)

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	82			1,113			(36		)	1,804
Net increase (decrease) in cash, cash equivalents and restricted cash	(11,375		)	19,457			(5,139		)	(19,038		)
Cash, cash equivalents and restricted cash, beginning of period	89,492			105,280			83,256			143,775
Cash, cash equivalents and restricted cash, end of period	$	78,117		$	124,737		$	78,117		$	124,737

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)



																		Accumulated
					Exchangeable				Series G				Additional					Other						Total
	Common Stock				Shares				Preferred Stock				Paid-In		Retained			Comprehensive			Treasury			Stockholders’			Non-controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Earnings			Income (Loss)			Stock			Equity			Interests			Equity
Balance, December 31, 2018	141,103,900		$	2	486,112		$	—	1		$	—	$	1,967,354	$	2,477,291		$	(286,048	)	$	(554,440	)	$	3,604,159		$	1,294		$	3,605,453
Other comprehensive income	—		—		—		—		—		—		—		—			18,847			—			18,847			—			18,847
Stock-based compensation activity	903,082		—		—		—		—		—		17,151		—			—			(19,052		)	(1,901		)	—			(1,901		)
Exchange of exchangeable shares	449,929		—		(449,929	)	—		—		—		—		—			—			—			—			—			—
Retirement of preferred stock	—		—		—		—		(1	)	—		—		—			—			—			—			—			—
Common stock repurchases	(375,536	)	—		—		—		—		—		—		—			—			(11,953		)	(11,953		)	—			(11,953		)
Dividends declared	—		—		—		—		—		—		—		(5,896		)	—			—			(5,896		)	—			(5,896		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(528		)	(528		)
Net income	—		—		—		—		—		—		—		120,488			—			—			120,488			547			121,035
Balance, March 31, 2019	142,081,375		$	2	36,183		$	—	—		$	—	$	1,984,505	$	2,591,883		$	(267,201	)	$	(585,445	)	$	3,723,744		$	1,313		$	3,725,057
Other comprehensive income	—		—		—		—		—		—		—		—			15,872			—			15,872			—			15,872
Stock-based compensation activity	85,590		—		—		—		—		—		14,957		—			—			(761		)	14,196			—			14,196
Dividends declared	—		—		—		—		—		—		—		(6,233		)	—			—			(6,233		)	—			(6,233		)
Distributions to non-controlling interests	—		—		—		—		—		—		—		—			—			—			—			(1,092		)	(1,092		)
Net income	—		—		—		—		—		—		—		27,344			—			—			27,344			1,115			28,459
Balance, June 30, 2019	142,166,965		$	2	36,183		$	—	—		$	—	$	1,999,462	$	2,612,994		$	(251,329	)	$	(586,206	)	$	3,774,923		$	1,336		$	3,776,259

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)



																Accumulated
					Exchangeable			Series G			Additional					Other						Total
	Common Stock				Shares			Preferred Stock			Paid-In		Retained			Comprehensive			Treasury			Stockholders’			Non-controlling			Total
	Shares		Amount		Shares	Amount		Shares	Amount		Capital		Earnings			Income (Loss)			Stock			Equity			Interests			Equity
Balance, December 31, 2017	153,342,326		$	2	486,112	$	—	1	$	—	$	1,889,356	$	2,191,059		$	(203,395	)	$	(85,451	)	$	3,791,571		$	4,058		$	3,795,629
Cumulative effect of accounting change	—		—		—	—		—	—		—		(1,757		)	—			—			(1,757		)	—			(1,757		)
Other comprehensive loss	—		—		—	—		—	—		—		—			(25,014		)	—			(25,014		)	—			(25,014		)
Acquisitions	379,817		—		—	—		—	—		13,549		—			—			—			13,549			—			13,549
Stock-based compensation activity	847,455		—		—	—		—	—		17,992		—			—			(16,690		)	1,302			—			1,302
Common stock repurchases	(4,969,261	)	—		—	—		—	—		—		—			—			(173,913		)	(173,913		)	—			(173,913		)
Distributions to non-controlling interests	—		—		—	—		—	—		—		—			—			—						(980		)	(980		)
Buyout of a non-controlling interest	—		—		—	—		—	—		—		—			—			—			—			(462		)	(462		)
Net income	—		—		—	—		—	—		—		37,614			—			—			37,614			997			38,611
Balance, March 31, 2018	149,600,337		$	2	486,112	$	—	1	$	—	$	1,920,897	$	2,226,916		$	(228,409	)	$	(276,054	)	$	3,643,352		$	3,613		$	3,646,965
Other comprehensive income	—		—		—	—		—	—		—		—			(20,123		)	—			(20,123		)	—			(20,123		)
Stock-based compensation activity	82,468		—		—	—		—	—		13,929		—			—			(870		)	13,059			—			13,059
Common stock repurchases	(594,671	)	—		—	—		—	—		—		—			—			(19,993		)	(19,993		)	—			(19,993		)
Distributions to non-controlling interests	—		—		—	—