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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-K
(Mark One)
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-13831
quantalogohorizontalwservice.jpg
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)
(713629-7600
(Registrant’s telephone number, including area code)
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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes     No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes   No 
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 or 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 June 28, 2019 (the last business day of the Registrant’s most recently completed second fiscal quarter), the aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant, based on the last sale price of the Common Stock reported by the New York Stock Exchange on such date, was $5.4 billion.
As of February 25, 2020, the number of outstanding shares of Common Stock of the Registrant was 142,508,874.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.



QUANTA SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2019
INDEX

 
 
Page
 
 
Number
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
 
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
 
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
PART IV
ITEM 15.
ITEM 16.
 
 
 



1


PART I
ITEM 1.Business
General
Quanta Services, Inc. (Quanta) is a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric power, energy and communications industries in the United States, Canada, Australia and select other international markets. The services we provide include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries we serve, such as electric power transmission and distribution networks; substation facilities; pipeline transmission and distribution systems and facilities; refinery, petrochemical and industrial facilities; and telecommunications and cable multi-system operator networks. We have a workforce of approximately 40,300 employees as of December 31, 2019 and serve a diverse customer base. We believe our reputation for safety leadership, responsiveness and performance, geographic reach, comprehensive service offerings and financial strength have resulted in strong relationships with numerous customers, which include many of the leading companies in the industries we serve, and have positioned us to continue to take advantage of other opportunities. Our services are typically provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price installation contracts. Quanta is organized as a corporation under the laws of the State of Delaware and was formed in 1997.
We report our results under two reportable segments: (1) Electric Power Infrastructure Services and (2) Pipeline and Industrial Infrastructure Services. This structure is generally focused on broad end-user markets for our services. Our consolidated revenues for the year ended December 31, 2019 were $12.11 billion, of which 59% was attributable to the Electric Power Infrastructure Services segment and 41% was attributable to the Pipeline and Industrial Infrastructure Services segment.
We believe that our business strategies, along with our safety culture and financial strength, differentiate us from our competition and position us to capitalize on future capital spending by our customers. We offer comprehensive and diverse solutions on a broad geographic scale and have a solid base of long-standing customer relationships in each of the industries we serve. We also have an experienced management team, both at the executive level and within our operating units, and various proprietary technologies that enhance our service offerings. Our strategies of expanding our portfolio of service offerings for existing and potential customers, increasing our geographic, technological and training capabilities, promoting best practices and cross-selling services to our existing customers, as well as continuing to maintain our financial strength, place us in the position to capitalize on opportunities and trends in the industries we serve and expand our operations to select new markets. We continue to evaluate potential strategic acquisitions and investments to broaden our customer base, expand our geographic area of operations, grow our portfolio of services and increase opportunities across our operations.
Reportable Segments
The following is an overview of the types of services provided by each of our reportable segments.
Electric Power Infrastructure Services Segment
The Electric Power Infrastructure Services segment provides comprehensive network solutions to customers in the electric power industry. Services performed by the Electric Power Infrastructure Services segment generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities along with other engineering and technical services. This segment also provides emergency restoration services, including the repair of infrastructure damaged by inclement weather, the energized installation, maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and our proprietary robotic arm techniques, and the installation of “smart grid” technologies on electric power networks. In addition, this segment provides services that support the development of renewable energy generation, including solar, wind, hydro power and backup natural gas generation facilities, and related switchyards and transmission infrastructure. This segment also provides comprehensive communications infrastructure services to wireline and wireless telecommunications companies, cable multi-system operators and other customers within the communications industry (including services in connection with 5G wireless deployment); services in connection with the construction of electric power generation facilities; and the design, installation, maintenance and repair of commercial and industrial wiring. This segment also includes the majority of our postsecondary educational institution, which specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, as well as training for the pipeline and industrial and communications industries.
Pipeline and Industrial Infrastructure Services Segment
The Pipeline and Industrial Infrastructure Services segment provides comprehensive infrastructure solutions to customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products. Services performed by the Pipeline and Industrial Infrastructure Services segment generally include the design, installation, upgrade, repair

2


and maintenance of pipeline transmission and distribution systems, gathering systems, production systems, storage systems and compressor and pump stations, as well as related trenching, directional boring and mechanized welding services. In addition, this segment’s services include pipeline protection, integrity testing, rehabilitation and replacement, and the fabrication of pipeline support systems and related structures and facilities for natural gas utilities and midstream companies. We also provide high-pressure and critical-path turnaround services to the downstream and midstream energy markets and instrumentation and electrical services, piping, fabrication and storage tank services. To a lesser extent, this segment serves the offshore energy market and designs, installs and maintains fueling systems and water and sewer infrastructure.
Financial Information and Geographic Areas
We operate primarily in the United States; however, we derived $1.92 billion, $2.60 billion and $2.48 billion of our revenues from foreign operations during the years ended December 31, 2019, 2018 and 2017. Of our foreign revenues, 75%, 76% and 79% were earned in Canada during the years ended December 31, 2019, 2018 and 2017. In addition, we held property and equipment of $314.1 million and $304.0 million in foreign countries, primarily Canada, as of December 31, 2019 and 2018.
Customers, Strategic Alliances and Preferred Provider Relationships
Our customers include electric power, energy and communications companies, as well as commercial, industrial and governmental entities. We have a large and diverse customer base, including many of the leading companies in the industries we serve, and we have developed strong strategic alliances with numerous customers and strive to develop and maintain our status as a preferred service provider to our customers. For the year ended December 31, 2019, our ten largest customers accounted for 34% of our consolidated revenues. Representative customers include:
l
American Electric Power Company, Inc.
l
FirstEnergy Corp.
l
ATCO Electric
l
Fortis Inc.
l
Berkshire Hathaway, Inc.
l
National Grid plc
l
CenterPoint Energy, Inc.
l
NextEra Energy, Inc.
l
Dominion Energy, Inc.
l
PG&E Corporation
l
Duke Energy Corporation
l
Puget Sound Energy, Inc.
l
Enbridge Inc.
l
Sempra Energy
l
Entergy Corporation
l
Southern California Edison Company
l
Enterprise Products Partners L.P.
l
The Southern Company
l
EQT Midstream
l
TC Energy Corporation
l
Eversource Energy
l
Valero Energy Corporation
l
Exelon Corporation
l
Verizon Communications Inc.
Although we have a centralized marketing and business development strategy, management at each of our operating units is responsible for developing and maintaining successful long-term relationships with customers. Our operating unit management teams build upon existing customer relationships to secure additional projects and increase revenues. Many of these customer relationships are long-standing and are maintained through a partnering approach with centralized account management, which includes project evaluation and consulting, quality performance, performance measurement and direct customer contact. Additionally, operating unit management focuses on pursuing growth opportunities with prospective customers. We also encourage operating unit management to cross-sell services of our other operating units to their customers and coordinate with our other operating units to pursue projects, especially those that are larger and more complex. We believe our ability to provide services that cover a broad spectrum of our customers’ requirements is a significant differentiator. Our corporate-level business development and regional management groups support these activities by promoting and marketing our services for existing and prospective large national accounts, as well as projects that are capable of utilizing services from multiple operating units.
We are a preferred service provider for many of our customers, which means we have met minimum standards for a specific category of service, maintained a high level of performance and agreed to certain payment terms and negotiated rates. We strive to maintain preferred status as we believe it provides us an advantage in the award of future work for the applicable customer. Furthermore, many of our strategic relationships with customers take the form of strategic alliance or long-term maintenance agreements, which typically extend for an initial term and may include renewal options to extend the initial term. Strategic alliance agreements also generally state an intention to work together over a period of time and/or on specific types of projects, and many provide us with preferential bidding procedures.

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Remaining Performance Obligations and Backlog
A performance obligation is a promise in a contract with a customer to transfer a distinct good or service. Our remaining performance obligations represent management’s estimate of 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 has not yet begun, which includes estimated revenues attributable to consolidated joint ventures and variable interest entities (VIEs), 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 they will be earned and are probable of collection.
We have also historically disclosed our backlog, a measure commonly used in our industry but not recognized under generally accepted accounting principles in the United States (GAAP). We believe this measure enables management to more effectively forecast our future capital needs and results and better identify future operating trends that may not otherwise be apparent. We believe this measure is also useful for investors in forecasting our future results and comparing us to our competitors. Our remaining performance obligations are a component of backlog, which also includes estimated orders under master service agreements (MSAs), including estimated renewals, and non-fixed price contracts expected to be completed within one year. Our methodology for determining backlog may not be comparable to the methodologies used by other companies.
Generally, our customers are not contractually committed to specific volumes of services under our MSAs, and most of our contracts can be terminated, on short notice even if we are not in default. We determine the estimated backlog for these MSAs using recurring historical trends, factoring in seasonal demand and projected customer needs based upon ongoing communications. In addition, many of our MSAs are subject to renewal, and these potential renewals are considered in determining estimated backlog. As a result, estimates for remaining performance obligations and backlog are subject to change based on, among other things, project accelerations; project cancellations or delays, including but not limited to those caused by commercial issues, regulatory requirements, natural disasters and adverse weather conditions; and final acceptance of change orders by customers. These factors can cause revenues to be realized in periods and at levels that are different than originally projected.
As of December 31, 2019 and 2018, MSAs accounted for 53% and 53% of our estimated 12-month backlog and 61% and 60% of total backlog.
The following table reconciles total remaining performance obligations to our backlog (a non-GAAP measure) by reportable segment, along with estimates of amounts expected to be realized within 12 months (in thousands):
 
 
December 31, 2019
 
December 31, 2018
 
 
12 Month
 
Total
 
12 Month
 
Total
Electric Power Infrastructure Services
 
 
 
 
 
 
 
 
Remaining performance obligations
 
$
2,483,109

 
$
3,957,710

 
$
2,093,461

 
$
3,045,553

Estimated orders under MSAs and short-term, non-fixed price contracts
 
2,873,446

 
5,864,527

 
2,467,654

 
5,499,887

Backlog
 
5,356,555

 
9,822,237

 
4,561,115

 
8,545,440

 
 
 
 
 
 
 
 
 
Pipeline and Industrial Infrastructure Services
 
 
 
 
 
 
 
 
Remaining performance obligations
 
670,707

 
1,344,741

 
1,003,543

 
1,635,918

Estimated orders under MSAs and short-term, non-fixed price contracts
 
1,919,791

 
3,837,923

 
1,411,329

 
2,161,275

Backlog
 
2,590,498

 
5,182,664

 
2,414,872

 
3,797,193

 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
Remaining performance obligations
 
3,153,816

 
5,302,451

 
3,097,004

 
4,681,471

Estimated orders under MSAs and short-term, non-fixed price contracts
 
4,793,237

 
9,702,450

 
3,878,983

 
7,661,162

Backlog
 
$
7,947,053

 
$
15,004,901

 
$
6,975,987

 
$
12,342,633

Competition
The markets in which we operate are highly competitive. We compete with other contractors in most of the geographic markets in which we operate, and several of our competitors are large companies that have significant financial, technical and marketing resources. In addition, there are relatively few barriers to entry into some of the industries in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor. A significant portion of our revenues is currently derived from unit price or fixed price agreements, and price is often an important

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factor in the award of such agreements. Accordingly, we could be underbid by our competitors. We believe that as demand for our services increases, customers often consider other factors in choosing a service provider, including technical expertise and experience, safety ratings, financial and operational resources, geographic presence, industry reputation and dependability, which we expect to benefit larger contractors such as us. In addition, competition may lessen as industry resources, such as labor supplies, approach capacity. There can be no assurance, however, that our competitors will not develop the expertise, experience and resources to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position. We also face competition from the in-house service organizations of our existing or prospective customers, which employ personnel who perform some of the same types of services we provide. Although these companies currently outsource a significant portion of these services, there can be no assurance that they will continue to do so in the future or that they will not acquire additional in-house capabilities.
Human Capital Resources
Employee Profile
Our operations are decentralized and labor-intensive, and therefore we rely on both management personnel and skilled labor personnel to successfully operate our business. As of December 31, 2019, we had approximately 40,300 employees, consisting of approximately 9,800 salaried employees, including executive officers, professional and administrative staff, project managers and engineers, job superintendents and field personnel, and approximately 30,500 hourly employees, the number of which fluctuates depending upon the number and size of the projects that are ongoing and planned at any particular time. Approximately 35% of our employees at December 31, 2019 were covered by collective bargaining agreements, which require the payment of specified wages, the observance of certain workplace rules and the payment of certain amounts to multiemployer pension plans and employee benefit trusts. These collective bargaining agreements have varying terms and expiration dates, and the majority contain provisions that prohibit work stoppages or strikes, even during specified negotiation periods relating to agreement renewals, and provide for binding arbitration dispute resolution in the event of prolonged disagreement.
Employee Benefits and Talent Development
We provide health, welfare and benefit plans for employees who are not covered by collective bargaining agreements. We also have a 401(k) plan pursuant to which eligible U.S. employees who are not provided retirement benefits through a collective bargaining agreement may make contributions through a payroll deduction. We make matching cash contributions of 100% of each employee’s contribution up to 3% of that employee’s salary and 50% of each employee’s contribution between 3% and 6% of such employee’s salary, up to the maximum amount permitted by law.
We depend on our key personnel to successfully operate our business, including our executive officers, senior corporate management and management at our operating units. We focus on attraction and retention of these key personnel by offering competitive compensation packages, including employment agreements in certain circumstances, and opportunities for advancement. We have also implemented enterprise-wide talent development and succession planning programs designed to identify future and/or replacement candidates for key positions.
Employee Training and Safety
Our industry is experiencing a shortage of journeyman linemen and specialty craft labor in certain geographic areas. Furthermore, the cyclical nature of the natural gas and oil industry can create shortages of qualified labor in those markets during periods of high demand. In order to take advantage of available opportunities and successfully implement our long-term strategy, we must be able to employ, train and retain the necessary skilled personnel. As a result, we support and utilize various training and educational programs and have developed additional company-wide and project-specific employee training and educational programs.
We own and operate Northwest Lineman College, which provides training programs for the electric power, pipeline and industrial and communications industries and specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers. We have also continued to invest in our internal education and training capabilities, including the expansion of our training facility to add training for beginning linemen, lead and cable splicing and directional drilling to our existing energized electric power and pipeline integrity training as well as a new formed gas distribution technician program. This facility provides classroom and on-the-job training programs and allows us to train employees in a controlled environment without the challenges of limited structure access and utility constraints.
Additionally, we have entered into strategic relationships with universities, the military and unions in order to develop our workforce. For example, our operating units performing more sophisticated and technical jobs utilize, when applicable, training programs provided by the International Brotherhood of Electrical Workers/National Electrical Contractors Associations (IBEW/NECA) Apprenticeship Program, training programs sponsored by the four trade unions administered by the Pipe Line Contractors Association (PLCA), apprenticeship training programs sponsored by the Canadian Union of Skilled Workers (CUSW) or our equivalent programs. Under the IBEW/NECA Apprenticeship Program, all journeyman linemen are required to complete classroom

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education and on-the-job training, as well as extensive testing and certification. Certain of our operating units have established apprenticeship training programs approved by the U.S. Department of Labor that prescribe equivalent training requirements for employees who are not otherwise subject to the requirements of the IBEW/NECA Apprenticeship Program. Similarly, the CUSW offers apprenticeship training for construction and maintenance electricians and powerline technicians that requires classroom education and on-the-job training. In addition, the Laborers International Union of North America, the International Brotherhood of Teamsters, the United Association of Plumbers and Pipefitters and the International Union of Operating Engineers have training programs specifically designed for developing and improving the skills of their members who work in the pipeline construction industry. Our operating units also share best practices for training and educational programs.
Performance of our services requires the use of heavy equipment and exposure to inherently hazardous conditions. In response to these inherent hazards and as part of our commitment to the safety of our employees, customers and third parties, our corporate and operating unit management personnel have established safety programs, policies and procedures and training requirements for our employees both before they begin work and on an ongoing basis. For example, we have implemented an enterprise-wide Automated External Defibrillator (AED) program, which provides AEDs to all of our crews and training to enhance life safety response measures. Our operating units also share best practices for safety policies and practices.
Materials
Our customers typically supply most or all of the materials required for each job. However, for some of our contracts, we may procure all or part of the materials required. As we continue to expand our comprehensive engineering, procurement and construction offerings, the cost of materials may become a proportionately larger component of our consolidated cost of services. We do not anticipate experiencing any significant procurement difficulties, as we purchase our required materials from a variety of sources. However, a number of factors that we may not be able to predict or control could result in increased costs for these materials, including general market and political conditions and global trade relationships. For example, recent changes in U.S. policies related to global trade and tariffs, as well as retaliatory trade measures implemented by other countries, have resulted in uncertainty regarding the availability and pricing of certain commodities and materials important to our and our customers’ businesses, including steel and aluminum.
Regulation
Our operations are subject to various federal, state, local and international laws and regulations including:
licensing, permitting and inspection requirements applicable to contractors, electricians and engineers;
regulations relating to worker safety and environmental protection;
permitting and inspection requirements applicable to construction projects;
wage and hour regulations;
regulations relating to transportation of equipment and materials, including licensing and permitting requirements;
building and electrical codes; and
special bidding, procurement and other requirements on government projects.
We believe that we are in compliance with all material licensing and regulatory requirements that are necessary to conduct our operations. Our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses, as well as give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities. See Risks Related to Regulation and Compliance in Item 1A. Risk Factors of this Annual Report on Form 10-K (Annual Report) for further information regarding regulations applicable to our business.
Environmental Matters and Climate-Related Impacts
We are committed to the protection of the environment and train our employees to perform their duties accordingly. We are subject to numerous federal, state, local and international environmental laws and regulations governing our operations, including the handling, transportation and disposal of non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water, groundwater and soil. We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, liability can be imposed for cleanup of previously owned or operated properties or currently owned properties at which hazardous substances or wastes were discharged or disposed of by a former owner or operator, regardless

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of whether we directly caused the contamination or violated any law at the time of discharge or disposal. The presence of contamination from such substances or wastes could also interfere with ongoing operations or adversely affect our ability to sell or lease the property or use it as collateral for financing. In addition, we could be held liable for significant penalties and damages under certain environmental laws and regulations or be subject to revocation of certain licenses or permits, which could materially and adversely affect our business, results of operations and cash flows. Our contracts with customers may also impose liability on us for environmental issues that arise through the performance of our services.
From time to time, we may incur costs and obligations for correcting environmental noncompliance matters and for remediation at or relating to certain of our properties. We believe that we are in substantial compliance with our environmental obligations and that any such obligations will not have a material adverse effect on our business or financial performance.
While the potential impact of climate-related changes on our operations is uncertain, management considers climate-related risks and opportunities in connection with its long-term strategic planning and short-term deployment of resources. For example, climate change may result in, among other things, increasing temperatures, rising sea levels and changes to patterns and intensity of wildfires, hurricanes, other storms and severe weather-related events and natural disasters. As discussed elsewhere in this Annual Report, including in Item 1A. Risk Factors, our operating results are significantly influenced by weather, and these changes could significantly impact our future operating results. A greater amount of rainfall, snow, ice or other less accommodating weather conditions, as well as an increase in severe weather events and natural disasters, could reduce our productivity or result in project delays or cancellations. However, an increase in certain of these events, such as hurricanes, tropical storms, wildfires, blizzards and ice storms, can create a greater amount of emergency restoration service work and increase customer spending on modernization and other infrastructure improvements (e.g., fire hardening programs in California and the western United States). Additionally, changes in climate could result in more accommodating weather patterns for greater periods of time in certain areas, which may enable us to increase our productivity. Climate change may also affect the conditions in which we operate, and in some cases, expose us to potentially increased liabilities associated with those environmental conditions. For example, severe drought and high wind speeds in the western United States have increased the risk of wildfires during certain portions of the year, which in turn has exposed us and other contractors to increased risk of liability in connection with our operations in those locations. These conditions have also resulted in increased costs for wildfire-related third-party insurance and reduced the amount insurance carriers are willing to make available under such policies.
Concerns about climate change could also result in potential new regulations, regulatory actions or requirements to fund energy efficiency activities, any of which could affect our customers and/or demand for our services. For example, any decrease in demand for fossil fuels could negatively impact demand for certain of our pipeline and industrial services. We also maintain a large fleet and a significant amount of construction machinery, all of which could be negatively impacted by new regulations related to greenhouse gas emissions from such sources. Furthermore, technological advancements, in response to regulatory changes or otherwise, could negatively impact our customers’ businesses or alter the services our customers require, which could in turn reduce demand for our services. However, these same regulatory and technological changes could necessitate new or expanded power generation and transmission infrastructure, which could provide additional opportunities for us.
Risk Management and Insurance
We are insured for employer’s liability, workers’ compensation, auto liability and general liability claims. Under these programs, the deductible for employer’s liability is $1.0 million per occurrence, the deductible for workers’ compensation is $5.0 million per occurrence, and the deductibles for auto liability and general liability are $10.0 million per occurrence. We manage and maintain a portion of our casualty risk through our wholly-owned captive insurance company, which insures all claims up to the amount of the applicable deductible of our third-party insurance programs. In connection with our casualty insurance programs, we are required to issue letters of credit to secure our obligations. We also have employee health care benefit plans for most employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of $0.5 million per claimant per year.
Losses under all of these insurance programs are accrued based upon our estimate of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance from third-party actuaries. These insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of our liability in proportion to other parties and the number of incidents not reported. The accruals are based upon known facts and historical trends, and management believes such accruals are adequate.
We renew our insurance policies on an annual basis, and therefore deductibles and levels of insurance coverage may change in future periods. In addition, insurers may cancel our coverage or determine to exclude certain items from coverage, or we may elect not to obtain certain types or incremental levels of insurance based on the potential benefits considered relative to the cost of such insurance, or coverage may not be available at reasonable and competitive rates. For example, due to the increased occurrence and future risk of wildfires in the western United States, Australia and other areas in recent years, insurers have reduced coverage limits and increased the cost of insurance coverage for those events. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows.

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Seasonality and Cyclicality
Our revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by, among other things, weather, customer spending patterns, bidding seasons, receipt of required regulatory approvals, permits and rights of way, project timing and schedules, and holidays. Please read the section entitled Significant Factors Impacting Results included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Website Access and Other Information
Our website address is www.quantaservices.com. Interested parties may obtain free electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports through our website under the heading Investor Relations / SEC Filings or through the website of the Securities and Exchange Commission (the SEC) at www.sec.gov. These reports are available on our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. We will also make available to any stockholder, without charge, copies of our Annual Report on Form 10-K as filed with the SEC. For copies of this or any other Quanta publication, stockholders may submit a request in writing to Quanta Services, Inc., Attn: Corporate Secretary, 2800 Post Oak Blvd., Suite 2600, Houston, Texas 77056, or by phone at (713) 629-7600.
Investors and others should note that we announce material financial information and make other public disclosures of information regarding Quanta through SEC filings, press releases, public conference calls, and our website. We also utilize social media to communicate this information, and it is possible that the information we post on social media could be deemed material. Accordingly, we encourage investors, the media and others interested in our company to follow Quanta, and review the information we post, on the social media channels listed on our website in the Investors Relations / Social Media section.
This Annual Report, our website and our social media channels contain information provided by other sources that we believe is reliable. We cannot provide assurance that the information obtained from other sources is accurate or complete. No information on our website or our social media channels is incorporated by reference herein.
ITEM 1A.Risk Factors
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties described below. The matters described below are not the only risks and uncertainties facing our company, and risks and uncertainties not known to us or not described below also may impair our business operations. If any of the following risks actually occur, our business, financial condition, results of operations and cash flows can be negatively affected, the value of securities we have issued could be adversely affected, resulting in stockholders and purchasers losing part or all of their investment, and we may not be able to achieve our strategic initiatives or expectations. This Annual Report also includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the section entitled Uncertainty of Forward-Looking Statements and Information included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Risks Related to Our Industries and Operating Our Business
Our operating results may vary significantly from quarter to quarter.
Our business can be highly cyclical and is subject to seasonality and other factors that can result in significantly different operating results from quarter to quarter, and therefore our results in any particular quarter may not be indicative of future results. Our quarterly results have been and may in the future be materially and/or adversely affected by, among other things:
the timing and volume of work we perform and our performance with respect to ongoing projects;
project delays, reductions in project scope, project terminations or cancellations and increases in project costs, including as a result of, among other things, natural disasters, adverse weather conditions or events, legal challenges or permitting, regulatory or environmental processes;
variations in the size, scope, costs and margins of ongoing projects and the mix of our customers, contracts and business;
fluctuations in economic, political and market conditions on a regional, national or global basis;
pricing pressures as a result of competition;
changes in the budgetary spending patterns or strategic plans of customers or federal, state, provincial and local governments;

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liabilities and costs incurred in our operations that are not covered by, or that are in excess of, our third-party insurance, including significant liabilities that arise from the inherently hazardous conditions of our operations (e.g., explosions, fires) and which could be exacerbated by the geographies in which we operate;
disputes with customers or delays relating to billing and payment under our contracts and change orders;
payment risk associated with the financial condition of customers, including customers affected by the volatility of natural gas and oil prices or that have filed for bankruptcy protection;
the resolution of, or unexpected or increased costs associated with, pending or threatened legal proceedings, indemnity obligations, multiemployer pension plan obligations (e.g., withdrawal liability) or other claims asserted against us;
the termination or expiration of existing customer agreements;
restructuring, severance and other costs associated with winding down certain operations and exiting markets, including our Latin American operations;
estimates and assumptions in determining our financial results, remaining performance obligations and backlog, including the timing and significance of impairments of long-lived assets, equity or other investments, receivables, goodwill or other intangible assets;
significant fluctuations in foreign currency rates;
the recognition of tax impacts related to changes in tax laws or uncertain tax positions; and
the timing and magnitude of costs we incur to support growth internally or through acquisitions or otherwise.
Negative economic and market conditions, including low oil and natural gas production volumes and prices, can adversely impact our customers’ future spending as well as payment for our services.
Stagnant or declining economic conditions, including a prolonged economic downturn or recession, as well as significant events that have an impact on financial or capital markets, can adversely impact the demand for our services and result in the delay, reduction or cancellation of certain projects. A number of factors can adversely affect the industries we serve, including, among other things, financing conditions, potential bankruptcies and global and U.S. trade relationships and other geopolitical events. A reduction in cash flow or the lack of availability of debt or equity financing for our customers could result in a reduction in our customers’ spending for our services and also impact the ability of our customers to pay amounts owed to us, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Consolidation, competition, capital constraints or negative economic conditions in the electric power, energy or communications industries can also result in reduced spending by, or the loss of, one or more of our customers.
Our Pipeline and Industrial Infrastructure Services segment is exposed to risks associated with the oil and gas industry. These risks, which are not subject to our control, include the volatility of natural gas and oil prices and production, the development of and consumer demand for alternative energy sources, and legislative and regulatory actions, as well as public opinion, regarding the impact of fossil fuels on the climate and environment. Specifically, lower prices and production volumes, or perceived risk thereof, can result in decreased or delayed spending by our customers, including with respect to larger pipeline and industrial projects. In addition, the 2020 U.S. presidential and congressional elections may result in a change in administration and control of Congress with the potential consequence of increased restrictions on oil and gas production activities, which could have a material adverse effect on the oil and gas industry. If the profitability of our Pipeline and Industrial Infrastructure Services segment were to decline, our overall financial position, results of operations and cash flows could also be adversely affected. Additionally, a decline in prices, production or the development of resource plays can negatively impact certain portions of our Electric Power Infrastructure Services segment. For example, the low price of oil has had an adverse impact on the Canadian economy, which has impacted demand for some of our electric power services in Canada.
A variety of issues outside of our control could affect the timing of and our performance on projects, which may result in additional costs to us, reductions or delays in revenues, the payment of liquidated damages or project termination.
Our business is dependent in part upon projects that can be cyclical in nature and are subject to risks of delay or cancellation. The timing of or failure to obtain contracts, delays in awards of, start dates for or completion of projects and the cancellations of projects can result in significant periodic fluctuations in our business, financial condition, results of operations and cash flows. Many of our projects involve challenging engineering, permitting, procurement and construction phases that occur over extended time periods, sometimes several years, and we have encountered and may in the future encounter project delays or project performance issues as a result of, among other things:
delays in the delivery or management of design or engineering information, equipment or materials;
schedule changes;

9


natural disasters, including wildfires, earthquakes and significant weather events (e.g., hurricanes, tropical storms, tornadoes, floods, droughts, blizzards and extreme temperatures);
adverse weather conditions (e.g., prolonged rainfall or snowfall, early thaw in Canada and the northern United States, other unseasonable weather patterns);
our or a customer’s failure to timely obtain permits or rights of way or meet other permitting, regulatory or environmental requirements or conditions;
difficult terrain and site conditions where delivery of materials and availability of labor are impacted or where there is exposure to harsh and hazardous conditions;
protests, legal challenges or other political activity or opposition to a project;
changes in permitting and regulatory requirements during the course of our work; and
other factors such as terrorism, military action and public health crises (including the outbreak of the recent coronavirus);
additional complexity, timing uncertainty or extended bidding, regulatory and permitting processes associated with the projects where we provide engineering, procurement and construction (EPC) services.
In addition, we contract with third-party suppliers and subcontractors to assist us with the completion of contracts, and approximately 15% to 20% of our work is subcontracted to other service providers. A delay or failure to perform by suppliers or by subcontractors can result in delays in the overall progress of the project or cause us to incur additional costs.
Many of these difficulties and delays are beyond our control and can negatively impact our ability to complete the project in accordance with the required delivery schedule or achieve our anticipated margin on the project. Delays and additional costs may be substantial and not recoverable from third parties, and in some cases, we may be required to compensate the customer for such delays. Furthermore, in certain circumstances we guarantee project completion or performance by a scheduled date, and failure to meet the schedule or performance requirements can result in additional costs or penalties, including liquidated damages. Such amounts could exceed expected project profit. In extreme cases, project delay or performance difficulties can result in project cancellation by a customer or damage to our reputation or relationship with a customer, which can adversely affect our ability to secure new contracts. Additional costs or penalties, a reduction in our productivity or efficiency or a project termination in any given period can have a material adverse effect on our business, financial condition, results of operations and cash flows. For example, as discussed in further detail in Legal Proceedings within Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, the termination of a telecommunications project in Peru resulted in a $79.2 million charge to earnings in the second quarter of 2019.
Our revenues and profitability can be exposed to potential risk if our customers encounter financial difficulties or file bankruptcy or disputes arise with our customers.
Our contracts often require us to satisfy or achieve certain milestones in order to receive payment, or in the case of cost-reimbursable contracts, provide support for billings in advance of payment. As a result, we can incur significant costs or perform significant amounts of work prior to receipt of payment. We face difficulties collecting payment and sometimes failed to receive payment for such costs in circumstances where our customers do not proceed to project completion, terminate or cancel a contract, default on their payment obligations, or dispute the adequacy of our billing support. We have in the past brought, and may in the future bring, claims against our customers related to the payment terms of our contracts. For example, we have filed an international arbitration proceeding against the customer in connection with the terminated telecommunications project in Peru, which seeks to recover, among other things, amounts related to a net receivable position of approximately $120 million as of December 31, 2019. For additional information on this matter, see Legal Proceedings within Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. A failure to promptly recover on these types of claims can have a negative impact on our financial condition, results of operations and cash flows, and any such claims may harm our relationships with our customers.
Slowing economic conditions in the industries we serve can also impair the financial condition of our customers and hinder their ability to pay us on a timely basis or at all. Further, to the extent a customer files bankruptcy, payment of amounts owed can be delayed and certain payments we receive prior to the filing of the bankruptcy petition may be avoided and returned to the customer’s bankruptcy estate. For example, in January 2019, PG&E Corporation and Pacific Gas and Electric Company (collectively, PG&E), one of our largest customers, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended, which impacted the collection of approximately $165 million of pre-petition receivables. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Concentrations of Credit Risk for additional information on this matter. Additionally, many of our customers for larger projects are project-specific entities that do not have significant assets other than their interests in the project and could be more likely to encounter financial difficulties relating to their businesses. We ultimately may be unable to collect amounts owed to us by customers experiencing financial difficulties or

10


in bankruptcy, and accounts receivable from such customers may become uncollectible and ultimately have to be written off, which could have an adverse effect on our future financial condition, results of operations and cash flows.
Our business is subject to operational hazards, including, among others, wildfires and explosions, that can result in significant liabilities and that may be exacerbated by certain geographies and locations where we perform services, and we may not be insured against all potential liabilities.
Due to the nature of services we provide and the conditions in which we and our customers operate, our business is subject to operational hazards and accidents that can result in significant liabilities. These operational hazards include, among other things, electricity, fires, explosions, leaks, collisions, mechanical failures, and damage from severe weather conditions and natural disasters. Furthermore, certain of our customers operate energy- and communications-related infrastructure assets in locations and environments that increase the likelihood and/or severity of these operational hazards, including as a result of changes in climate and other factors in recent years. In particular, we perform a significant amount of services, including operational, consulting and other services, for customers that operate electrical power, natural gas and communications infrastructure assets in the western United States, Australia and other locations that have recently experienced, and have a higher risk of, wildfires. For example, certain of Quanta’s operating units perform inspection, consulting, repair, maintenance and other services for utilities and other customers that operate electric power and other infrastructure in California and other areas in the western United States, including recent inspection of, and other services relating to, the electrical transmission and distribution infrastructure operated by PG&E in California. PG&E and certain other utility customers have been determined to be or are potentially responsible for catastrophic wildfires that have occurred in recent years. Quanta’s operating units have received document hold requests and subpoenas in connection with these events. We are not a party to any pending legal proceeding relating to such wildfires at this time, and no related claims asserting liabilities against Quanta or its operating units have been filed. However, there is no assurance that claims will not be filed in the future.
We also often perform services in locations that are densely populated and that have higher value property and assets, such as California and metropolitan areas, which can increase the impact of any of these hazards or other accidents we experience. We recently acquired The Hallen Construction Co., Inc. (Hallen), a company that specializes in underground gas and electric distribution and transmission services and operates in metropolitan areas throughout the northeastern United States, including New York City, New York. This acquisition, including certain assumed liabilities associated with its pre-acquisition operations, which are described further in Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, increases our potential exposure to certain of these hazards and accidents.
Events arising from operational hazards and accidents have resulted in significant liabilities to us in the past and may expose us to significant claims and liabilities in the future. These claims and liabilities can arise through indemnification obligations to customers, our negligence or otherwise, and because our services in certain instances are integral to the operation and performance of our customers’ infrastructure, such claims and liabilities can arise even if our operations are not the cause of the harm. Our exposure to liability can also extend for a number of years after we complete our services, and potential claims and liabilities arising from significant accidents and events can take a number of years and significant legal costs to ultimately resolve.
Potential liabilities include, among other things, claims associated with personal injury, including severe injury or loss of life, and significant damage to property, equipment and the environment, and other claims discussed above and can lead to suspension of operations, adverse effects to our safety record and reputation and/or material legal costs and liabilities. In addition, if any of these events or losses related thereto are found to be the result of our or our customer’s activities or services, we could be subject to government enforcement actions or regulatory penalties, litigation and/or civil or governmental actions, including investigations, citations and fines. Insurance coverage may not be available to us or may be insufficient to cover the cost of any of these liabilities and legal costs. If we are not fully insured or indemnified against such liabilities and legal costs or a counterparty fails to meet its indemnification obligations to us, it could materially and adversely affect our business, financial condition, results of operations and cash flows. Further, to the extent our reputation or safety record is adversely affected, demand for our services could decline or we may not be able to bid for certain work.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure, as well as disrupt our operations, and estimates of losses covered by our insurance policies could prove incorrect.
We maintain insurance coverage from third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits. We are insured for, among other things, employer’s liability, workers’ compensation, auto liability and general liability claims, but such insurance is subject to deductibles and limits and may be canceled or may not cover all of our losses. We manage and maintain a portion of our casualty risk through our wholly-owned captive insurance company, which insures all claims up to the amount of the applicable deductible of our third-party insurance programs. In connection with our casualty insurance programs, we are required to issue letters of credit to secure our obligations. Our insurance policies include various coverage requirements, including the requirement to give appropriate notice, and coverage could be denied if we fail to comply with those requirements.

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Additionally, our insurance coverages may not be sufficient or effective under all circumstances or against all claims and liabilities asserted against us, and if we are not fully insured against such claims and liabilities, it could expose us to significant liabilities and materially and adversely affect our business, financial condition, results of operations and cash flows. We also renew our insurance policies on an annual basis, and therefore deductibles and levels of coverage offered by third parties may change in future periods. For example, due to the increased occurrence in recent years and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage limits and increased the cost of insurance coverage for those events. As a result, we expect our level of insurance coverage for wildfire events will decrease at the time of our annual insurance renewal in the spring of 2020, and such level may not be sufficient to cover potential losses. In addition, our third party insurers could decide to further reduce or exclude coverage for wildfires in the future. There can also be no assurance that any of our other existing third-party insurance coverages will be renewed at their current levels or at all or that any future coverage will be available at reasonable and competitive rates. Our third-party insurers could also fail, cancel our coverage or otherwise be unable or unwilling to provide us with adequate insurance coverage. Adverse changes in our insurance coverage could increase our exposure to uninsured losses, which could have a negative effect on our business, financial condition, results of operations and cash flows or result in a disruption of our operations.
Losses under our insurance programs are accrued based upon our estimate of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance from third-party actuaries. These insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of our liability in proportion to other parties and the number of incidents not reported. If we experience claims or costs above our estimates, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Our business is labor-intensive, and we may be unable to attract and retain qualified employees or we may incur significant costs in the event we are unable to efficiently manage our workforce.
Our ability to efficiently manage our business and achieve our strategic initiatives is limited by our ability to employ, train and retain the necessary skilled personnel, which is subject to a number of risks. The commencement of new, large-scale infrastructure projects or increased demand for infrastructure improvements, as well as the aging electric utility workforce, has reduced and may further reduce the pool of skilled workers, including qualified journeyman lineman, available for our Electric Power Infrastructure Services segment. With respect to our Pipeline and Industrial Infrastructure Services segment, there is limited availability of experienced supervisors and foremen that can oversee larger diameter pipeline projects. The cyclical nature of the natural gas and oil industry can also create shortages of qualified labor during periods of high demand and production. A shortage in the supply of these personnel creates competitive hiring markets that may result in increased labor expenses. Additionally, we have incurred, and expect to continue to incur, significant education and training expenses in order to recruit and train employees.
The uncertainty of contract award timing and project delays can also present difficulties in managing our workforce size. Our inability to efficiently manage our workforce may require us to incur costs resulting from excess staff, reductions in staff, or redundancies that could have a material adverse impact on our business, financial condition, results of operations and cash flows.
The loss of, or reduction in business from, one or a few customers could have a material adverse effect on our business.
A few customers have in the past and may in the future account for a significant portion of our revenues. For example, our ten largest customers accounted for 34% of our consolidated revenues for the year ended December 31, 2019. Although we have long-standing relationships with many of our significant customers, a significant customer may unilaterally reduce or discontinue business with us at any time or merge or be acquired by a company that decides to reduce or discontinue business with us. PG&E, one of our largest customers, has filed for bankruptcy, and other significant customers may file for bankruptcy protection or cease operations, which could also result in reduced or discontinued business with us. The loss of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may fail to adequately recover on contract change orders or claims brought by us against customers.
We have in the past brought, and may in the future bring, claims against our customers. These types of claims occur due to, among other things, delays caused by customers and third parties and changes in project scope, which can result in additional costs that may not be recovered until the claim is resolved. While we generally negotiate with the customer for additional compensation, we may be unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred. Litigation or arbitration with respect to these matters is generally lengthy and costly, involves significant uncertainty as to timing and amount of any resolution, and can adversely affect our relationship with existing or potential customers. Furthermore, we can be required to invest significant working capital to fund cost overruns while the resolution of a claim is pending. Failure to obtain adequate and prompt compensation for these matters can result in a reduction of revenues and gross profit recognized in prior periods or the recognition of a loss. Any such reduction or loss can be substantial and can have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Our failure to accurately estimate project costs or successfully execute a project could result in reduced profits or losses.
We currently generate, and expect to continue generating, a significant portion of our revenues under fixed price contracts, including contracts for projects where we provide EPC services (e.g., large electric transmission and pipeline projects, facility and terminal projects). Under these contracts, we assume risks related to project estimates and execution, and project revenues, profitability and costs can vary, sometimes substantially, from our original projections due to a variety of factors, including:
unforeseen circumstances or project modifications not included in our cost estimates or covered by our contract for which we cannot obtain adequate compensation, including concealed or unknown environmental, geological or geographical site conditions and technical problems such as design or engineering issues;
failure to accurately estimate project costs or accurately establish the scope of our services;
failure to coordinate performance of subcontractors, suppliers and other third parties or delays and failure to perform by such parties;
inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project, which can result in increased costs or the payment of liquidated damages to the customer;
failure to properly make judgments in accordance with applicable professional standards (e.g., engineering standards);
changes in the cost of equipment, commodities, materials or labor;
contract termination or suspension and our inability to obtain reimbursement for services performed, costs incurred or expected profit;
delays or productivity issues caused by adverse weather conditions, significant weather events or other natural disasters;
delays and additional costs associated with obtaining required permits or approvals;
changes in laws or regulations;
delays and additional costs attributable to legal challenges and protests and other political activity; and
quality issues, including those requiring rework or replacement.
These factors and events can result in reputational harm or cause actual revenues and gross profits for a project to differ from what we originally estimated, resulting in reduced profitability or losses on projects. Such differences can materially and adversely affect our business, financial condition, results of operations and cash flows.
Changes in estimates related to revenues and costs associated with our contracts with customers could result in a reduction or elimination of revenues, a reduction of profits or the recognition of losses.
For fixed price contracts and certain unit-price contracts, we recognize revenue as performance obligations are satisfied over time and earnings or losses recognized on individual contracts are based on estimates of contract revenues, costs and profitability, as discussed in further detail in Note 2 of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Changes in contract estimates are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made, and contract losses are recognized in full when losses are determined to be probable and can be reasonably estimated. Variable consideration amounts, including performance incentives, early pay discounts and penalties, may also cause changes in contract estimates. In addition, we recognize amounts associated with change orders and/or claims as revenue when it is probable that the contract price will be adjusted and the amount of any such adjustment can be reasonably estimated, which can result in the recognition of costs prior to the recognition of the related revenue. Furthermore, actual amounts collected in connection with change orders can differ from estimated amounts.
Consequently, the timing for recognition of revenues and profit or loss and any subsequent changes in estimates is uncertain and could result in a reduction or an elimination of previously reported revenues or profits or the recognition of losses on the associated contract. Any such adjustments could be significant and could have a material adverse impact on our financial condition, results of operations and cash flows.
During the ordinary course of our business, we are subject to lawsuits, claims and other legal proceedings.
We have in the past been, and may in the future be, named as a defendant in lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. These actions seek, among other things, compensation for alleged personal injury (including claims for loss of life), workers’ compensation, employment discrimination, sexual harassment, workplace misconduct, wage and hour claims and other employment-related damages, compensation for breach of contract, negligence or gross negligence or property damage, environmental liabilities, multiemployer pension plan withdrawal liabilities, punitive damages, consequential damages, and civil penalties or other losses or injunctive or declaratory relief. In addition, we generally indemnify our customers for claims related to the services we provide and actions we take under our contracts, and, in some instances, we are allocated risk

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through our contract terms for actions by our customers, subcontractors or other third parties. Because our services in certain instances can be integral to the operation and performance of our customers’ infrastructure, we have been and may become subject to lawsuits or claims for any failure of the systems that we work on, even if our services are not the cause of such failures. We could also be subject to civil and criminal liabilities, which could be material. Insurance coverage may not be available or may be insufficient for these lawsuits, claims or legal proceedings. The outcome of any allegations, lawsuits, claims or legal proceedings, as well as any public reaction thereto, is inherently uncertain and could result in significant costs, damage to our brands or reputation and diversion of management’s attention from our business. Payments of significant amounts, even if reserved, could materially and adversely affect our business, reputation, financial condition, results of operations and cash flows. For details on our existing litigation, claims and other legal proceedings, refer to Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
We may be unsuccessful at generating internal growth, which could adversely affect our business.
Many of the factors affecting our ability to generate internal growth are beyond our control, and we cannot be certain that our strategies for achieving internal growth will be successful. Inability to successfully generate internal growth may adversely affect our financial condition, results of operations and cash flows. Our ability to generate internal growth will be affected by, among other factors, our ability to:
expand the range of services we offer to customers to address their evolving infrastructure needs;
attract new customers;
increase the number of projects performed for existing customers;
hire and retain qualified employees;
expand geographically; and
address regulatory, environmental and permitting requirements and economic or market conditions that affect us or our customers.
Many of our contracts may be canceled or suspended on short notice or may not be renewed upon completion or expiration, and we may be unsuccessful in replacing our contracts, which could adversely affect our business.
Our customers have in the past and may in the future cancel, delay or reduce the number or size of projects available to us for a variety of reasons, including capital constraints or inability to meet regulatory requirements. Furthermore, many of our customers may cancel or suspend our contracts on short notice, typically 30 to 90 days, even if we are not in default under the contract. Certain of our customers assign work to us on a project-by-project basis under master service agreements. Under these agreements, our customers generally have no obligation to assign a specific amount of work to us. Our financial condition, results of operations and cash flows can be negatively impacted if any of the following occur:
our customers cancel or suspend contracts having significant value;
we fail to renew a significant number of our existing contracts;
we complete a significant number of non-recurring projects and cannot replace them with similar projects; 
the anticipated volume of work under an existing master service agreement is not assigned to us;
we are not the successful bidder on our existing contracts that are subject to re-bid in the future; or
we fail to reduce operating and overhead expenses consistent with any decrease in our revenues.
Our business is highly competitive, and competitive pressures, technological advancements and other market conditions could negatively affect our business.
The specialty contracting business is served by numerous companies, from small, owner-operated private companies to large multi-national, public companies. Relatively few barriers prevent entry into some areas of our business, and as a result, any organization that has adequate financial resources and access to technical expertise may become one of our competitors. In addition, some of our competitors have significant financial, technical and marketing resources. Our competitors may have or may develop the expertise, experience and resources to provide services that are superior in both price and quality to our services. Similarly, we cannot be certain that we will maintain or enhance our competitive position within the specialty contracting business or maintain our current customer base. Certain of our competitors may have lower overhead cost structures, and therefore may be able to provide services at lower rates than us. We also face competition from the in-house service organizations of our existing or prospective customers, which are capable of performing, or acquiring businesses that perform, some of the same types of services we provide. These customers may also face pressure or be compelled by regulatory or other requirements to self-perform an

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increasing amount of the services we currently perform for them. Therefore, we cannot be certain that our existing or prospective customers will continue to outsource these services in the future.
Furthermore, a substantial portion of our revenues is directly or indirectly dependent upon obtaining new contracts. The timing of project awards is unpredictable and often involves complex and lengthy negotiations and bidding processes. These processes are impacted by a wide variety of factors, including price, governmental approvals, financing contingencies, commodity prices, environmental conditions and overall market and economic conditions. The competitive environment we operate in can also affect the timing of contract awards and the commencement or progress of work under awarded contracts. For example, based on rapidly changing competition dynamics, we have experienced, and may in the future experience, more competitive pricing in certain markets, such as the smaller scale transmission and distribution electric power market. Our bids also may not be successful due to, among other things, a potential customer’s perception of our ability to perform the work or the technological advantages held by our competitors. Additionally, changing competitive pressures present difficulties in matching workforce size with available contract awards. As a result, the competitive environment we operate in can have a material adverse effect on our business, financial condition, results of operations and cash flows and cause our results of operations and cash flows to fluctuate significantly.
Technological advancements and other factors may alter our customers’ existing operating model or the services they require, which may also result in reduced demand for our services. In addition, market changes within our customers’ industries could impact their future demand for our services, such as a reduction in demand for hydrocarbons or plastics that negatively impacts certain of our customers. Our future success will depend, in part, on our ability to anticipate and adapt to these changes to our customers’ existing operating model in a cost-effective manner and to offer services that meet customer demands and evolving industry standards. If we fail to adapt successfully to any change or obsolescence or incur significant expenditures in adapting to such change, our businesses, financial condition, results of operations and cash flows could be materially and adversely affected.
The nature of our business exposes us to potential liability for warranty, engineering and other related claims.
Under our contracts with customers, we typically provide warranties for our services and materials we provide, guaranteeing the work performed against, among other things, defects in workmanship, and may agree to indemnify our customers for losses related to our services. The length of the warranty periods we agree to vary and can extend for several years, and certain projects can have longer warranty periods and include facility performance warranties that are broader than the warranties we generally provide. Warranties generally require us to re-perform the services and/or repair or replace the warranted item and any other facilities impacted thereby, at our sole expense, and we could also be responsible for other damages if we are not able to adequately satisfy our warranty obligations. In addition, we can be required under contractual arrangements with our customers to warrant any defects or failures in materials we provide. While we generally require the materials suppliers to provide us warranties that are consistent with those we provide to our customers, if any of these suppliers default on their warranty obligations to us, we may incur costs to repair or replace the defective materials. Costs incurred as a result of warranty claims could adversely affect our business, financial condition, results of operations and cash flows.
Furthermore, our business involves professional judgments regarding the planning, design, development, construction, operations and management of electric power transmission, communications and pipeline infrastructure. Because our projects are often technically complex, our failure to make judgments and recommendations in accordance with applicable professional standards, including engineering standards, could result in damages. A significantly adverse or catastrophic event at a project site or completed project resulting from the services we performed could result in significant professional or product liability, personal injury (including claims for loss of life) or property damage claims or other claims against us, as well as reputational harm. These liabilities could exceed our insurance limits or impact our ability to obtain third-party insurance in the future, and customers, subcontractors or suppliers who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. As a result, these claims could have a material adverse impact on our business, financial condition, results of operations and cash flows.
We can incur liabilities or suffer negative financial or reputational impacts relating to occupational health and safety matters.
Our operations are inherently hazardous and subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace. While we have invested, and will continue to invest, substantial resources in our occupational health and safety programs, our industry involves a high degree of operational risk, and there can be no assurance that we will avoid significant liability exposure. Although we have taken what we believe are appropriate precautions, we have suffered serious accidents, including fatalities, and we anticipate that our operations may result in additional serious accidents in the future. As a result of these events, we could be subject to substantial penalties, criminal prosecution or civil litigation, including claims for bodily injury or loss of life, that could result in substantial costs and liabilities. In addition, if our safety record were to substantially deteriorate over time or we were to suffer substantial penalties or criminal prosecution for violation of health and safety regulations, our customers could cancel our contracts and elect to procure future services from other providers. Unsafe work sites also have the potential to increase employee turnover, increase the costs of projects for our clients, and raise our operating costs. Any of the foregoing could have a material adverse impact on our business, financial condition, results of operations and cash flows.

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Disruptions to our information technology systems or our failure to adequately protect critical data, sensitive information and technology systems could materially affect our business or result in harm to our reputation.
We rely on information technology systems to manage our operations and other business processes and to protect sensitive company information. We also collect and retain information about our customers, stockholders, vendors and employees, all of which expect that we will adequately protect such information. Breaches or disruptions of our information systems can result from, among other things, cyber-attacks, theft, inadvertent exposure of sensitive information, acts of terrorism, storms or other natural phenomena, information technology solution failures or network disruptions, and any such cyber-attacks or breaches can go unnoticed for some period of time. An intrusion into the information systems of a business we acquire may also ultimately compromise our systems. Furthermore, some of the energy infrastructure systems on which we work may be considered to be strategic targets, and therefore at greater risk of cyber-attacks or acts of terrorism than other targets. Cyber-attacks can result in compromises of our payment systems, monetary losses, inability to access our systems, delays in processing transactions or reporting financial results, the disclosure or misappropriation of confidential or proprietary company information (including for the purpose of transacting in our stock), or the release of customer, stockholder, vendor or employee data. An attack could also cause service disruptions to our internal systems or, in extreme circumstances, infiltration into, damage to or loss of control of our customers’ energy infrastructure systems. Any such breach or disruption could subject us to significant liabilities, cause damage to our reputation or customer relationships, or result in regulatory investigations or other actions by governmental authorities.
We also continue to implement information technology solutions that require substantial financial and personnel resources. There is no guarantee that we will realize economic or other intended benefits from these systems. Furthermore, failure to properly implement these systems could result in substantial disruptions to our business, including with respect to coordinating and processing our normal business activities and financial reporting and testing and recording certain data necessary to provide oversight of our disclosure controls and procedures and effective internal controls over our financial reporting, as well as other unforeseen problems.
Any deterioration in the quality or reputation of our brands, which can be exacerbated by the effect of social media or significant media coverage, could have an adverse impact on our business or reputation.
Our brands and our reputation are among our most important assets. The success of our business and our ability to attract and retain customers depends on brand recognition and reputation. Such dependence makes our business susceptible to reputational damage and to competition from other companies. A variety of events could result in damage to our reputation or brands, some of which are outside of our control, including:
acts or omissions that adversely affect our business such as a crime, scandal, cyber-related incident, litigation or other negative publicity;
failure to successfully perform a high-profile project;
actual or potential involvement in a catastrophic fire, explosion or similar event; or
actual or perceived responsibility for a serious accident or injury.
Intensifying media coverage, including the considerable expansion in the use of social media over recent years, has increased the volume and speed at which negative publicity arising from these events can be generated and spread, and we may be unable to timely respond to, correct any inaccuracies in, or adequately address negative perceptions arising from such media coverage. If the reputation or perceived quality of our brands decline, our business, financial condition, results of operations, or cash flows could be adversely affected and we could lose the confidence of our customers, which could adversely affect demand for our services.
Our financial results are based upon estimates and assumptions that may differ from actual results.
In preparing our consolidated financial statements in conformity with GAAP, several estimates and assumptions are used by management to report the assets, liabilities, revenues and expenses. These estimates and assumptions are necessary because certain information used in the preparation of our financial statements is dependent on future events, cannot be calculated with a high degree of precision from available data or cannot be readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment. For example, we utilize estimates in our assessment of the allowance for doubtful accounts, valuation of inventory, useful lives of assets, fair value assumptions in analyzing goodwill, other intangibles and long-lived asset impairments, equity and other investments, loan receivables, purchase price allocations, acquisition-related contingent consideration liabilities, liabilities for insurance and other claims and guarantees, multiemployer pension plan withdrawal liabilities, revenue recognition for construction contracts inclusive of contractual change orders and claims, share-based compensation, operating results of reportable segments, provision (benefit) for income taxes and the calculation of uncertain tax positions. Actual results for all estimates can differ materially from the estimates and assumptions that we use and have a material adverse effect on our financial condition, results of operations and cash flows.

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Additionally, our remaining performance obligations and backlog are difficult to determine with certainty. Customers often have no obligation under our contracts to assign or release work to us, and many contracts may be terminated on short notice. Cancellation or reduction in scope of a contract can significantly reduce the revenues and profit we receive. Consequently, our estimates of remaining performance obligations and backlog may not be accurate, and we may not be able to realize our estimated remaining performance obligations and backlog.
Our results of operations and financial condition may be adversely affected as a result of asset impairments.
Our results of operations and financial condition may be adversely affected by impairments to goodwill, other intangible assets, receivables, long-lived assets or investments. For example, when we acquire a business, we record goodwill in an amount equal to the amount we paid for the business minus the fair value of the net tangible assets and other intangible assets of the acquired business. Goodwill and other intangible assets that have indefinite useful lives cannot be amortized, but instead must be tested at least annually for impairment, as described in Note 2 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. We have recorded impairments in the past, and any future impairments could have a material adverse effect on our financial condition and results of operations for the period in which the impairment is recognized. For example, during the fourth quarters of 2019 and 2018, we recorded $13.9 million and $49.4 million of asset impairment charges primarily related to the winding down and exit of certain oil-influenced operations and assets. Additionally, we have concluded to pursue an orderly exit of our Latin American operations, which could result in asset impairments related to those operations during 2020 or in subsequent years.
In addition, we enter into various types of investment arrangements in the normal course of business, each having unique terms and conditions. Equity investments are reviewed for impairment by assessing whether there has been a decline in the fair value of the investment below the carrying amount and whether that decline is considered to be other than temporary as described in Note 2 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Our inability to successfully execute our acquisition strategy may have an adverse impact on our growth strategy.
Our business strategy includes expanding our presence in the industries we serve through strategic acquisitions of companies that complement or enhance our business. The number of acquisition targets that meet our criteria may be limited. We may also face competition for acquisition opportunities, and other potential acquirers may offer more favorable terms or have greater financial resources available for potential acquisitions. This competition may further limit our acquisition opportunities or raise the prices of acquisitions and make them less accretive, or possibly not accretive, to us. Failure to consummate future acquisitions could negatively affect our growth strategies. Additionally, our past acquisitions have involved, and our future acquisitions may involve, significant cash expenditures, the incurrence or assumption of debt and the assumption of burdensome regulatory requirements and liabilities. For example, in the Hallen acquisition, we assumed certain contingent liabilities associated with Hallen’s pre-acquisition operations, which are described further in Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. As a result, past or future acquisitions may ultimately have a negative impact on our business, financial condition, results of operations and cash flows.
The success of our acquisition strategy also depends on our ability to successfully integrate the operations of the acquired businesses with our existing operations and realize the anticipated benefits from the acquired businesses, such as the expansion of our existing operations, elimination of redundant costs and capitalizing on cross-selling opportunities. Our ability to integrate and realize benefits can be negatively impacted by, among other things:
failure of an acquired business to achieve the results we expect;
diversion of our management’s attention from operational and other matters or other potential disruptions to our existing business;
difficulties incorporating the operations and personnel, or inability to retain key personnel, of an acquired business;
additional financial reporting and accounting challenges associated with an acquired business;
unanticipated events or liabilities associated with the operations of an acquired business;
loss of business due to customer overlap or other factors; and
risks and liabilities arising from the prior operations of an acquired business, such as performance, operational, safety, workforce or other compliance or tax issues, some of which we may not have discovered or accurately estimated during our due diligence and may not be covered by indemnification obligations or available insurance.
We cannot be sure that we will be able to successfully complete the integration process without substantial costs, delays, disruptions or other operational or financial problems. Failure to successfully integrate acquired businesses could adversely impact our business, financial condition, results of operations and cash flows.

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Our business growth could outpace the capability of our decentralized management structure.
We cannot be certain that our management structure will be adequate to support our operations as they expand. For example, the ability to internally communicate, coordinate and execute business strategies, plans and tactics may be negatively impacted by our increasing size and complexity. A decentralized structure places significant control and decision-making powers in the hands of our operating unit management. This contributes to the risk that we may be slower or less able to identify or react to problems affecting key business matters than we would in a more centralized environment. The lack of timely access to information may also impact the quality of decision making by management. Our decentralized organization can also result in our operating subsidiaries assuming excessive risk without appropriate guidance from our centralized legal, accounting, safety, tax, treasury and insurance functions. Future growth could also impose significant additional responsibilities on members of our senior management, and we cannot be certain that we will be able to recruit, integrate and retain new senior level managers and executives. To the extent that we are unable to manage our growth effectively or are unable to attract and retain additional qualified management, we may not be able to expand our operations or execute our business plan.
The loss of key personnel could disrupt our business.
We depend on the continued efforts of our executive officers and senior management, including the management at each of our operating units. Although we typically enter into employment agreements with our executive officers and other key employees for initial terms of one to three years and subsequent renewal options, we cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of key management personnel, as well as our inability to attract, develop and retain qualified employees that can succeed key personnel, could negatively impact our ability to manage our business.
Our investments expose us to risks and may result in conflicts of interest that could adversely impact our business or result in reputational harm.
We have entered into strategic relationships and investment arrangements with various partners, including customers and infrastructure investors, through which we have invested and intend to invest in infrastructure assets. We expect this activity to continue in the future and for additional information on our recent investment activity, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Acquisitions, Investments and Divestitures.
These types of investments expose us to increased risks, including poor performance by the infrastructure projects in which we have invested due to, among other things, difficult market or economic conditions or slowdowns (which may occur across one or more industries, sectors or geographies) or changes to the supply or demand and fluctuations in the price of commodities. That negative performance could result in lower investment returns, a decline in value or total loss of our investments or the possible sale of our investments at values below our initial projections, including at a loss, all of which could adversely affect our business, financial condition, results of operations and cash flows. Additionally, poor performance of our investments or poor or incomplete performance by our capital partnership structure formed with select infrastructure investors could result in reputational harm to Quanta that impairs our ability to participate in future investment opportunities, which in turn could adversely affect our ability to secure certain future projects. For example, in October 2019, due to certain management changes, our capital partnership investment structure with select investors entered into a 180-day period during which the investors and Quanta will evaluate the partnership, at the end of which the investors or Quanta may elect to end the investment period for any future investments or dissolve the partnership. Further, our relationship with a customer or investor that partners with us in a poorly performing investment could become impaired, which may negatively impact our ability to continue providing services to that customer.
Conflicts of interest may also exist or arise for us in relation to our investment partners as a result of the structure of our investment arrangements. For example, in these structures, Quanta can be the contractor for a project as well as an equity investor and possibly the manager of investments in that project. In those instances, conflicts of interest can exist for such things as contractor pricing and the handling of contractor change orders and other claims. While we have taken certain actions that we believe minimize or address these and other anticipated conflicts of interest, including through internal management practices and the terms of our agreements with investment partners, our failure to properly manage such conflicts of interest can expose us to liability or harm our relationships with investment partners, which could impact our business, financial condition, results of operations and cash flows or cause reputational harm to Quanta.
Our participation in joint ventures exposes us to liability and/or harm to our reputation for failures of our partners.
We have entered into joint venture arrangements and likely will continue to do so. The purpose of these joint ventures is typically to combine skills and resources to allow for the bidding and performance of particular projects. Success on these projects can be adversely affected by the performance of our joint venture partners, over whom we may have little or no control. Differences in opinions or views between us and our joint venture partners may result in delayed decision-making or failure to agree on material issues that may adversely affect the business and operations of our joint ventures. Additionally, the failure by a joint venture partner to successfully perform or comply with applicable laws, regulations or client requirements could negatively impact our business.
We and our joint venture partners are generally jointly and severally liable for all liabilities and obligations of a joint venture.

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If a joint venture partner fails to perform or is unable to satisfy required capital contributions or other obligations, including liabilities stemming from claims or lawsuits, we could be required to make additional investments, provide additional services or pay more than our proportionate share of a liability to make up for their shortfall. Further, if our partners experience cost overruns or project performance issues that we are unable to adequately address, the customer may terminate the project, which could result in legal liability to us, harm our reputation and reduce our profit or increase our loss on a project.
We extend credit to customers for purchases of our services and enter into other arrangements with certain of our customers, which subjects us to potential credit or investment risk.
We grant credit, generally without collateral, to our customers, which include utilities, energy companies, communications providers, governmental entities, general contractors, and builders, owners and managers of renewable energy facilities and commercial and industrial properties located primarily in the United States, Canada, Australia and Latin America. In certain circumstances, we also allow our customers to defer payment until certain project milestones have been met or until a project is substantially completed, and customers typically withhold some portion of amounts due to us as retainage until a project is complete. In addition, we have provided in the past and may provide in the future other forms of financing to our customers or make investments in our customers’ projects. These payment arrangements subject us to potential credit risk related to changes in business and economic factors affecting our customers, and certain of our customers have experienced financial difficulties (including bankruptcy) in recent years, which has impacted our ability to collect amounts owed to us. If we are unable to collect such amounts, or retain amounts paid to us, our cash flows would be reduced, and we could experience losses if those amounts exceed current allowances. Business and economic factors resulting in financial difficulties (including bankruptcy) for our customers can also reduce the value of any financing or equity investment arrangements we have with our customers. The risk of loss may increase for projects where we provide services and make a financing or equity investment. Losses experienced as a result of these credit and investment risks could materially and adversely affect our financial condition, results of operations and cash flows.
Risks associated with operating in international markets and U.S. territories could restrict our ability to expand globally and harm our business and prospects.
Our overall business, financial condition, results of operations and cash flows can be negatively impacted by our activities and operations outside the continental United States, including our international operations and operations in U.S. territories. Although these operations are presently conducted primarily in Canada, Australia and Latin America, we also perform work in other foreign countries and U.S. territories and the number of locations we perform work in could increase in the future. Changes in economic conditions, including those resulting from wars and other conflicts, civil unrest, public health crises, such as the recent coronavirus, acts of terrorism, or volatility in global markets, may adversely affect demand for our services and our customers’ ability to pay for our services. In addition, at times we are paid for work outside the United States in currencies other than the U.S. dollar. Such payments may exceed our local currency needs, and, in certain instances, those amounts may be subject to temporary blocking, taxes or tariffs, and we may experience difficulties if we attempt to convert such amounts to U.S. dollars.
There are numerous other risks associated with operating in international markets, including, but not limited to, changes in applicable regulatory requirements; foreign currency exchange fluctuations; political, economic and social instability; expropriation or nationalization of our assets and operations; unfamiliar foreign legal systems and business practices; and complex U.S. and foreign tax regulations and other laws and international treaties. For example, as discussed in further detail in Legal Proceedings within Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, the termination of a telecommunications project in Peru resulted in a $79.2 million charge to earnings in the second quarter of 2019. Furthermore, we may incur significant costs associated with an unsuccessful attempt to enter a new market, or we may enter a new market that ultimately proves to be unprofitable or has an otherwise adverse effect on our business. We may also incur significant costs or liabilities associated with winding down or exiting an existing market. For example, we have determined to pursue an orderly exit of our Latin American operations, which could result in significant costs or asset impairments during 2020 or in subsequent years.
Additionally, uncertain or changing economic and political conditions may make it difficult for our clients, our vendors, and us to accurately forecast and plan future business activities. For example, recent changes in U.S. policies related to global trade and tariffs, as well as retaliatory trade measures implemented by other countries have resulted in uncertainty surrounding the global economy. Increases in the cost of certain materials, including steel and aluminum, resulting from these and other trade policies may also impact customer spending. We cannot predict the outcome of these or other similar events, nor can we predict the timing, strength or duration of any economic recovery or downturn worldwide or within our customers’ specific markets. These risks could restrict our ability to provide services to international customers, operate our international business profitably or fund our strategic objectives, which could negatively impact our overall business, financial condition, results of operations and cash flows.
Fluctuating foreign currency exchange rates may negatively impact our financial results.
The volume of services we provide internationally varies from year to year and our reported financial condition, results of operations and cash flows are exposed to the effects of fluctuating exchange rates. For the year ended December 31, 2019, we

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derived $1.92 billion, or 15.9%, of our consolidated revenues from foreign operations, the substantial majority of which was earned in Canada and Australia. The functional currencies for our foreign operations are typically the currency of the country in which the foreign operating unit is located. Accordingly, our financial performance is subject to fluctuation due to changes in foreign currency exchange rates relative to the U.S. dollar. As the U.S. dollar strengthens against foreign currencies, our translation of foreign currency denominated revenues or expenses will result in lower U.S. dollar denominated revenues and expenses. Conversely, if the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated revenues or expenses will result in increased U.S. dollar denominated revenues and expenses. For example, during the year ended December 31, 2019, foreign revenues decreased by approximately $57 million in comparison with the year ended December 31, 2018 as a result of less favorable foreign currency exchange rates due primarily to the U.S. dollar strengthening against the Canadian and Australian dollars. Furthermore, to the extent the volume of services we provide internationally increases, our financial condition, results of operations and cash flows could be further exposed to the effects of fluctuating exchange rates.
Limitations on the availability of suppliers, subcontractors and equipment manufacturers that we depend on could adversely affect our business.
We rely on suppliers to obtain the necessary materials and subcontractors to perform portions of our services. We also rely on equipment manufacturers to provide us with the equipment required to conduct our operations. Limitations on the availability of suppliers, subcontractors or equipment manufacturers could negatively impact our operations, particularly in the event we rely on a single or small number of providers. The risk of a lack of available suppliers, subcontractors or equipment manufacturers can be heightened as a result of market, regulatory or economic conditions. For example, utilities in certain states, in order to receive certain funding, may expect us to engage a specified percentage of suppliers that meet diversity-ownership requirements, which can further limit our pool of available suppliers in those areas. Additionally, successful completion of our contracts can depend on whether our subcontractors successfully fulfill their contractual obligations. If our subcontractors fail to perform their contractual obligations, fail to meet the expected completion dates or quality standards or fail to comply with applicable laws, we may be required to incur additional costs or provide additional services to mitigate such shortcomings.
An increase in the prices of certain materials used in our business or fuel prices could adversely affect our business.
Under certain contracts, including where we have assumed responsibility for procuring materials for a project, we are exposed to price increases for materials such as copper and steel, which are used as components of supplies or materials utilized in all of our operations. In addition, our customers’ capital budgets can be negatively impacted by an increase in prices of certain materials. Prices could be materially impacted by general market conditions and other factors, including global trade relationships. For example, recent changes to U.S. policies related to global trade and tariffs, as well as retaliatory trade measures implemented by other countries, have resulted in uncertainty concerning availability and pricing of certain commodities and goods important to our and our customers’ businesses, including steel and aluminum. We are also exposed to increases in energy prices, including as they relate to fuel prices for our large rolling-stock fleet of approximately 49,700 units. Furthermore, some of our fixed price contracts do not allow us to adjust our prices and, as a result, increases in material or fuel costs could reduce our profitability with respect to such projects.
Our intellectual property rights may be unenforceable or become obsolete.
We utilize a variety of intellectual property rights while performing our services. We view our portfolio of proprietary energized services tools and techniques and other process and design technologies as competitive strengths, which we believe differentiate our service offerings. We also license certain technologies from third parties, and there is a risk that our relationships with such licensors may terminate or expire or may be interrupted or harmed. We may not be able to successfully preserve these intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which our services may be sold do not protect intellectual property rights to the same extent as the laws of the United States. If we are unable to protect and maintain our intellectual property rights, or if intellectual property challenges or infringement proceedings succeed against us, our ability to differentiate our service offerings could be reduced. Further, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers, which could materially and adversely affect our business, financial condition, results of operations and cash flows.
Increasing scrutiny and changing expectations from investors and our customers with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Investors and other interested constituencies have focused increasingly on the environmental, social and governance (ESG) practices of companies. While we have programs and initiatives in place related to our ESG practices, investors may decide to reallocate capital or to not commit capital as a result of their assessment of our practices. In addition, our customers may require that we implement certain additional ESG procedures or standards before they will continue to do business with us. A failure to comply with investor or customer expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause

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reputational harm to our business and could have a material adverse effect on us. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, and unfavorable ratings of Quanta or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries, which could have a negative impact on our stock price and our costs of capital.
Risks Related to Regulation and Compliance
Regulatory requirements applicable to our industries and changes in current and potential legislative and regulatory initiatives may adversely affect demand for our services.
Because the vast majority of our revenue is derived from a few industries, the federal, state, provincial and local regulations affecting those industries, including, among other things, environmental, safety, and permitting requirements, have a material effect on our business. In recent years, our customers have faced heightened regulatory requirements and increased regulatory enforcement, which have resulted in delays, reductions in scope and cancellations of projects. Furthermore, certain regulatory requirements applicable to our customers are also required of us when we contract with such customers, and our inability to meet those requirements could also result in decreased demand for our services. Increased regulatory requirements have negatively impacted us and our customers and decreased demand for our services in the past, and may do so in the future, which can adversely affect our business, financial condition, results of operations and cash flows.
Concerns about climate-related issues could potentially result in new legislation, regulation, regulatory actions or other requirements at the local, state or federal level, any of which could negatively affect our customers and decrease demand for their services, result in increased costs associated with our operations, or impact the prices we charge our customers. For example, requirements to reduce, or taxes on the production and/or consumption of, fossil fuels could negatively impact the hydrocarbon production volumes of our customers, which could in turn negatively impact demand for our services. New regulations addressing greenhouse gas emissions from mobile sources could also significantly increase our costs in light of our large rolling-stock fleet. In addition, if our operations are perceived to result in high greenhouse gas emissions, our reputation could suffer.
Additionally, current and potential legislative or regulatory initiatives may not result in incremental increased demand for our services, including legislation and regulation that mandate percentages of power to be generated from renewable sources, require utilities to meet reliability standards, and encourage installation of new electric power transmission and renewable energy generation facilities. While these actions and initiatives have positively impacted demand for our services in the past, it is not certain whether they will continue to do so in the future. It is also uncertain as to whether proposed legislative initiatives that could be beneficial for our industries, including those designed to ease regulatory and permitting requirements, will be enacted.
Our unionized workforce and related obligations may adversely affect our operations.
As of December 31, 2019, approximately 35% of our employees were covered by collective bargaining agreements. For a variety of reasons, our unionized workforce could adversely impact relationships with our customers and adversely affect our business, financial condition, results of operations and cash flows. For instance, although the majority of the collective bargaining agreements prohibit strikes and work stoppages, certain of our unionized employees have participated in strikes and work stoppages in the past, and we cannot be certain that strikes or work stoppages will not occur in the future. Our ability to complete future acquisitions also could be adversely affected because of our union status, including because our union agreements may be incompatible with the union agreements of a business we want to acquire or because a business we want to acquire may not want to become affiliated with a union-based company. Additionally, certain of our customers require or prefer a non-union workforce, and they may reduce the amount of work assigned to us if our non-union labor crews become unionized.
Our collective bargaining agreements generally require us to participate with other companies in multiemployer pension plans. To the extent a plan is underfunded, we may be subject to substantial liabilities if we withdraw or are deemed to withdraw from the plan or the plan is terminated or experiences a mass withdrawal. For example, we have been involved in several litigation matters associated with our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, certain of which were settled in 2017. Further, special funding and operational rules are generally applicable to multiemployer plans that are classified as “endangered,” “seriously endangered” or “critical” status based on multiple factors (including, for example, the plan’s funded percentage, cash flow position and whether it is projected to experience a minimum funding deficiency). Plans in these classifications must adopt measures to improve their funded status, which may require additional contributions from employers (e.g., a surcharge on benefit contributions) and/or modifications to retiree benefits. Certain plans to which we contribute or may contribute in the future are in “endangered,” “seriously endangered” or “critical” status, and we may be obligated to contribute material amounts to these plans in the future, which could negatively impact our business, financial condition, results of operations and cash flows.

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We could be adversely affected by our failure to comply with the laws applicable to our foreign activities.
Applicable U.S. and non-U.S. anti-corruption laws, including but not limited to the U.S. Foreign Corrupt Practices Act (FCPA), prohibit us from, among other things, corruptly making payments to non-U.S. officials for the purpose of obtaining or retaining business. We pursue opportunities in certain parts of the world that experience government corruption, and in certain circumstances, compliance with these laws may conflict with local customs and practices. Our policies mandate compliance with all applicable anti-corruption laws and our procedures and practices are designed to ensure that our employees and intermediaries comply with these laws. However, there can be no assurance that such policies, procedures and practices will protect us from liability under the FCPA or other similar laws for actions or inadvertences by our employees or intermediaries. Liability for such actions or inadvertences could result in severe criminal or civil fines, penalties, forfeitures, disgorgements or other sanctions. This in turn could have a material adverse effect on our reputation, business, financial condition, results of operations, and cash flows. In addition, detecting, investigating and resolving actual or alleged violations of such laws can be expensive and can consume significant time and attention of our senior management, in-country management, and other personnel.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, gross receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws, treaties and regulations and changes in existing tax laws, treaties and regulations are continuously being enacted or proposed, which can result in significant changes to the tax rate on our earnings and have a material impact on our earnings and cash flows from operations. In addition, significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities, and our tax estimates and tax positions could be materially affected by many factors, including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, our ability to realize deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate can have a material adverse effect on our profitability and liquidity.
Our failure to comply with environmental laws and regulations could result in significant liabilities and increased costs.
Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, PCBs, fuel storage, water quality and air quality. We perform work in many different types of underground environments. If the field location maps supplied to us are not accurate, or if objects are present in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil, some of which may contain pollutants. These objects may also rupture, resulting in the discharge of pollutants. In such circumstances, we may be liable for fines and damages, and we may be unable to obtain reimbursement from the parties providing the incorrect information. We perform work, including directional drilling, in and around environmentally sensitive areas such as rivers, lakes and wetlands. Due to the inconsistent nature of the terrain and water bodies, it is possible that such work may cause the release of subsurface materials that contain contaminants in excess of amounts permitted by law, potentially exposing us to remediation costs and fines. We also own and lease facilities that contain above- and below-ground fuel storage tanks. If these tanks were to leak, we could be responsible for remediation costs and fines. The obligations, liabilities, fines and costs associated with these and other events can be material and could have a material adverse impact on our business, financial condition, results of operations and cash flows. Moreover, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or leaks, or the imposition of new clean-up requirements could require us to incur significant costs or become the basis for new or increased liabilities.
In certain instances, we have obtained indemnification and other rights from third parties (including predecessors or lessors) for such obligations and liabilities; however, these indemnities may not cover all of our costs and indemnitors may not pay amounts owed to us. Further, in connection with an acquisition, we cannot be certain that we identify all potential environmental liabilities relating to any acquired business when we are negotiating an indemnification right.
Certain regulatory requirements applicable to us and certain of our subsidiaries could materially impact our business.
We are subject to various specific regulatory regimes and requirements that could result in significant compliance costs and liabilities. As a public company, we are subject to the corporate governance and financial reporting requirements of The Sarbanes-Oxley Act of 2002, including requirements for management to report on our internal controls over financial reporting and for our independent registered public accounting firm to express an opinion on the operating effectiveness of our internal control over financial reporting. Our internal controls over financial reporting was effective as of December 31, 2019; however, there can be no assurance that our internal controls over financial reporting will be determined to be effective in future years. Failure to maintain effective internal controls or to identify significant internal control deficiencies in acquired businesses (both prior acquisitions and future acquisitions) could result in a decrease in the market value of our publicly traded securities, a reduced ability to obtain debt and equity financing, a loss of customers, fines or penalties, and/or additional expenditures to meet the requirements or remedy any deficiencies.

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One of our subsidiaries has registered as an investment adviser with the SEC under the U.S. Investment Advisers Act of 1940, as amended (the Advisers Act). The Advisers Act and the rules promulgated thereunder impose substantive and material restrictions and requirements on the operations of this subsidiary, including certain fiduciary duties that apply to its relationships with its advisory clients. The SEC has broad administrative powers to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from fines and censures to termination of an adviser’s registration. This subsidiary is also subject to periodic SEC examinations and other requirements, including, among other things, maintaining an effective compliance program, recordkeeping and reporting requirements, disclosure requirements and complying with anti-fraud prohibitions. The failure of our subsidiary to comply with the requirements of the Advisers Act could result in fines, suspensions of individual employees or other sanctions against our subsidiary that could have a material adverse effect on us. Even if an investigation or proceeding does not result in a fine or sanction or if a fine or sanction imposed against our subsidiary or its employees were small in monetary amount, the adverse publicity relating to an investigation, proceeding or imposition of these fines or sanctions could harm our reputation and have a material adverse effect on us.
Our wholly-owned captive insurance company is a registered insurance broker with the Texas Department of Insurance, and therefore is subject to various rules and regulations and required to meet certain capital requirements, which can result in additional use of our resources.
We own and operate a postsecondary educational institution that specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers, as well as training for the pipeline and industrial and communications industries. In order to operate, each of the institution’s campuses must be authorized by the state education agency where the campus is located, and the level of regulatory oversight varies substantially by state and can be extensive. If any of our campuses fail to comply with state licensing requirements, they may be unable to offer their programs and forced to close, which could result in harm to our reputation or negatively impact our ability to train skilled personnel that can be utilized to support our industry. Additionally, because our institution operates in a highly regulated industry, it is subject to compliance reviews and lawsuits or claims by government agencies and third parties. If the results of these reviews or proceedings are unfavorable to us, we may be required to pay significant monetary damages or be subject to fines, limitations on the operations of the institution, injunctions or other penalties. The postsecondary educational institution is also accredited by the Accrediting Commission of Career Schools and Colleges. Loss of accreditation could result in reputational harm or student-initiated litigation or negatively impact our ability to train skilled personnel that can be utilized to support our business.
We collect and retain information about our customers, stockholders, vendors and employees. New legislation and regulatory requirements, as well as contractual commitments, affect how we must store, use, transfer and process the confidential information of our employees, customers, vendors and stockholders. For example, the California Consumer Privacy Act (the CCPA) was signed into law in 2018 and largely took effect in January 2020. The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and enhanced consumer protections for those individuals, and provides for statutory fines for data security breaches or other CCPA violations. Meanwhile, over fifteen other states have considered privacy laws like the CCPA. These laws, as well as other new or changing legislative, regulatory or contractual requirements concerning data privacy and protection, could require us to expend significant additional compliance costs, and any failure to comply with such requirements can result in significant liability or harm to our reputation.
Opportunities within the government arena could subject us to increased regulation and costs and may pose additional risks relating to future funding and compliance.
Most government contracts are awarded through a regulated competitive bidding process, which can often be more time consuming than the bidding process for non-governmental projects. Additionally, involvement with government contracts could require a significant amount of costs to be incurred before any revenues are realized. We are also subject to numerous procurement rules and other public sector regulations when we contract with certain governmental agencies, any deemed violation of which could lead to fines or penalties or a loss of business. Government agencies routinely audit and investigate government contractors. Government agencies may review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. If a government agency determines that costs were improperly allocated to specific contracts, such costs will not be reimbursed or a refund of previously reimbursed costs may be required. If a government agency alleges or proves improper activity, civil and criminal penalties could be imposed and serious reputational harm could result. Many government contracts must be appropriated each year, and without re-appropriation we would not realize all of the potential revenues from any awarded contracts.
Additionally, U.S. government shutdowns or any related under-staffing of the government departments or agencies that interact with our business could result in program cancellations, disruptions and/or stop work orders, could limit the government’s ability to effectively progress programs and make timely payments, and could limit our ability to perform on our existing U.S. government contracts and successfully compete for new work.

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Immigration laws, including our inability to verify employment eligibility and restrictions on movement of our foreign employees, could adversely affect our business or reputation.
We employ a significant number of employees, and while we utilize processes to assist in verifying the employment eligibility of potential new employees so that we maintain compliance with applicable laws, it is possible some of our employees may be unauthorized workers. In addition, we utilize certain non-immigrant visas to allow us to temporarily transfer certain of our foreign employees to the United States. The employment of unauthorized workers or failure to comply with the requirements of these non-immigrant visas could subject us to fines, penalties and other costs, as well as result in adverse publicity that negatively impacts our reputation and brand and may make it more difficult to hire and retain qualified employees. Furthermore, to the extent we are subject to penalties that prevent the future transfer of our foreign employees to the United States, we may incur additional costs to hire and train new employees. Immigration laws have also been an area of considerable political focus in recent years, and, from time-to-time, the U.S. government considers or implements changes to federal immigration laws, regulations or enforcement programs. Changes in immigration or work authorization laws may increase our obligations for compliance and oversight, which could subject us to additional costs and potential liability and make our hiring and employee transfer processes more cumbersome, or reduce the availability of potential employees.
We may incur additional healthcare costs.
The costs of employee health care insurance in the U.S. has increased in recent years due to rising health care costs, legislative changes, and general economic conditions. We cannot predict what other health care legislation or regulations will be implemented at the federal or state level, including whether the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 will be repealed and/or replaced, or the impact of any such future legislation or regulations. A continued increase in health care costs or related costs could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Related to Financing Our Business
We may not have access in the future to sufficient funding to finance desired growth and operations.
If we cannot secure future funds or financing on acceptable terms or generate sufficient cash flow, we may be unable to support our future operations or growth strategy. The timing of our funding needs and the size of our operations and strategic initiatives that require capital cannot be readily predicted and may be substantial. The use of cash on hand, cash from operations and cash from our senior secured credit facility to fund these initiatives can limit our financial flexibility and increase our need to seek capital through additional debt or equity financings. We also rely on financing companies to fund the leasing of certain of our equipment, and credit market conditions may restrict access to capital for the leasing of additional equipment. A lack of available capital to fund the leasing of equipment could negatively impact our future operations.
The credit agreement for our senior secured credit facility contains certain restrictions, including financial covenants and other restrictions on our ability to borrow amounts under the agreement and limitations on our ability to incur additional debt or conduct certain types of preferred equity financings. Our ability to increase the current commitments under our senior secured credit facility is also dependent upon additional commitments from our lenders. Furthermore, if we are permitted to seek additional debt or equity financings, we cannot be certain they will be available to us on acceptable terms or at all, as banks are often restrictive in their lending practices, and additional debt financing may include covenants that further limit our operational and financial flexibility. If we are unable to borrow under our senior secured credit facility or secure other financing or if our lenders become unable or unwilling to fund their commitments to us, we may not be able to access the capital needed to fund our growth and operations. For additional information on the terms of our senior secured credit facility, please read Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt Instruments - Credit Facility.
Additionally, the market price of our common stock has fluctuated significantly in the past, and may fluctuate significantly in the future, in response to various factors, including events beyond our control, which could impact our ability to utilize capital markets to obtain funds. A variety of events may cause the market price of our common stock to fluctuate significantly, including overall market conditions or volatility, actual or perceived negative financial results or other unfavorable information relating to us or our market peers, and the other risks described in this Annual Report.
Our variable rate indebtedness subjects us to interest rate risk.
Borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Our weighted average interest rate on our variable rate debt for the year ended December 31, 2019 was 3.8%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $6.7 million based on our December 31, 2019 balance of variable rate debt.

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Additionally, to address the transition in financial markets away from the London Interest Bank Offered Rate (LIBOR) by the end of 2021, our senior secured credit facility agreement includes provisions related to the replacement of LIBOR with a LIBOR Successor Rate (as defined in the credit agreement for such facility). Changing to an alternative interest rate may lead to additional volatility in interest rates and could cause our debt service obligations to increase significantly. If no LIBOR Successor Rate has been determined at the time certain circumstances are present, the lenders’ obligation to make or maintain loans based on a Eurocurrency rate could be suspended, and loans in U.S. dollars would default to the Base Rate (as described in Senior Secured Credit Facility within Note 8 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data) rather than a rate using the Eurocurrency Rate. If this were to occur, our available liquidity and cash flows could be negatively impacted.
We may be unable to compete for certain projects if we are not able to obtain surety bonds, letters of credit or bank guarantees.
A portion of our business depends on our ability to provide surety bonds, letters of credit, bank guarantees or other financial assurances. Current or future market conditions, including losses incurred in the construction industry or as a result of large corporate bankruptcies, as well as changes in our sureties’ assessment of our operating and financial risk, could cause our surety providers and lenders to decline to issue or renew, or substantially reduce the amount of, bid or performance bonds for our work and could increase our costs associated with collateral. These actions could be taken on short notice. If our surety providers or lenders were to limit or eliminate our access to bonding, letters of credit or guarantees, our alternatives would include seeking capacity from other sureties and lenders or finding more business that does not require bonds or that allows for other forms of collateral for project performance, such as cash. We may be unable to secure these alternatives in a timely manner, on acceptable terms, or at all, which could affect our ability to bid for or work on future projects requiring financial assurances.
We have also granted security interests in certain assets to collateralize our obligations to our sureties and lenders. Furthermore, under standard terms in the surety market, sureties issue or continue bonds on a project-by-project basis and can decline to issue bonds at any time or require the posting of additional collateral as a condition to issuing or renewing bonds. If we were to experience an interruption or reduction in the availability of bonding capacity as a result of these or other reasons, we may be unable to compete for or work on certain projects that require bonding.
Our ability to access capital markets could be limited.
From time to time, we may need to access capital markets to obtain financing. Our ability to access capital markets for financing could be limited by, among other things, our existing capital structure, our credit ratings, the state of the economy, the health of our industries, and the liquidity of the capital markets. Many of the factors that affect our ability to access capital markets are outside of our control. No assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which could have a material adverse impact on our business, financial condition and results of operations.
Risks Related to Our Common Stock
Our sale or issuance of additional common stock or other equity-related securities could dilute each stockholder’s ownership interest or adversely affect the market price of our common stock.
We often fund a significant portion of the consideration paid in connection with our acquisitions with the issuance of additional equity securities, including contingent consideration amounts payable if acquired businesses achieve certain performance objectives during specified post-acquisition periods. We also utilize stock-based compensation as a key component of our compensation program. We expect to issue additional equity securities in the future in connection with these and other practices. Our Restated Certificate of Incorporation provides that we may issue up to 600,000,000 shares of common stock, of which 142,324,318 shares were outstanding as of December 31, 2019. Any additional issuances of common stock would have the effect of diluting our earnings per share and our existing stockholders’ individual ownership percentages and lead to volatility in the market price of our common stock. We cannot predict the effect that future issuances of our common stock or other equity-related securities would have on the market price of our common stock.
There can be no assurance that we will declare or pay future dividends on our common stock.
The declaration, amount and timing of future dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and applicable agreements. Our ability to declare and pay dividends will depend upon, among other factors, our financial condition, results of operations, cash flows, current and anticipated expansion plans, requirements under Delaware law and other factors that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments could have a material negative effect on our stock price.

25


Certain provisions of our corporate governing documents could make an acquisition of our company more difficult.
The following provisions of our charter documents, as currently in effect, and Delaware law could discourage potential proposals to acquire us, delay or prevent a change in control of us or limit the price that investors may be willing to pay in the future for shares of our common stock:
our certificate of incorporation permits our Board of Directors to issue “blank check” preferred stock and to adopt amendments to our bylaws;
our bylaws contain restrictions regarding the right of stockholders to nominate directors and to submit proposals to be considered at stockholder meetings;
our certificate of incorporation and bylaws restrict the right of stockholders to call a special meeting of stockholders and to act by written consent; and
we are subject to provisions of Delaware law which restrict us from engaging in any of a broad range of business transactions with an “interested stockholder” for a period of three years following the date such stockholder became classified as an interested stockholder.
ITEM 1B.Unresolved Staff Comments
None.

ITEM 2.Properties
Facilities
We lease our corporate headquarters in Houston, Texas and own and lease other facilities throughout the United States, Canada and other foreign locations where we conduct business. Our facilities are utilized for operations in both of our reportable segments and include offices, equipment yards, warehouses, storage, maintenance shops and training and educational facilities. As of December 31, 2019, we owned 62 of our facilities and leased the remainder. We believe that our existing facilities are sufficient for our current needs.
Equipment
We operate a fleet of owned and leased trucks and trailers, support vehicles and specialty construction equipment, such as backhoes, excavators, trenchers, generators, boring machines, cranes, robotic arms, wire pullers, tensioners and helicopters. Our owned equipment and the leasehold interests in our leased equipment are encumbered by a security interest granted under our credit agreement. As of December 31, 2019, the total size of the rolling-stock fleet was approximately 49,700 units. Most of our fleet is serviced by our own mechanics who work at various maintenance sites and facilities. We believe that our equipment is generally well maintained and adequate for our present operations.
ITEM 3.Legal Proceedings
We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour claims and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. See Note 14 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, which are incorporated by reference in this Item 3, for additional information regarding litigation, claims and other legal proceedings.
ITEM 4.Mine Safety Disclosures
Not applicable.

26


PART II
ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “PWR.”
On February 25, 2020, there were approximately 590 holders of record of our common stock. See Note 11 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for additional discussion of our equity securities.
Unregistered Sales of Securities During the Fourth Quarter of 2019
None.
Subsequent to December 31, 2019, we issued 36,183 shares of our common stock to the former owners of an acquired business in exchange, on a one-for-one basis, for exchangeable shares in a Canadian subsidiary of Quanta that were held by the former owners. The former owners originally received the exchangeable shares as partial consideration for the sale of the acquired business. The shares of common stock issued in these transactions were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as the shares were issued to the owners of the business acquired in a privately negotiated transaction not involving any public offering or solicitation.
Issuer Purchases of Equity Securities During the Fourth Quarter of 2019
The following table contains information about our purchases of equity securities during the three months ended December 31, 2019.
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number
of Shares Purchased
as Part of Publicly
Announced Plans or Programs
 
Maximum
Number (or Approximate Dollar Value) of Shares
That May Yet be
Purchased Under
the Plans or Programs
(1)
October 1 - 31, 2019
 
 
 
 
 
 
 
 
Open Market Stock Repurchases (1)
 

 
$

 

 
$
286,756,122

Tax Withholdings (2)
 
5,185

 
$
36.50

 

 
 
November 1 - 30, 2019
 
 
 
 
 
 
 
 
Open Market Stock Repurchases (1)
 

 
$

 

 
$
286,756,122

Tax Withholdings (2)
 
12,905

 
$
42.25

 

 
 
December 1 - 31, 2019
 
 
 
 
 
 
 
 
Open Market Stock Repurchases (1)
 

 
$

 

 
$
286,756,122

Tax Withholdings (2)
 
5

 
$
37.07

 

 
 
Total
 
18,095

 
 
 

 
$
286,756,122

_______________
(1)
Includes shares repurchased as of the trade date of such repurchases. On September 4, 2018, we issued a press release announcing that our Board of Directors approved a stock repurchase program that authorizes us to purchase, from time to time through June 30, 2021, up to $500.0 million of our outstanding common stock. Repurchases under this program can be made in open market and privately negotiated transactions, at our discretion, based on market and business conditions, applicable contractual and legal requirements and other factors. This program does not obligate us to acquire any specific amount of common stock and may be modified or terminated by our Board of Directors at any time at its sole discretion and without notice.
(2)
Includes shares purchased from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock unit and performance stock units or the settlement of previously vested but deferred restricted stock unit awards.

27


Dividends
We have declared a quarterly dividend during each quarter beginning in the fourth quarter of 2018. The declaration, payment and amount of future cash dividends will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans, income tax laws then in effect and the requirements of Delaware law. In addition, as discussed in Liquidity and Capital Resources — Debt Instruments — Senior Secured Credit Facility in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, the credit agreement restricts the payment of cash dividends unless certain conditions are met.
Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares, for the period from December 31, 2014 to December 31, 2019, the cumulative stockholder return on our common stock with the cumulative total return of the S&P 500 Index (the S&P 500), the S&P MidCap 400 Index (the S&P 400) and two peer groups selected by our management that include public companies within our industries. The companies in the peer groups were selected to represent a broad group of publicly held corporations with operations similar to ours. The current peer group (the 2019 Peer Group) includes AECOM, Dycom Industries, Inc., EMCOR Group Inc., Fluor Corporation, Jacobs Engineering Group Inc., KBR, Inc., MasTec, Inc., MYR Group Inc. and Primoris Services Corporation. The peer group used in the previous year (the 2018 Peer Group) included each of the foregoing companies, as well as McDermott International, Inc., but did not include Dycom Industries, Inc. We determined that McDermott International, Inc. should be excluded due to dissimilarities with respect to its financial condition and end markets and that Dycom Industries, Inc. should be added due to its similarities with respect to market capitalization, lines of business and end markets.

28


The graph below assumes an investment of $100 (with reinvestment of all dividends) in our common stock, the S&P 500, the S&P MidCap 400, the 2018 Peer Group and the 2019 Peer Group on December 31, 2014 and tracks their relative performance through December 31, 2019. The returns of each company in the Peer Group are weighted based on the market capitalization of that company at the beginning of the measurement period. The stock price performance reflected in the following graph is not necessarily indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Quanta Services, Inc., the S&P 500, the S&P MidCap 400, the 2018 Peer Group and the 2019 Peer Group
peerchart2019a03.jpg
 
 
December 31,
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Quanta Services, Inc. 
 
$
100.00

 
$
71.33

 
$
122.75

 
$
137.76

 
$
106.16

 
$
144.21

S&P 500
 
$
100.00

 
$
101.38

 
$
113.51

 
$
138.29

 
$
132.23

 
$
173.86

S&P MidCap 400
 
$
100.00

 
$
97.82

 
$
118.11

 
$
137.30

 
$
122.08

 
$
154.07

2018 Peer Group
 
$
100.00

 
$
91.21

 
$
120.39

 
$
132.69

 
$
98.83

 
$
134.34

2019 Peer Group
 
$
100.00

 
$
94.95

 
$
121.47

 
$
137.81

 
$
102.22

 
$
141.28


29


ITEM 6.
Selected Financial Data
The following historical selected financial data has been derived from our consolidated financial statements. See Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for information regarding certain acquisitions and the related impact on our results of operations as these acquisitions may affect the comparability of such results. Additionally, on August 4, 2015, we sold our fiber optic licensing operations. We have presented the results of operations, financial position and cash flows of such fiber optic licensing subsidiaries as discontinued operations for all applicable periods presented in this Annual Report. The historical selected financial data should be read in conjunction with our consolidated financial statements and related notes thereto included in Item 8. Financial Statements and Supplementary Data and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except share information).

 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
 
2016
 
2015
Consolidated Statements of Operations Data:
 
 

 
 

 
 

 
 

 
 

Revenues
 
$
12,112,153

 
$
11,171,423

 
$
9,466,478

 
$
7,651,319

 
$
7,572,436

Cost of services (including depreciation)
 
10,511,901

 
9,691,459

 
8,224,618

 
6,637,519

 
6,648,771

Gross profit
 
1,600,252

 
1,479,964

 
1,241,860

 
1,013,800

 
923,665

Selling, general and administrative expenses
 
955,991

 
857,574

 
777,920

 
653,338

 
592,863

Amortization of intangible assets
 
62,091

 
43,994

 
32,205

 
31,685

 
34,848

Asset impairment charges (a)
 
13,892

 
49,375

 
58,057

 
7,964

 
58,451

Change in fair value of contingent consideration liabilities
 
13,404

 
(11,248
)
 
(5,171
)
 

 

Operating income
 
554,874

 
540,269

 
378,849

 
320,813

 
237,503

Interest expense
 
(66,890
)
 
(36,945
)
 
(20,946
)
 
(14,887
)
 
(8,024
)
Interest income
 
927

 
1,555

 
832

 
2,423

 
1,493

Other income (expense), net (b)
 
83,376

 
(47,213
)
 
(4,978
)
 
(663
)
 
(2,297
)
Income from continuing operations before income taxes
 
572,287

 
457,666

 
353,757

 
307,686

 
228,675

Provision for income taxes (c)
 
165,472

 
161,659

 
35,532

 
107,246

 
97,472

Net income from continuing operations
 
406,815

 
296,007

 
318,225

 
200,440

 
131,203

Net income (loss) from discontinued operations
 

 

 

 
(342
)
 
190,621

Net income
 
406,815

 
296,007

 
318,225

 
200,098

 
321,824

Less: Net income attributable to non-controlling interests
 
4,771

 
2,661

 
3,247

 
1,715

 
10,917

Net income attributable to common stock
 
$
402,044

 
$
293,346

 
$
314,978

 
$
198,383

 
$
310,907

Amounts attributable to common stock:
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
402,044

 
$
293,346

 
$
314,978

 
$
198,725

 
$
120,286

Net income (loss) from discontinued operations
 

 

 

 
(342
)
 
190,621

Net income attributable to common stock
 
$
402,044

 
$
293,346

 
$
314,978

 
$
198,383

 
$
310,907

Basic earnings per share attributable to common stock from continuing operations
 
$
2.76

 
$
1.92

 
$
2.02

 
$
1.26

 
$
0.62

Diluted earnings per share attributable to common stock from continuing operations
 
$
2.73

 
$
1.90

 
$
2.00

 
$
1.26

 
$
0.62

 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared per share
 
$
0.17

 
$
0.04

 
$

 
$

 
$

_______________________________________
(a)
In 2019, 2018, 2017, 2016 and 2015, we recorded asset impairment charges of $13.9 million ($10.5 million net of tax), $49.4 million ($36.5 million net of tax), $58.1 million ($36.6 million net of tax), $8.0 million ($7.1 million net of tax) and $58.5 million ($44.6 million net of tax). The charges recorded in 2019 related to the winding down and exit of certain oil-influenced operations and assets, the replacement of an internally-developed software application and the planned sale of certain foreign operations and assets. The charges recorded in 2018 primarily related to the winding down of certain oil-influenced operations and assets. The charges recorded in 2017 related to goodwill and intangible assets, including a $57.0 million goodwill impairment and a $1.1 million impairment of a customer relationship intangible asset. The goodwill impairment was associated with two reporting units within our Pipeline and Industrial Infrastructure Services Division. The charges recorded in 2016 primarily related to a pending disposition of certain international renewable energy services operations, which was completed in 2017. The charges recorded in 2015 related to goodwill, intangible

30


assets and property and equipment, including a $39.8 million goodwill impairment and a $12.1 million impairment to customer relationship, trade name and non-compete agreement intangible assets.
(b)
In 2019, we recognized $60.3 million of earnings that were previously deferred in prior periods related to our equity investment in a large electric transmission project in Canada that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. The majority of these deferred profits were attributable to profit earned and deferred in the years ended December 31, 2018 and 2017. We also recognized a gain of $13.0 million from the sale of this equity investment during the three months ended December 31, 2019.
(c)
The effective tax rates in 2019, 2018 and 2017 were impacted by the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act), which, among other things, lowered the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. For more information regarding the Tax Act, refer to Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. For information on additional items that impacted the effective tax rates in 2019 and 2018, refer to Results of Operations — Consolidated Results — Provision for income taxes included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The effective tax rate in 2016 was impacted by a $20.5 million tax benefit related to decreases in reserves for uncertain tax positions, which resulted from the expiration of certain federal and state statute of limitations periods.
 
 
December 31,
 
 
2019
 
2018
 
2017
 
2016
 
2015
Balance Sheet Data:
 
 

 
 

 
 

 
 

 
 

Working capital
 
$
1,567,937

 
$
1,519,977

 
$
1,377,840

 
$
1,083,517

 
$
1,073,775

Goodwill
 
$
2,022,675

 
$
1,899,879

 
$
1,868,600

 
$
1,603,169

 
$
1,552,658

Total assets
 
$
8,331,682

 
$
7,075,787

 
$
6,480,154

 
$
5,354,059

 
$
5,213,543

Long-term debt, net of current maturities
 
$
1,292,195

 
$
1,040,532

 
$
670,721

 
$
353,562

 
$
475,364

Total stockholders’ equity
 
$
4,050,292

 
$
3,604,159

 
$
3,791,571

 
$
3,339,427

 
$
3,085,494



31


ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes in Item 8. Financial Statements and Supplementary Data. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in Uncertainty of Forward-Looking Statements and Information below and Item 1A. Risk Factors.
Overview
We are a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric power, energy and communications industries in the United States, Canada, Australia and select other international markets. The performance of our business generally depends on our ability to obtain contracts with customers and to effectively deliver the services provided under those contracts. The services we provide include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries we serve, such as electric power transmission and distribution networks; substation facilities; pipeline transmission and distribution systems and facilities; refinery, petrochemical and industrial facilities; and telecommunications and cable multi-system operator networks. Our customers include many of the leading companies in the industries we serve, and we endeavor to develop and maintain strategic alliances and preferred service provider status with our customers. Our services are typically provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price installation contracts.
We report our results under two reportable segments: (1) Electric Power Infrastructure Services and (2) Pipeline and Industrial Infrastructure Services, as further described in Item 1. Business – Reportable Segments. This structure is generally focused on broad end-user markets for our services. Included within the Electric Power Infrastructure Services segment are the results related to our telecommunications infrastructure services.
Current Year Financial Results and Significant Operational Trends and Events
Key financial results for the year ended December 31, 2019 included:
Consolidated revenues increased 8.4% to $12.11 billion as compared to $11.17 billion for the year ended December 31, 2018, of which 59% was attributable to the Electric Power Infrastructure Services segment and 41% was attributable to the Pipeline and Industrial Infrastructure Services segment;
Operating income increased 2.7%, or $14.6 million, to $554.9 million as compared to $540.3 million for the year ended December 31, 2018;
Net income attributable to common stock increased 37.1%, or $108.7 million, to $402.0 million as compared to $293.3 million for the year ended December 31, 2018;
Diluted earnings per share increased 43.7%, or $0.83, to $2.73 as compared to $1.90 for the year ended December 31, 2018;
Net cash provided by operating activities increased 46.8%, or $167.8 million, to $526.6 million as compared to $358.8 million for the year ended December 31, 2018;
Remaining performance obligations increased 13.3%, or $621.0 million, to $5.30 billion as of December 31, 2019 as compared to $4.68 billion as of December 31, 2018; and
Total backlog (a non-GAAP measure) increased 21.6%, or $2.66 billion, to $15.00 billion as of December 31, 2019 as compared to $12.34 billion as of December 31, 2018. For a reconciliation of backlog to remaining performance obligations, its most comparable GAAP measure, see Remaining Performance Obligations and Backlog below.
During 2019, our Electric Power Infrastructure Services segment was impacted by the following significant operational trends and events:
Increased customer spending on smaller electric transmission and distribution services projects, including increased revenues in the western United States associated with grid modernization and accelerated fire hardening programs, which are services we generally consider to be base business operations;
Decreased revenues on larger transmission projects primarily due to the completion of a larger transmission project in Canada in the first quarter of 2019 as compared to full construction on the project throughout 2018;
Delays on other larger transmission projects in Canada, which shifted expected revenues from 2019 to 2020 and beyond; and

32


Recognition of a $79.2 million charge related to the termination of a large telecommunications project in Peru.
During 2019, our Pipeline and Industrial Infrastructure Services segment was impacted by the following significant operational trends and events:
Increased customer spending on gas utility infrastructure replacement and modernization initiatives, pipeline integrity work, industrial services and other services that we generally consider to be base business operations;
Improved operating income margins across our transmission, distribution and industrial services operations resulting from improved execution and utilization;
Decreased revenues from larger pipeline projects as compared to 2018, the timing of which is highly variable due to potential permitting delays, worksite access limitations related to environmental regulations and seasonal weather patterns; and
Recognition of a $28.3 million project loss associated with engineering and production delays on a substantially complete processing facility project, which negatively impacted operating income and was partially offset by favorable change orders and insurance settlements on other projects during 2019.
During 2019, our results were also impacted by the following significant events, the gross amounts related to which are recorded as equity in earnings of unconsolidated affiliates included in “Other income (expense), net” in our consolidated statements of operations:
Recognition of $60.3 million ($43.9 million net of tax) of previously deferred earnings as a result of the completion of the larger transmission project in Canada referenced above; and
Recognition of a $13.0 million gain ($20.7 million with favorable tax benefits) related to the sale of our interest in the same large electric transmission project in Canada.
We also continue to selectively evaluate acquisitions as part of our overall business strategy and acquired seven businesses in 2019, including The Hallen Construction Co., Inc. (Hallen), a business that specializes in above-ground and underground gas distribution and transmission services in the northeastern United States. During 2019, revenues were positively impacted by approximately $305 million from acquired businesses.
Business Environment
We believe there are growth opportunities across the industries we serve and continue to have a positive long-term outlook. Although not without risks and challenges, including those discussed below and in Uncertainty of Forward-Looking Statements and Information and included in Item 1A. Risk Factors, we believe, with our full-service operations, broad geographic reach, financial position and technical expertise, we are well positioned to capitalize on opportunities and trends in our industries.
Electric Power Infrastructure Services Segment. Utilities are investing significant capital in their electric power delivery systems, particularly transmission, substation and distribution infrastructure, through multi-year, multi-billion dollar grid modernization and reliability programs, which have provided, and are expected to continue to provide, demand for our services. Utilities are accommodating a changing fuel generation mix that is moving toward more sustainable sources such as natural gas and renewables and replacing aging infrastructure to support long-term economic growth. In order to reliably and efficiently deliver power, and in response to federal reliability standards, utilities are also integrating smart grid technologies into distribution systems in order to improve grid management and create efficiencies, and in preparation for emerging technologies such as electric vehicles. A number of utilities are also implementing system upgrades or hardening programs in response to recurring severe weather events, such as hurricanes and wildfires. In particular, current system resiliency initiatives in California and other regions in the western U.S. are designed to prevent and manage the impact of wildfires. However, while these resiliency initiatives also provide opportunities for our services, they also increase our potential exposure to significant liabilities attributable to those events.
We expect demand for electricity in North America to grow over the long term and believe that certain segments of the North American electric power grid are not adequate to efficiently serve the power needs of the future. As demand for power increases, we also expect an increase in new power generation facilities powered by certain traditional energy sources (e.g., natural gas) and renewable energy sources (e.g., solar and wind). To the extent this dynamic continues, we expect continued demand for new or expanded transmission and substation infrastructure to transport power and interconnect new generation facilities and the modification and reengineering of existing infrastructure as existing coal and nuclear generation facilities are retired or shut down.
With respect to our communications service offerings, consumer and commercial demand for communication and data-intensive, high-bandwidth wireline and wireless services and applications is driving significant investment in infrastructure and the deployment of new technologies. In particular, communications providers in North America are in the early stages of developing new fifth generation wireless services (5G), which are intended to facilitate bandwidth-intensive services at high speeds for

33


consumers and a wide range of commercial applications. As a result of these industry trends, we believe there will be meaningful demand for our services in that market. While we continue to perform certain electric power and communications services in Latin America, we have completed a strategic review of those operations, and due to circumstances experienced in connection with the termination of the large telecommunications project in Peru during 2019 and political volatility in other areas of the region, have concluded to pursue an orderly exit of our Latin American operations. While we expect additional costs in the near-term related to exiting these operations, we anticipate this decision will result in improved profitability of our overall services offerings.
Pipeline and Industrial Infrastructure Services Segment. We have experienced an increase in demand for our gas utility distribution services as a result of improved economic conditions, lower natural gas prices, regulatory requirements and customer desire to upgrade and replace aging infrastructure. We believe there are also growth opportunities for our pipeline integrity, rehabilitation and replacement services, as regulatory measures have increased the frequency or stringency of pipeline integrity testing requirements.
We provide critical path solutions and related specialty services to refinery and chemical processing facilities, primarily along the Gulf Coast of the United States and in other select markets in North America. Trends and estimates for process facility utilization rates and overall refining capacity show North America as the largest downstream maintenance market in the world over the next several years, and we believe processing facilities located along the U.S. Gulf Coast region should have certain strategic advantages due to their proximity to affordable hydrocarbon resources. While our high-pressure and critical-path turnaround services can be negatively impacted in the short term by severe weather events, such as hurricanes, tropical storms and floods, we expect these favorable industry dynamics to provide near-term and longer-term opportunities for these services, as well as our capabilities with respect to instrumentation, high-voltage and other electrical services, piping, fabrication and storage, and other industrial services.
Additionally, a number of larger pipeline projects from the North American shale formations and Canadian oil sands to power plants, refineries, liquefied natural gas (LNG) export facilities and other demand centers are in various stages of development. While there is risk the projects will not move forward or be delayed, we believe many of our customers remain committed to them given the cost and time required to move from conception to construction. The larger pipeline market is cyclical and the contribution of these projects to our revenues has declined over the last few years. We currently expect a further reduction in revenues from larger pipeline projects in 2020; however, we are pursuing various opportunities that, if successful, could cause our current expectations to increase. Due to its abundant supply and current low price, we also believe natural gas will remain a fuel of choice for both primary power generation and backup power generation for renewable-driven power plants in North America. The favorable characteristics of natural gas also position the United States as a leading competitor in the global LNG export market, which has the potential to continue to grow over the coming years as approved and proposed LNG export facilities are developed. In certain areas, the existing pipeline system infrastructure is insufficient to support these expected future developments, which could provide additional opportunities for our services.
Although much of our pipeline and industrial infrastructure services are influenced by hydrocarbon production volume rather than shorter-term changes in commodity prices, the broader oil and gas industry is highly cyclical and subject to price volatility, which can impact demand for our services. For example, certain of our end markets where the price of oil is influential, such as Australia, the Canadian Oil Sands and certain oil-driven U.S. shale formations, have been materially impacted and remain challenged, as the broader energy market has not fully recovered from the significant decline in oil prices that occurred in 2014 and 2015.
Regulatory Challenges and Opportunities. The regulatory environment creates both challenges and opportunities for our business. Certain regulatory and environmental permitting processes continue to create uncertainty for projects and negatively impact customer spending. In recent years, electric power and pipeline infrastructure services margins have been impacted by regulatory and permitting delays, particularly with respect to larger electric transmission and larger pipeline projects. We believe that several existing, pending or proposed legislative or regulatory actions may alleviate certain of these issues and positively impact long-term demand, particularly in connection with electric power infrastructure and renewable energy spending. For example, regulatory changes affecting siting and right-of-way processes could potentially accelerate construction for transmission projects, and state and federal reliability standards are creating incentives for system investment and maintenance. We also consider renewable energy, including solar and wind generation facilities, to be an ongoing opportunity for our engineering, project management and installation services; however, the economic feasibility of some of these projects remains subject to the continued availability of tax incentive programs.
Labor Resource Availability. Our customers are seeking additional specialized labor resources to address an aging utility workforce and labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of their capital programs. We believe these trends will continue, possibly to the point where demand for labor resources will outpace supply. Furthermore, the cyclical nature of the natural gas and oil industry can create shortages of qualified labor in those markets during periods of high demand. Our ability to capitalize on available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel, and we are taking proactive steps to develop our workforce, including through

34


strategic relationships with universities, the military and unions and the expansion and development of our training facility and postsecondary educational institution. Although we believe these initiatives will help address workforce needs, meeting our customers’ demand for labor resources could remain challenging.
Acquisitions and Investments. We believe potential acquisition and investment opportunities exist in our industries and adjacent industries, primarily due to the highly fragmented and evolving nature of those industries and inability of many companies to expand and modernize due to capital or liquidity constraints. We continue to evaluate opportunities that are expected to, among other things, broaden our customer base, expand our geographic area of operations, and grow and diversify our portfolio of services.
Significant Factors Impacting Results
Our revenues, margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Item 1A. Risk Factors and in Results of Operations and Uncertainty of Forward Looking Statements and Information, and those factors have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain of those factors is provided below.
Seasonality. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. In addition, infrastructure projects often do not begin in a meaningful way until our customers finalize their capital budgets, which typically occurs during the first quarter. Second quarter revenues are typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact productivity. Third quarter revenues are typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Generally, revenues during the fourth quarter are lower than the third quarter but higher than the second quarter, as many projects are completed and customers often seek to spend their capital budgets before year end. However, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenues and increasing costs. These seasonal impacts are typical for our U.S. operations, but seasonality for our international operations may differ. For example, revenues in Canada are typically higher in the first quarter because projects are often accelerated in order to complete work while the ground is frozen and prior to the break up, or seasonal thaw, as productivity is adversely affected by wet ground conditions during warmer months.
Weather and Natural Disasters. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events or natural disasters, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, pandemics and earthquakes. These conditions and events can negatively impact our financial results due to the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities. However, in some cases, severe weather events can increase our emergency restoration services, which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs.
Cyclicality and demand for services. Our volume of business may be adversely affected by declines or delays in new projects due to cyclicality, which may vary by geographic region. Project schedules also fluctuate, particularly in connection with larger, more complex or longer-term projects, which can affect the amount of work performed in a given period. For example, the timing of obtaining permits and other approvals on a larger project may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on the project when it moves forward. Examples of other items that may cause demand for our services to fluctuate materially from quarter to quarter include: the financial condition of our customers and their access to capital; economic and political conditions on a regional, national or global scale, including changes in U.S. and global trade relationships and interest rates; our customers’ capital spending, including on larger pipeline and electrical infrastructure projects; commodity and material prices; and project cancellations.
Revenue mix. The mix of revenues based on the types of services we provide in a given period will impact margins, as certain industries and services provide higher-margin opportunities. For example, installation work is often performed on a fixed price basis, while maintenance work is often performed under pre-established or negotiated prices or cost-plus pricing arrangements. Margins for installation work varies by project but can be higher than maintenance work due to higher risk. We have historically derived approximately 30% to 35% of our annual revenues from maintenance work, but a higher portion of maintenance work in any given period may affect our gross margins for that period. Additionally, the areas in which we operate during a given period can impact margins. Some areas offer the opportunity for higher margins due to their more difficult geographic characteristics, such as urban settings or mountainous and other difficult terrain. However, margins may also be negatively impacted by unexpected difficulties that can arise due to those same characteristics, as well as unexpected site conditions.
Size, scope and complexity of projects. Larger or more complex projects with higher voltage capacities; larger diameter throughput capacities; increased engineering, design or construction complexities; more difficult terrain requirements; or longer distance requirements typically yield opportunities for higher margins as we assume a greater degree of performance risk and there is greater utilization of our resources for longer construction timeframes. Furthermore, smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may more aggressively pursue available work. A greater percentage of smaller scale or less complex work also could negatively impact margins due to the inefficiency of

35


transitioning between a larger number of smaller projects versus continuous production on fewer larger projects. Also, at times we may choose to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on larger projects when they move forward.
Project variability and performance. Margins for a single project may fluctuate period to period due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Additionally, our productivity and performance on a project can vary period to period based on a number of factors, including unexpected project difficulties or site conditions; project location, including locations with challenging operating conditions; whether the work is on an open or encumbered right of way; inclement weather or severe weather events; environmental restrictions or regulatory delays; protests, other political activity or legal challenges related to a project; and the performance of third parties.
Subcontract work and provision of materials. Work that is subcontracted to other service providers generally yields lower margins, and therefore an increase in subcontract work in a given period can decrease margins. In recent years, we have subcontracted approximately 15% to 20% of our work to other service providers. Our customers are usually responsible for supplying the materials for their projects; however, under some contracts we agree to procure all or part of the required materials. Margins may be lower on projects where we furnish a significant amount of materials, including projects where we provide engineering, procurement and construction (EPC) services, as our markup on materials is generally lower than our markup on labor costs. Furthermore, fluctuations in the price of materials we procure, including as a result of changes in U.S. or global trade relationships or other economic or political conditions, may impact our margins. In a given period, an increase in the percentage of work with higher materials procurement requirements may decrease our overall margins.
Foreign currency risk. Our financial performance is reported on a U.S. dollar-denominated basis but is partially subject to fluctuations in foreign currency exchange rates. Fluctuations in exchange rates relative to the U.S. dollar, primarily Canadian and Australian dollars, can materially impact margins and comparisons of our results of operations between periods.


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Results of Operations
The results of acquired businesses have been included in the following results of operations beginning on their respective acquisition dates. A discussion of results of operations changes between the years ended December 31, 2018 and 2017 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019. The following table sets forth selected statements of operations data, such data as a percentage of revenues for the years indicated as well as the dollar and percentage change from the prior year (dollars in thousands):
Consolidated Results
 
 
Year Ended December 31,
 
Change
 
 
2019
 
2018
 
$
 
%
Revenues
 
$
12,112,153

 
100.0
 %
 
$
11,171,423

 
100.0
 %
 
$
940,730

 
8.4
 %
Cost of services (including depreciation)
 
10,511,901

 
86.8

 
9,691,459

 
86.8

 
820,442

 
8.5
 %
Gross profit
 
1,600,252

 
13.2

 
1,479,964

 
13.2

 
120,288

 
8.1
 %
Selling, general and administrative expenses
 
955,991

 
7.9

 
857,574

 
7.7

 
98,417

 
11.5
 %
Amortization of intangible assets
 
62,091

 
0.5

 
43,994

 
0.4

 
18,097

 
41.1
 %
Asset impairment charges
 
13,892

 
0.1

 
49,375

 
0.4

 
(35,483
)
 
(71.9
)%
Change in fair value of contingent consideration liabilities
 
13,404

 
0.1

 
(11,248
)
 
(0.1
)
 
24,652

 
*

Operating income
 
554,874

 
4.6

 
540,269

 
4.8

 
14,605

 
2.7
 %
Interest expense
 
(66,890
)
 
(0.6
)
 
(36,945
)
 
(0.3
)
 
(29,945
)
 
81.1
 %
Interest income
 
927

 

 
1,555

 

 
(628
)
 
(40.4
)%
Other income (expense), net
 
83,376

 
0.7

 
(47,213
)
 
(0.4
)
 
130,589

 
*

Income before income taxes
 
572,287

 
4.7

 
457,666

 
4.1

 
114,621

 
25.0
 %
Provision for income taxes
 
165,472

 
1.3

 
161,659

 
1.5

 
3,813

 
2.4
 %
Net income
 
406,815

 
3.4

 
296,007

 
2.6

 
110,808

 
37.4
 %
Less: Net income attributable to non-controlling interests
 
4,771

 
0.1

 
2,661

 

 
2,110

 
79.3
 %
Net income attributable to common stock
 
$
402,044

 
3.3
 %
 
$
293,346

 
2.6
 %
 
$
108,698

 
37.1
 %
* The percentage change is not meaningful.
Revenues. Contributing to the increase were incremental revenues of $706.3 million from electric power infrastructure services and $234.5 million from pipeline and industrial infrastructure services. See Segment Results below for additional information and discussion related to segment revenues.
Gross profit. The increase in gross profit was primarily due to the overall increase in revenues described above and margin improvement in pipeline and industrial infrastructure services, partially offset by a decline in margins for electric power infrastructure services. See Segment Results below for additional information and discussion related to segment operating income (loss).
Selling, general and administrative expenses. The increase was primarily attributable to a $29.9 million increase in compensation expenses, largely associated with higher salaries due to increased personnel to support business growth and annual compensation increases; a $23.4 million increase in expenses associated with acquired businesses, including incremental acquisition and integration costs of $7.5 million; and a $15.6 million increase in professional fees. Also contributing to the increase were a $9.6 million increase in information systems-related expenses to support business growth; a $9.3 million increase in deferred compensation expense, which was primarily associated with market value changes; a $7.7 million increase in travel expenses and a $4.1 million increase in bad debt expense. These increases were partially offset by a $9.1 million increase in net gains on the sale of property and equipment.
Amortization of intangible assets. The increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses, partially offset by reduced amortization expense from previously acquired intangible assets, as certain of those assets became fully amortized.
Asset impairment charges. During the fourth quarters of 2019 and 2018, we recognized $13.9 million and $49.4 million of asset impairment charges. The 2019 charges primarily related to the winding down and exit of certain oil-influenced operations

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and assets, the replacement of an internally-developed software application and the planned sale of certain foreign operations and assets, while the 2018 charges primarily related to the winding down of certain oil-influenced operations and assets.
Change in fair value of contingent consideration liabilities. The overall change was primarily due to changes in performance in post-acquisition periods for certain acquired businesses and the effect of present value accretion on fair value calculations. Further changes in fair value are expected to be recorded periodically until contingent consideration liabilities are settled. See Contractual Obligations — Contingent Consideration Liabilities for more information.
Interest expense. Interest expense increased primarily due to increased borrowing activity and a higher weighted average interest rate.
Other income (expense), net. The change was primarily related to our equity investment in a limited partnership that built, owned and operated the large electric transmission project in Canada that was substantially completed and placed into commercial operation during the three months ended March 31, 2019. As a result of the project completion, we recognized $60.3 million of earnings that were previously deferred as a component of “Other income (expense), net” in prior periods, the majority of which were deferred in the years ended December 31, 2018 and 2017. Additionally, during the three months ended December 31, 2019, we recognized a gain of $13.0 million related to the sale of our interest in this limited partnership. The net expense recognized in the year ended December 31, 2018 was primarily related to the deferral of earnings on the same project.
Provision for income taxes. The effective tax rates for the years ended December 31, 2019 and 2018 were 28.9% and 35.3%. The higher effective tax rate for the year ended December 31, 2018 was primarily due to the impact of tax reform regulations issued during 2018, which resulted in a $37.2 million valuation allowance against certain tax benefits recognized during 2017 associated with the Tax Act and other entity restructuring and recapitalization efforts. The effective tax rate for the year ended December 31, 2019 includes the impact of a $79.2 million charge associated with the termination of a large telecommunications project in Peru, for which no income tax benefit was recognized, partially offset by $7.8 million of favorable tax benefits associated with the sale of our interest in the limited partnership referenced above. We expect our effective tax rate to be approximately 29.8% to 30.3% for 2020. For additional information regarding the Tax Act, refer to Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Other comprehensive income (loss), net of taxes. The gain in the year ended December 31, 2019 resulted from the translation of the balance sheet positions of our international operations, primarily in Canada and Australia, as of December 31, 2019 as compared to December 31, 2018, and the impact of the strengthening of those foreign currencies against the U.S. dollar as of December 31, 2019. The loss in the year ended December 31, 2018 resulted from the translation of the balance sheet positions of our international operations, primarily in Canada and Australia, as of December 31, 2018 as compared to December 31, 2017, and the impact of the strengthening of the U.S. dollar against those foreign currencies as of December 31, 2018.
Segment Results
Reportable segment information, including revenues and operating income by type of work, is gathered from each operating unit for the purpose of evaluating segment performance. Classification of our operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Our operating units may perform joint projects for customers in multiple industries, deliver multiple types of services under a single customer contract or provide service offerings to various industries. For example, we perform joint trenching projects to install distribution lines for electric power and natural gas customers. Our integrated operations and common administrative support for operating units require that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs (e.g., facility costs), indirect operating expenses (e.g., depreciation), and general and administrative costs. Certain corporate costs are not allocated, including payroll and benefits, employee travel expenses, facility costs, professional fees, acquisition costs, non-cash stock-based compensation, amortization related to intangible assets, asset impairment related to goodwill and intangible assets and change in fair value of contingent consideration liabilities.

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The following table sets forth segment revenues, segment operating income (loss) for the years indicated, as well as the dollar and percentage change from the prior year (dollars in thousands):
 
 
Year Ended December 31,
 
Change
 
 
2019
 
2018
 
$
 
%
Revenues:
 
 

 
 

 
 

 
 

 
 
 
 

Electric Power Infrastructure Services excluding Latin America
 
$
7,058,611

 
58.3
 %
 
$
6,319,436

 
56.5
 %
 
$
739,175

 
11.7
 %
Latin America
 
63,226

 
0.5

 
96,126

 
0.9

 
(32,900
)
 
(34.2
)%
Electric Power Infrastructure Services
 
7,121,837

 
58.8

 
6,415,562

 
57.4

 
706,275

 
11.0
 %
Pipeline and Industrial Infrastructure Services
 
4,990,316

 
41.2

 
4,755,861