pwr-20200930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended September 30, 2020.


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


Commission File Number:			001-13831

Quanta Services, Inc.

(Exact name of registrant as specified in its charter)


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

2800 Post Oak Boulevard, Suite 2600

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 629-7600

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value

PWR

New York Stock Exchange

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

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

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


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new 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 October 27, 2020, the number of outstanding shares of Common Stock of the registrant was 138,860,900.

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX


		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Equity	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	80
ITEM 4.	Controls and Procedures	80

	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	82
ITEM 1A.	Risk Factors	82
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
ITEM 3.	Defaults Upon Senior Securities	84
ITEM 4.	Mine Safety Disclosures	84
ITEM 5.	Other Information	84
ITEM 6.	Exhibits	85
Signature		86

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

`QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)


	September 30, 2020		December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	216,935	$	164,798
Accounts receivable, net of allowances of $16,404 and $9,398	2,750,268		2,747,911
Contract assets	478,483		601,268
Inventories	39,821		55,719
Prepaid expenses and other current assets	191,501		261,290

Total current assets	3,677,008		3,830,986
Property and equipment, net of accumulated depreciation of $1,339,771 and $1,250,197	1,436,935		1,386,654
Operating lease right-of-use assets	266,487		284,369
Other assets, net	412,490		393,264
Other intangible assets, net of accumulated amortization of $490,913 and $437,886	434,922		413,734
Goodwill	2,097,645		2,022,675

Total assets	$	8,325,487	$	8,331,682
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of long-term debt and short-term debt	$	9,221	$	74,869
Current portion of operating lease liabilities	88,162		92,475
Accounts payable and accrued expenses	1,543,842		1,489,559
Contract liabilities	537,048		606,146

Total current liabilities	2,178,273		2,263,049
Long-term debt, net of current maturities	1,202,425		1,292,195
Operating lease liabilities, net of current portion	185,003		196,521
Deferred income taxes	206,280		214,779
Insurance and other non-current liabilities	397,940		311,307

Total liabilities	4,169,921		4,277,851
Commitments and Contingencies
Equity:
Common stock, $0.00001 par value, 600,000,000 shares authorized, 162,516,859 and 159,415,540 shares issued, and 138,843,346 and 142,324,318 shares outstanding	2		2
Exchangeable shares, no par value, 0 and 36,183 shares issued and outstanding	—		—
Additional paid-in capital	2,130,057		2,024,610
Retained earnings	3,103,849		2,854,271
Accumulated other comprehensive loss	(274,342)		(241,818)
Treasury stock, 23,673,513 and 17,091,222 common shares	(807,616)		(586,773)
Total stockholders’ equity	4,151,950		4,050,292
Non-controlling interests	3,616		3,539
Total equity	4,155,566		4,053,831
Total liabilities and equity	$	8,325,487	$	8,331,682

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues	$	3,020,161	$	3,352,895	$	8,290,487	$	8,999,353
Cost of services (including depreciation)	2,512,647		2,879,450		7,095,513		7,842,422
Gross profit	507,514		473,445		1,194,974		1,156,931
Equity in earnings of integral unconsolidated affiliates	5,120		—		6,165		—
Selling, general and administrative expenses	(250,654)		(245,010)		(709,299)		(700,862)
Amortization of intangible assets	(19,687)		(15,264)		(55,374)		(40,544)

Change in fair value of contingent consideration liabilities	(78)		(3,777)		(598)		(8,064)
Operating income	242,215		209,394		435,868		407,461
Interest expense	(11,049)		(18,369)		(33,709)		(48,066)
Interest income	80		186		1,114		762
Other income (expense), net	2,931		717		(3,649)		66,197
Income before income taxes	234,177		191,928		399,624		426,354
Provision for income taxes	70,477		54,906		119,626		139,838


Net income	163,700		137,022		279,998		286,516
Less: Net income attributable to non-controlling interests	787		954		4,453		2,616
Net income attributable to common stock	$	162,913	$	136,068	$	275,545	$	283,900

Earnings per share attributable to common stock:
Basic	$	1.16	$	0.93	$	1.95	$	1.95
Diluted	$	1.13	$	0.92	$	1.90	$	1.93

Shares used in computing earnings per share:
Weighted average basic shares outstanding	140,542		145,913		141,610		145,654
Weighted average diluted shares outstanding	144,363		147,438		144,985		147,074

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income	$	163,700	$	137,022	$	279,998	$	286,516
Other comprehensive income (loss), net of tax provision:
Foreign currency translation adjustment, net of tax of $0, $0, $0 and $0	15,707		(12,778)		(32,524)		21,976
Other, net of tax of $0, $17, $0 and $28	—		(6)		—		(41)
Other comprehensive income (loss)	15,707		(12,784)		(32,524)		21,935
Comprehensive income	179,407		124,238		247,474		308,451
Less: Comprehensive income attributable to non-controlling interests	787		954		4,453		2,616
Total comprehensive income attributable to common stock	$	178,620	$	123,284	$	243,021	$	305,835

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Cash Flows from Operating Activities:
Net income	$	163,700	$	137,022	$	279,998	$	286,516
Adjustments to reconcile net income to net cash provided by (used in) operating activities—

Depreciation	56,244		55,562		165,180		161,589
Amortization of intangible assets	19,687		15,264		55,374		40,544
Impairment of cost method investment	—		—		9,311		—
Change in fair value of contingent consideration liabilities	78		3,777		598		8,064
Equity in (earnings) losses of unconsolidated affiliates	(5,260)		(1,931)		2,207		(64,078)
Amortization of debt discount and issuance costs	3,070		466		4,247		1,282
Gain on sale of property and equipment	(2,246)		(992)		(4,218)		(3,462)
Provision for credit losses	1,566		773		2,910		4,012
Deferred income tax provision (benefit)	(17,443)		4,167		(19,226)		48,298
Non-cash stock-based compensation	21,431		13,584		58,323		41,080
Foreign currency (gain) loss and other non-cash items	(1,505)		1,383		(4,942)		(535)
Payments for contingent consideration liabilities	—		—		(590)		—
Changes in operating assets and liabilities, net of non-cash transactions	(124,463)		(137,908)		290,715		(623,557)
Net cash provided by (used in) operating activities	114,859		91,167		839,887		(100,247)
Cash Flows from Investing Activities:
Capital expenditures	(50,780)		(66,244)		(167,037)		(207,645)
Proceeds from sale of property and equipment	5,844		4,854		18,460		24,247
Proceeds from insurance settlements related to property and equipment	73		490		271		501
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired	(187,655)		(329,832)		(212,092)		(385,165)
Proceeds from disposition of businesses	203		—		11,064		—
Investments in unconsolidated affiliates and other entities	(778)		(1,065)		(9,538)		(38,995)
Cash received from investments in unconsolidated affiliates and other entities	2,538		—		2,570		—
Cash paid for intangible assets	—		—		—		(67)
Net cash used in investing activities	(230,555)		(391,797)		(356,302)		(607,124)
Cash Flows from Financing Activities:
Borrowings under credit facility	478,762		2,118,501		2,453,941		4,834,014
Payments under credit facility	(1,648,614)		(1,789,924)		(3,602,660)		(4,038,762)

Proceeds from notes offering	990,130		—		990,130		—
Payments of other long-term debt	(652)		(1,356)		(1,635)		(1,839)
Net repayments of short-term debt, net of borrowings	(1,761)		(11,171)		(6,180)		(27,087)
Debt issuance and amendment costs	(7,794)		(2,036)		(7,794)		(2,036)
Payments for contingent consideration liabilities	—		—		(10,399)		—
Distributions to non-controlling interests	(744)		(489)		(4,669)		(2,109)
Payments related to tax withholding for stock-based compensation	(830)		(611)		(24,403)		(15,955)
Payment of dividends	(7,001)		(5,803)		(21,545)		(17,385)
Repurchase of common stock	—		—		(200,000)		(20,092)
Net cash provided by (used in) financing activities	(198,504)		307,111		(435,214)		708,749






Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	449		(87)		986		(123)
Net increase (decrease) in cash, cash equivalents and restricted cash	(313,751)		6,394		49,357		1,255
Cash, cash equivalents and restricted cash, beginning of period	532,853		78,117		169,745		83,256
Cash, cash equivalents and restricted cash, end of period	$	219,102	$	84,511	$	219,102	$	84,511

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)


											Accumulated
				Exchangeable			Additional				Other				Total
	Common Stock			Shares			Paid-In		Retained		Comprehensive		Treasury		Stockholders'		Non-controlling		Total
	Shares	Amount		Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Equity		Interests		Equity
Balance, December 31, 2019	142,324,318	$	2	36,183	$	—	$	2,024,610	$	2,854,271	$	(241,818)	$	(586,773)	$	4,050,292	$	3,539	$	4,053,831
Credit loss cumulative effect adjustment	—	—		—	—		—		(3,841)		—		—		(3,841)		—		(3,841)
Other comprehensive loss	—	—		—	—		—		—		(82,968)		—		(82,968)		—		(82,968)
Acquisitions	121,089						4,329						—		4,329		—		4,329
Stock-based compensation activity	1,124,530	—		—	—		11,444		—		—		(19,750)		(8,306)		—		(8,306)
Exchange of exchangeable shares	36,183	—		(36,183)	—		—		—		—		—		—		—		—
Common stock repurchases	(5,960,134)	—		—	—		—		—		—		(200,000)		(200,000)		—		(200,000)
Dividends declared ($0.05 per share)	—	—		—	—		—		(7,184)		—		—		(7,184)		—		(7,184)
Distributions to non-controlling interests	—	—		—	—		—		—		—		—		—		(1,963)		(1,963)
Other	—	—		—	—		—		(516)		—		—		(516)		293		(223)
Net income	—	—		—	—		—		38,686		—		—		38,686		2,817		41,503
Balance, March 31, 2020	137,645,986	2		—	—		2,040,383		2,881,416		(324,786)		(806,523)		3,790,492		4,686		3,795,178
Other comprehensive income	—	—		—	—		—		—		34,737		—		34,737		—		34,737
Stock-based compensation activity	65,826	—		—	—		22,717		—		—		(281)		22,436		—		22,436
Dividends declared ($0.05 per share)	—	—		—	—		—		(7,182)		—		—		(7,182)		—		(7,182)
Distributions to non-controlling interests	—	—		—	—		—		—		—		—		—		(1,962)		(1,962)
Net income	—	—		—	—		—		73,946		—		—		73,946		849		74,795
Balance, June 30, 2020	137,711,812	2		—	—		2,063,100		2,948,180		(290,049)		(806,804)		3,914,429		3,573		3,918,002
Other comprehensive income	—	—		—	—		—		—		15,707		—		15,707		—		15,707
Acquisitions	1,087,774	—		—	—		45,532		—		—		—		45,532		—		45,532
Stock-based compensation activity	43,760	—		—	—		21,425		—		—		(812)		20,613		—		20,613
Dividends declared ($0.05 per share)	—	—		—	—		—		(7,244)		—		—		(7,244)		—		(7,244)
Distributions to non-controlling interests	—	—		—	—		—		—		—		—		—		(744)		(744)
Net income	—	—		—	—		—		162,913		—		—		162,913		787		163,700
Balance, September 30, 2020	138,843,346	$	2	—	$	—	$	2,130,057	$	3,103,849	$	(274,342)	$	(807,616)	$	4,151,950	$	3,616	$	4,155,566

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

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)


														Accumulated
				Exchangeable			Series G			Additional				Other				Total
	Common Stock			Shares			Preferred Stock			Paid-In		Retained		Comprehensive		Treasury		Stockholders'		Non-controlling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Equity		Interests		Equity

Balance, December 31, 2018	141,103,900	$	2	486,112	$	—	1	$	—	$	1,967,354	$	2,477,291	$	(286,048)	$	(554,440)	$	3,604,159	$	1,294	$	3,605,453
Other comprehensive income	—	—		—	—		—	—		—		—		18,847		—		18,847		—		18,847
Stock-based compensation activity	903,082	—		—	—		—	—		17,151		—		—		(19,052)		(1,901)		—		(1,901)
Exchange of exchangeable shares	449,929	—		(449,929)	—		—	—		—		—		—		—		—		—		—
Retirement of preferred stock	—	—		—	—		(1)	—		—		—		—		—		—		—		—
Common stock repurchases	(375,536)	—		—	—		—	—		—		—				(11,953)		(11,953)		—		(11,953)
Dividends declared ($0.04 per share)	—	—		—	—		—	—		—		(5,896)		—		—		(5,896)		—		(5,896)
Distributions to non-controlling interests	—	—		—	—		—	—		—		—		—		—		—		(528)		(528)
Net income	—	—		—	—		—	—		—		120,488		—		—		120,488		547		121,035
Balance, March 31, 2019	142,081,375	2		36,183	—		—	—		1,984,505		2,591,883		(267,201)		(585,445)		3,723,744		1,313		3,725,057
Other comprehensive income	—	—		—	—		—	—		—		—		15,872		—		15,872		—		15,872
Stock-based compensation activity	85,590	—		—	—		—	—		14,957		—		—		(761)		14,196		—		14,196
Dividends declared ($0.04 per share)	—	—		—	—		—	—		—		(6,233)		—		—		(6,233)		—		(6,233)
Distributions to non-controlling interests	—	—		—	—		—	—		—		—		—		—		—		(1,092)		(1,092)
Net income	—	—		—	—		—	—		—		27,344		—		—		27,344		1,115		28,459
Balance, June 30, 2019	142,166,965	2		36,183	—		—	—		1,999,462