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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, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13831
pwr-20211231_g1.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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valuePWRNew 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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 30, 2021 (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 $12.5 billion.
As of February 22, 2022, the number of outstanding shares of Common Stock of the Registrant was 142,690,314.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the 2022 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, 2021
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.
ITEM 9C.
 
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
PART IV
ITEM 15.
ITEM 16.

1


Cautionary Statement About Forward-Looking Statements and Information
This Annual Report on Form 10-K (Annual Report) of Quanta Services, Inc. (together with its subsidiaries, Quanta, we, us or our) includes forward-looking statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,” “may,” “will,” “should,” “could,” “expect,” “believe,” “plan,” “intend” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:
Projected revenues, net income, earnings per share, margins, cash flows, liquidity, weighted average shares outstanding, capital expenditures and tax rates, as well as other projections of operating and GAAP (as defined below) and non-GAAP financial results;
Expectations regarding our business or financial outlook;
Expectations regarding opportunities, technological developments, competitive positioning, future economic and regulatory conditions and other trends in particular markets or industries, including with respect to our increased operations in the renewable energy market after our acquisition of Blattner (as defined below) and the transition to a carbon-neutral economy;
Expectations regarding the pandemic associated with the novel coronavirus disease that began in 2019 (COVID-19), including the continued and potential impact of the COVID-19 pandemic and of governmental and customer responses to the pandemic on our business, operations, supply chain, personnel, financial condition, results of operations, cash flows and liquidity;
Expectations regarding our plans and strategies;
The business plans or financial condition of our customers, including with respect to the COVID-19 pandemic and the transition to a carbon-neutral economy;
The potential impact of commodity prices and production volumes on our business, financial condition, results of operations, cash flows and demand for our services;
The potential benefits from, and future financial and operational performance of, acquired businesses and our investments, including Blattner and our equity interest in LUMA (as defined below);
Beliefs and assumptions about the collectability of receivables;
The expected value of contracts or intended contracts with customers, as well as the scope, services, term or results of any awarded or expected projects;
The development of and opportunities with respect to future projects, including renewable energy projects, electrical grid modernization, upgrade and hardening projects and large transmission and pipeline projects;
Expectations regarding the future availability and price of materials and equipment necessary for the performance of our business;
The expected impact of inflation;
The expected impact of changes and potential changes in climate;
Future capital allocation initiatives, including the amount and timing of, and strategies with respect to, any future acquisitions, investments or stock repurchases and expectations regarding the declaration, amount and timing of any future cash dividends;
The impact of existing or potential legislation or regulation;
Potential opportunities that may be indicated by bidding activity or similar discussions with customers;
The future demand for, availability of and costs related to labor resources in the industries we serve;
The expected realization of our remaining performance obligations or backlog;
The expected outcome of pending or threatened legal proceedings;
Expectations with respect to our ability to reduce our debt and maintain our current credit ratings; and
Possible recovery of pending or contemplated insurance claims, change orders and claims asserted against customers or third parties.
These forward-looking statements are not guarantees of future performance, involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or are beyond our control, and reflect management’s beliefs and assumptions based on information available at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements and that any or all of our forward-looking statements may turn out to be inaccurate or incorrect. These statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties, including risks and uncertainties described elsewhere herein,
2


including in Item 1A. Risk Factors in this Annual Report and as may be detailed from time to time in our other public filings with the U.S. Securities and Exchange Commission (SEC).
All of our forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report. Although forward-looking statements reflect our good faith beliefs at the time they are made, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. In addition, we do not undertake and expressly disclaim any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise.
3


PART I
ITEM 1.Business
Overview
Quanta Services, Inc. (together with its subsidiaries, “Quanta,” “we,” “us” or “our”) is a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, renewable energy, communications, pipeline and energy industries in the United States, Canada, Australia and select other international markets. We provide engineering, procurement, construction, and repair and maintenance services for infrastructure within each of these industries, including electric power transmission and distribution networks; substation facilities; wind and solar generation and transmission and battery storage facilities; communications and cable multi-system operator networks; gas utility systems; pipeline transmission systems and facilities; and downstream industrial facilities. Our operations are decentralized and labor-intensive, and we rely on craft skilled labor personnel and experienced operators to successfully manage our day-to-day business. We also have an experienced management team, both at the executive level and within our subsidiaries, which we refer to as operating companies or operating units. We operate a fleet of owned and leased trucks and trailers, support vehicles and specialty construction equipment, as well as various proprietary technologies that enhance our service offerings. We have a large and diverse customer base, including many of the leading companies in the utility, renewable energy, communications, industrial and energy delivery 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. Our services are typically provided pursuant to master service agreements, repair and maintenance contracts and fixed price and non-fixed price construction and engineering contracts. 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 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, and we endeavor to develop and maintain strategic alliances and preferred service provider status with our customers.
We believe that our business strategies, along with our safety culture and financial resources, differentiate us from our competition and position us to benefit from future capital spending by our customers. Our strategies include delivering a portfolio of infrastructure solutions to existing and potential customers, developing our technological and training capabilities, remaining committed to the safety of our employees, and maintaining an entrepreneurial culture throughout our organization. We believe executing on these strategies places us in the position to capitalize on opportunities and trends in the industries we serve and expand our operations to select new markets.
Services
Beginning with the three months ended December 31, 2021, we report our results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions. The Renewable Energy Infrastructure Solutions segment was added primarily due to our acquisition of Blattner Holding Company and its operating subsidiaries (collectively, Blattner) during 2021, as described further below. The acquisition of Blattner significantly expanded and enhanced our existing services with respect to the renewable energy generation industry. In conjunction with this change in reportable segments, certain prior period amounts have been recast to conform to our new segment reporting structure. We operate primarily in the United States; however, we derived approximately 14.7%, 14.2% and 16.0% of our revenues from foreign operations, primarily in Canada and Australia, during the years ended December 31, 2021, 2020 and 2019.
Electric Power Infrastructure Solutions. Our Electric Power Infrastructure Solutions segment provides comprehensive services for the electric power and communications markets, including:
design, procurement, new construction, upgrade and repair and maintenance services for electric power transmission and distribution infrastructure, both overhead and underground, and substation facilities, along with other engineering and technical services to support the implementation of upgrades by utilities to modernize and harden the electric power grid in order to ensure its safety and enhance reliability;
emergency restoration services, including the repair of infrastructure damaged by fires and inclement weather;
the energized installation, maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and our robotic arm techniques;
the installation of “smart grid” technologies on electric power networks;
4


comprehensive design and construction services to wireline and wireless communications companies, cable multi-system operators and other customers within the communications industry (including services in connection with 5G wireless deployment);
design, installation, maintenance and repair services related to commercial and industrial wiring; and
aviation services primarily for the utility industry, including the transportation of line workers, the setting of poles and towers, and the stringing of wires.
This segment also includes (i) our portion of earnings of our unconsolidated integral affiliates, including LUMA Energy, LLC (LUMA), a joint venture in which we own a 50% interest and which was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico, and (ii) the majority of the financial results of our training facility and 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 gas distribution and communications industries. For additional information regarding LUMA, see Note 8 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, and for additional information on our training facility and postsecondary educational institution, see Human Capital Resources - Employee Recruiting, Development and Training below.
Renewable Energy Infrastructure Solutions. Our Renewable Energy Infrastructure Solutions segment provides comprehensive infrastructure solutions to customers that own and develop renewable energy and/or related infrastructure. Services performed by the Renewable Energy Infrastructure Solutions segment generally include:
engineering, procurement, new construction, upgrade and repair and maintenance services for utility-scale wind, solar and hydropower generation facilities and battery storage facilities; and
engineering and construction services for substations and switchyards, transmission and other electrical infrastructure needed to interconnect and transmit electricity from renewable energy generation and battery storage facilities.
Underground Utility and Infrastructure Solutions. Our Underground Utility and Infrastructure Solutions 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 Underground Utility and Infrastructure Solutions segment generally include:
design, engineering, procurement, new construction, upgrade and repair and maintenance services for natural gas systems for gas utility customers;
pipeline protection, integrity testing, rehabilitation and replacement services;
catalyst replacement services, high-pressure and critical-path turnaround services, instrumentation and electrical services, piping, fabrication and storage tank services to the midstream and downstream industrial energy markets;
engineering and construction services for pipeline systems, storage systems and compressor and pump stations and the fabrication of pipeline support systems and related structures and facilities;
trenching, directional boring and mechanized welding services related to the services described above and in connection with our electric power infrastructure services; and
engineering, construction and maintenance services for energy-transition and carbon-reduction related projects, such as alternative fuel facilities, carbon capture systems and hydrogen facilities.
Recent Significant Acquisition
On October 13, 2021, we completed the acquisition of Blattner, a large and leading utility-scale renewable energy infrastructure solutions provider that is located in and primarily operates in North America. Consideration for this acquisition was $2.37 billion paid or payable in cash (subject to certain adjustments) and 3,326,955 shares of Quanta common stock, which had a fair value of $345.4 million as of the date of the acquisition. The final amount of consideration for this acquisition remains subject to certain post-closing adjustments, including with respect to net working capital. Additionally, pursuant to the terms of the agreement and plan of merger, the former owners of Blattner are eligible for the potential payment of up to $300.0 million of contingent consideration, payable to the extent the acquired business achieves certain financial performance targets over a three-year period beginning in January 2022. Since the acquisition date, Blattner’s results of operations have been included in our consolidated financial statements within the Renewable Energy Infrastructure Solutions segment. See Note 6 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report for further information regarding this and our other recent acquisitions.
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Customer Relationships
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, 2021, our largest customer accounted for 7% of our consolidated revenues and our ten largest customers accounted for 38% of our consolidated revenues. Representative customers include:
lAmerican Electric Power Company, Inc.lNational Grid plc
lATCO ElectriclNextBridge Infrastructure, LP
lCenterPoint Energy, Inc.lNextEra Energy, Inc.
lComcast CorporationlNiSource Inc.
lDuke Energy CorporationlOrsted US
lEdison InternationallPattern Energy
lEntergy CorporationlPG&E Corporation
lEnterprise Products Partners L.P.lPuget Sound Energy, Inc.
lEvergy Inc.lSempra Energy
lEversource EnergylThe Southern Company
lExelon CorporationlTC Energy Corporation
lFirstEnergy Corp.lVerizon Communications Inc.
lFortis Inc.lWataynikaneyap Power
lLower Colorado River AuthoritylXcel Energy Inc.
Our customers include utilities, renewable energy developers, communications, industrial and energy delivery companies, as well as governmental entities. We have estimated revenues by customer type as a percentage of total revenues below. Such estimates are based on management judgment and assumptions and are provided to show perceived trends in our customer types and should be considered directional in nature.
202120202019
Utility74 %72 %64 %
Renewable Energy Developers%%%
Communications%%%
Industrial10 %13 %15 %
Energy Delivery %%14 %
Other%%%
Total revenues100 %100 %100 %
The customer types set forth in the table above are described in further detail as follows:
Utility - Customers that are electric and gas utility companies;
Renewable Energy Developers – Customers that develop, own and/or operate renewable energy solutions other than electric and gas utility companies;
Communications - Customers that own and/or operate assets supporting delivery of data, communications and digital services;
Industrial - Customers that own and/or operate refinery, chemical and industrial facilities, as well as other commercial or manufacturing facilities;
Energy Delivery - Customers that own and/or operate pipelines for the delivery of hydrocarbons; and
Other - Customers that are not accurately described by the categories set forth above.
We believe utility, renewable energy, communications and industrial customers provide us with growth opportunities due to their long-term capital programs and/or the longer term trends associated with these industries. Our opportunities associated with energy delivery customers are dependent on the cyclicality of pipeline project activity, and capital programs for energy delivery and industrial customers have been negatively impacted by uncertainties and challenges in the energy market and
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overall economy caused by the pandemic associated with the novel coronavirus disease (COVID-19). However, to the extent commodity prices continue to strengthen and the global economy continues to recover, we believe the outlook for services with respect to these customers will improve. For additional information on the trends associated with these customers and industries, see Overview - Business Environment and Results of Operations in Item 7. Managements Discussion and Analysis of Financial Condition of this Annual Report.
We are a preferred service provider for many of our customers, which generally 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.
Although we have an integrated marketing and business development strategy, management at each of our operating companies is responsible for developing and maintaining successful long-term relationships with customers. Our operating company 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 company management focuses on pursuing growth opportunities with prospective customers. We also encourage operating company management to cross-sell services of our other operating companies to their customers and coordinate with our other operating companies 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’ needs and 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 companies.
Competition and Market Demand
The markets in which we operate are highly competitive. We compete with other contractors in 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 factor in the award of such agreements. Accordingly, we could be underbid by our competitors. However, 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.
For further information regarding the effects of competition on our business and trends in market demand affecting our business, see Risks Related to Operating Our Business and Risks Related to Our Industries in Item 1A. Risk Factors of this Annual Report and Overview - Business Environment and Results of Operations in Item 7. Managements Discussion and Analysis of Financial Condition of this Annual Report.
Material Resources
Equipment. We depend on the availability of certain equipment, including specialty vehicles, to perform our services. We operate a fleet of owned and leased bucket trucks, digger derricks, trucks and trailers, support vehicles and specialty construction equipment, such as sidebooms, dozers, backhoes, excavators, trenchers, generators, boring machines, cranes, robotic arms, wire pullers, tensioners and helicopters. As of December 31, 2021, the total size of the rolling stock fleet was approximately 70,000 units. A number of factors that we may not be able to predict or control could result in increased costs for, or delays in delivery of, this equipment, including the continued impact of the ongoing COVID-19 pandemic on the global supply chain, as well as global trade relationships and other general market and political conditions (e.g., inflation). For example, based on, among other things, the significant worldwide shortage of semiconductors, vehicle manufacturers are experiencing production delays with respect to new vehicles for our fleet (both on-road and specialty vehicles) and vehicle parts (e.g., tires), all of which we utilize in our operations. Certain of our vehicle delivery orders scheduled for delivery in 2022 have
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been delayed and canceled. While we believe we have taken steps to secure delivery of a sufficient amount of vehicles in the near term and do not anticipate any significant disruptions with respect to our fleet, to the extent the production issues become worse than expected or become longer-term in nature, our operations could be negatively impacted.
Project Materials. Our customers depend on the availability of certain materials for construction, upgrade and repair and maintenance of their infrastructure and are typically responsible for supplying most or all of the materials required for the services we perform on their projects, including, among other things, steel, copper, aluminum and components for renewable energy projects (e.g., solar panels, wind turbine blades). We monitor supply chain and other logistical challenges impacting our industries with respect to these materials; however, a number of factors that we and our customers may not be able to predict or control could result in increased costs for, or delays in delivery or lack of availability of, these materials, including, among other things, the continued impact of the ongoing COVID-19 pandemic on the global supply chain, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and political conditions (e.g., inflation). To the extent these or other dynamics delay our customers’ projects or impact their decision-making with respect to timing of future projects, our business and demand for our services could be negatively impacted. For example, we believe some participants in the renewable energy market are experiencing supply chain and sourcing challenges, resulting in delays and shortages of, and increased costs for, materials necessary for the construction of certain solar renewable projects in the near term. While we believe many of our renewable energy customers are better equipped to manage these disruptions than their smaller competitors, these challenges could impact our ability to perform these renewable services in the near term.

Additionally, pursuant to certain of our contracts, including contracts for our comprehensive engineering, procurement and construction (EPC) services, we are required to procure all or part of the materials needed for a project. We continue to expand our EPC services throughout our industries, and as a result our responsibility for procuring materials is expected to increase and the cost of materials may become a proportionately larger component of our consolidated cost of services. Furthermore, under these contracts, a number of factors that we may not be able to predict or control, including those described above with respect to our customers, could negatively impact our ability to procure the materials we have agreed to procure for a project. In such circumstances, we may be responsible for delays and additional costs associated with projects.
For further information regarding the risks associated with availability of equipment and materials, see Risks Related to Operating Our Business in Item 1A. Risk Factors of this Annual Report.
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. 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 additional information on seasonality and cyclicality, please see Significant Factors Impacting Results within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report.
Regulation
Compliance with numerous regulations has a material effect on our operations. Our operations are subject to various federal, state, local and international laws and regulations including:
licensing, permitting and inspection requirements applicable to contractors and engineers;
regulations relating to worker safety (e.g., Occupational Safety and Health Administration regulations) and environmental protection;
permitting and inspection requirements applicable to construction projects;
wage and hour regulations and regulations associated with our collective bargaining agreements and unionized workforce;
regulations relating to sourcing and transportation of equipment and materials, including licensing and permitting requirements;
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regulations relating to aviation activities;
building and electrical codes; 
applicable U.S. and non-U.S. anti-corruption regulations;
immigration regulations applicable to U.S. and cross-border employment; 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. Additionally, the overall regulatory environment can impact our customers’ projects and demand for our services, and in connection with the current heightened regulatory environment and increased regulatory enforcement and challenges, our customers have experienced delays, reductions in scope and cancellations of projects. We are also 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 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. As a result, 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.
For further information regarding the effects of regulation on our business, see Risks Related to Operating Our Business and Risks Related Regulation and Compliance in Item 1A. Risk Factors of this Annual Report and Overview - Business Environment in Item 7. Managements Discussion and Analysis of Financial Condition of this Annual Report.
Human Capital Resources
We believe our employees are our most important assets, and we focus significant attention and resources on attracting, developing and retaining talented and experienced individuals. We believe our industry-leading training and safety programs are a strength and competitive differentiator with not only our current and potential employees, but with our customers, which have high safety standards and are increasing the amount of their outsourced infrastructure services. Our operations are decentralized and labor-intensive, and we rely on craft skilled labor personnel and experienced operators to successfully manage our day-to-day business, as well as corporate management and professional personnel to coordinate and execute our business strategies, allocate capital and coordinate equipment usage, and facilitate certain centralized administrative services.
Employee Profile
As of December 31, 2021, we had approximately 43,700 employees, consisting of approximately 8,600 salaried employees, including executive officers, professional and administrative staff, project managers and engineers, job superintendents and field personnel, and approximately 35,100 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. As of December 31, 2021, we had approximately 36,800 U.S. employees and approximately 6,900 non-U.S. employees, with the majority of our non-U.S. employees based in Canada. Additionally, approximately 35% of our employees as of December 31, 2021 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 Health and Safety
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 company management personnel have established safety programs, policies and procedures and
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ongoing training requirements for our employees and have also developed and implemented critical safety equipment and innovations. For example, on our project sites we have implemented emergency response plans, first aid training and automated external defibrillators, which have helped save the lives our employees and bystanders. We have also continued to invest significant resources in our safety training facilities, including the Quanta Advanced Training Center, located in Texas, and our safety monitoring tools, including fleet management software. Our operating companies also develop and share best practices for safety policies and practices, and we have an established program for onboarding newly acquired companies and working with them to augment their existing safety practices as necessary.
Furthermore, throughout the COVID-19 pandemic, the majority of our operations have continued, as they have been deemed essential to critical infrastructure. In response to the changing operating environment during the course of the pandemic, we implemented additional safety protocols and procedures to protect the health and safety of our employees, such as the adoption of specialized training initiatives and the utilization of additional protective equipment for our employees operating in the field and additional sanitation measures for our offices, vehicles and equipment. During the course of the pandemic, as circumstances dictated and in accordance with legal requirements, we also reduced non-essential business travel, applied work-from-home policies and developed other human resource guidance to help employees. We have not experienced any meaningful impact on the availability of our workforce or key personnel as a result of the COVID-19 pandemic.
Employee Recruiting, Development and Training
Our success depends on our ability to attract, develop and retain highly qualified employees, including craft skilled labor, engineers, architects, designers, management and professional and administrative employees.
Craft Skilled Labor. Our industry is experiencing a shortage of journeyman linemen and specialty craft labor in certain geographic areas. Our customers continue to seek additional specialized labor resources to address an aging utility workforce and longer-term 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 such a degree that demand for labor resources will outpace supply. Furthermore, the increased demand for our services based on favorable dynamics in certain of our industries can create shortages of qualified labor. 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, have developed additional company-wide and project-specific employee training and educational programs and developed strategic relationships with universities, the military and unions.
For example, we own and operate Northwest Lineman College, a postsecondary educational institution that provides training programs for the electric power infrastructure, communications and underground utility and infrastructure industries and specializes in pre-apprenticeship training, apprenticeship training and specialized utility task training for electric workers. We also continue to invest in our education and training capabilities at the Quanta Advanced Training Center, which include programs for, among other things, beginning linemen, energized electric power services, lead and cable splicing, directional drilling, gas distribution services and pipeline integrity training. These programs provide classroom and on-the-job training programs and allow 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 attract potential employees and develop our workforce. For example, our operating companies 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. Certain of our operating companies have also 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. 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 companies also share best practices for training and educational programs.
For additional information on the risks associated with labor resources in our industries, see Risks Related to Operating Our Business in Item 1A. Risk Factors of this Annual Report and Overview - Business Environment in Item 7. Managements Discussion and Analysis of Financial Condition of this Annual Report.
Management and Professional Personnel. Due to our decentralized operating structure, significant decision-making authority resides with our operating company management, and our corporate management and professional and administrative personnel are relied upon to allocate capital and communicate, coordinate and help execute our business strategies. We are focused on our ability to attract and retain qualified employees for these important positions, and a shortage of these employees
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for various reasons, including intense competition for skilled employees, labor shortages, increased labor costs, and candidates’ preference to work remotely, may jeopardize our ability to successfully manage our decentralized operations or our ability to grow and expand our business. We have also implemented enterprise-wide talent development and succession planning programs designed to identify and develop future and/or replacement candidates for key positions. For example, we have developed and administer a succession program with respect to our executive officers and senior operating company personnel, which is reviewed and/or overseen by our Board of Directors.
Compensation and Benefits
Our compensation programs are generally designed to align employee compensation with market practices and our performance, as well as provide the proper incentives to attract, retain and motivate employees. With respect to our executive officers, operating company management, other senior leadership and corporate employees, compensation programs consist of both fixed and variable components. The fixed portion is generally set at market levels, with variable compensation designed to reward employees based on company performance. We also grant stock-based compensation broadly throughout our organization, including to management and key operations personnel at the majority of our operating companies, which we believe is a key component of our compensation programs that helps to align incentives throughout our decentralized organization. We also enter into employment agreements with our executive officers and certain other key personnel. For additional information regarding our executive compensation, please see the information required in Item 11. Executive Compensation, which will be incorporated by reference to our definitive proxy statement related to our 2022 Annual Meeting of Stockholders.
We also provide additional benefits to our employees. For example, we provide health, welfare and benefit plans for most employees who are not covered by collective bargaining agreements, and we maintain 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 payroll deductions and to which we make certain matching contributions.
Ethics and Compliance
All of our employees are subject to Quanta’s Code of Conduct, which addresses compliance with applicable laws and Quanta’s policies concerning, among other things, general business ethics, competition, anti-corruption and bribery, environmental protection, conflicts of interest, harassment and discrimination, data security and privacy, and insider trading. Quanta’s Code of Conduct also informs employees and third parties about the resources and confidential reporting mechanisms available to detect, prevent and report unethical and illegal conduct, and our Chief Compliance Officer communicates directly with our Board of Directors about actual and alleged violations of the law or the Code of Conduct. Training with respect to Quanta’s Code of Conduct and other policies and procedures is conducted as part of our comprehensive ethics and compliance training program.
Climate Change-Related Impacts
Our management considers climate-related risks and opportunities in connection with its long-term strategic planning and enterprise risk management process, which are overseen by our Board of Directors. While the overall impact on our operations continues to evolve, various aspects of climate change, as well as market and societal concerns about the future impact of climate change, have resulted and are expected to continue to result in operational opportunities and challenges. These opportunities and challenges arise from the physical risks associated with changes in climate, as well as technological advances, market developments and additional regulatory and compliance costs.
Changes in climate have caused, and are expected to continue to cause, among other things, increasing temperatures, rising sea levels and changes to patterns and intensity of wildfires, hurricanes, floods, winter storms and other storms and severe weather-related events and natural disasters. Our operating results can be significantly influenced by the climates in which we operate and severe weather events, and these changes have and could continue to 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, reduces our productivity and causes delays and cancellations of our ongoing projects. For example, hurricanes and tropical storms in the U.S. Gulf Coast region have impacted our ability to perform industrial services operations during certain periods. However, an increase in certain of these events, such as hurricanes, tropical storms, wildfires, blizzards and ice storms, also creates opportunities for us to perform a greater amount of emergency restoration services and can increase customer spending on modernization, grid hardening and other infrastructure improvements (e.g., fire hardening programs in California and the western United States and storm hardening in coastal regions). For example, during 2021, several strong hurricanes and other severe weather events resulted in emergency restoration services revenues at levels comparable to 2020, when record levels of hurricane activity in the United States resulted in record levels of emergency restoration services revenues for us. 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 in those areas.
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Physical risks associated with climate change have also increased hazards associated with certain of our operations, which in turn has increased the potential for liability and increased the costs associated with such operations. For example, severe drought and high wind speeds in the western United States, Australia and other locations have significantly increased the risk of wildfires, which in turn has exposed us and other contractors to increased risk of liability in connection with our operations in those locations, as these events can be started by failure of electrical power and other infrastructure on which we have performed services. Given the potentially significant liabilities associated with these events, to the extent we are deemed liable for a wildfire event, it could have a material adverse impact on our business. Furthermore, these climate conditions have also resulted in increased costs for wildfire-related third-party insurance and reduced the amount insurance carriers are willing to make available to us under such policies, as described further in Risk Management and Insurance below.
Climate change has also caused, and is expected to continue to cause, changes in the markets in which we operate. For example, in support of the transition to a carbon-neutral economy, utility customers are transitioning toward more sustainable sources of power generation, such as renewables (e.g., wind and solar) coupled with battery storage technology, and are replacing aging, less efficient infrastructure. Concerns regarding climate change are also leading to the increased electrification of consumer goods (e.g., electric vehicles), which is expected to provide continued additional demand for new and expanded electric power infrastructure and reengineering of existing electric power infrastructure. We believe these market dynamics and technological advances provide significant opportunities for us, including increased demand for our renewable energy infrastructure services, which we have significantly expanded through our acquisition of Blattner, as well as our portfolio of electric power infrastructure services.
The increasing focus on climate change has also impacted markets within our Underground Utility and Infrastructure Solutions segment. Certain services within this segment have experienced challenges, and could continue to experience challenges, related to a transition toward a carbon-neutral economy. For example, concerns about the impact of certain large pipeline projects on the environment, among other things, have contributed to significant delays and cancellations of certain projects in recent years, and as a result we have decreased our focus on these service offerings. Furthermore, a longer-term decline in demand for fossil fuels or refined products as a result of climate change concerns and/or regulation could further negatively impact these projects or negatively impact demand for our midstream and industrial services operations. However, we believe there are climate change-related opportunities for certain services in this segment that are associated with safety and environmental initiatives, including integrity, rehabilitation and replacement services related to existing pipeline infrastructure, as well as longer-term opportunities for services that would support customer strategies to reduce carbon emissions (e.g., hydrogen blending into natural gas flow, carbon capture, pipeline infrastructure repurposing and renewable natural gas and bio-diesel facilities). We also believe the timeline for the transition to a carbon-neutral economy will be extended and will need to be supported by certain legacy energy resources, and therefore have strategically focused on expanding our natural gas utility services in recent years.
Lastly, new legislation or regulation related to climate change could increase our costs. Most significantly, we maintain a large fleet of vehicles and a significant amount of construction machinery, and the costs associated therewith could significantly increase as a result of regulations related to greenhouse gas emissions from such sources or regulations that result in an increase in fuel prices.
For additional information regarding the risks and opportunities described above, see Risks Related to Operating Our Business in Item 1A. Risk Factors of this Annual Report and Overview - Business Environment and Overview - Significant Factors Impacting Results in Item 7. Managements Discussion and Analysis of Financial Condition of this Annual Report.
Risk Management and Insurance
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, aviation and general liability claims. We manage and maintain a portion of our casualty risk indirectly through our wholly-owned captive insurance company, which reimburses 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. Deductibles for the employer’s liability and workers’ compensation programs are $5.0 million per occurrence, and deductibles for the auto liability and general liability programs are $15.0 million per occurrence. We also maintain employee health care benefit plans for the benefit of most of our employees not subject to collective bargaining agreements, of which the primary plan is subject to a deductible of $0.8 million per claimant per year.
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. The accruals are based upon known facts and historical trends, and management believes such accruals are adequate.
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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, including wildfires, 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. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows. For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, our level of insurance coverage for wildfire events has decreased in recent years and the current level of coverage may not be sufficient to cover potential losses in connection with these events. Our third-party insurers could decide to further reduce, exclude or increase the cost of coverage for wildfires or other events in connection with future insurance renewals. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows.
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 material 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 Cautionary Statement About Forward-Looking Statements and Information.
Summary Risk Factors
The following is a summary of some of the material risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to Operating Our Business
Our operating results may vary significantly from quarter to quarter.
We may not realize the anticipated benefits and synergies from our acquisition of Blattner.
The COVID-19 pandemic and related economic repercussions have materially affected our and our customers’ businesses, and the duration and extent of the negative impact resulting from the pandemic remains uncertain.
A variety of issues could affect the timing or profitability of our projects, and could result in, among other things, project termination or payment of liquidated damages.
Our business is subject to operational hazards (e.g., wildfires, explosions) that can result in significant liabilities, and we may not be insured against all potential liabilities.
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Unavailability or cancellation of third-party insurance would increase our risk exposure and disrupt our operations, and our estimates of losses under our insurance programs could prove inaccurate.
Our business and operating results are subject to physical risks associated with climate change.
Our business is labor-intensive, and we may be unable to attract and retain qualified employees or we may incur significant costs if we are unable to efficiently manage our workforce.
A loss of business from certain significant customers could have a material effect on our business.
Our financial results are based on estimates and assumptions that may differ from actual results.
We may fail to adequately recover on contract change orders or claims against customers.
Changes in estimates related to revenues and costs under customer contracts could result in a reduction or elimination of revenues or profits and the recognition of losses.
During the ordinary course of our business, we are subject to lawsuits, claims and other legal proceedings, as well as bonding claims and related reimbursement requirements.
We may be unsuccessful in generating internal growth.
Many of our contracts may be canceled or suspended on short notice or may not be renewed or replaced.
The nature of our business exposes us to warranty, engineering and other related claims.
We can incur liabilities or suffer negative financial or reputational impacts due to health and safety matters.
Disruptions or failure to adequately protect our information technology systems could materially affect our business or result in harm to our reputation.
A deterioration of our reputation or brands could have an adverse impact on our business.
Our financial results and financial condition may be adversely affected as a result of asset impairments.
Our inability to successfully execute our acquisition strategy may adversely impact our growth.
Our decentralized management infrastructure could negatively impact our business.
The loss of, or our inability to attract, key personnel could disrupt our business.
Our investments, including our joint ventures, expose us to risks and may result in conflicts of interest.
We extend credit to, and enter into other financing arrangements with customers, which subject us to credit and investment risk.
Risks associated with operating in international markets and U.S. territories could harm our business and prospects.
Limitations on the availability of suppliers, subcontractors and equipment manufacturers could adversely affect our business or our customers.
A lack of availability or an increase in the price of fuel, materials or equipment could adversely affect our business or our customers.
Increasing scrutiny and expectations with respect to corporate sustainability practices may impose additional costs on us or expose us to reputational or other risks.
Risks Related to Our Industries
Negative macroeconomic conditions and industry-specific economic and market conditions can adversely impact our business.
Our revenues and profitability can be negatively impacted if customers encounter financial difficulties or disputes arise with our customers.
Our business is highly competitive and competitive pressures could negatively impact our business.
Technological advancements and other market conditions could negatively affect our business.
Risks Related to Regulation and Compliance
Regulatory requirements applicable to our business and potential changes related to those requirements may adversely affect our business.
Our unionized workforce and related obligations may adversely affect our operations.
We could be adversely affected by failure to comply with laws applicable to our foreign activities.
Changes in tax laws could adversely affect our financial results.
Our failure to comply with environmental laws and regulations could result in significant liabilities and costs.
Certain specific regulatory requirements are applicable to us and certain of our subsidiaries, which could materially impact our business.
Governmental opportunities could subject us to increased regulation and costs and may pose additional risks relating to funding and compliance.
Immigration laws, including inability to verify employment and restrictions on movement, could adversely impact our business.
Risk Related to Financing Our Business
We may not have access to sufficient funding to finance desired growth and operations.
We have a significant amount of debt that can negatively impact our business.
We may not have sufficient cash flow to service our debt.
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Our variable rate indebtedness subjects us to interest rate risk.
We may be unable to compete for projects if we cannot obtain surety bonds, letters of credit or bank guarantees.
A downgrade in our debt rating could restrict our ability to access capital markets.
Risks Related to Our Common Stock
Our sale or issuance of additional common stock or other equity securities could be dilutive to each stockholder’s ownership interest or affect the market price of our common stock.
There can be no assurance that we will declare or pay future dividends on our common stock.
Certain provisions of our governing documents could make an acquisition of Quanta more difficult.
Risks Related to 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, including as a result of project delays, reductions in project scope, project terminations or cancellations, and agreement terminations and expirations;
increases in project costs that result from, among other things, natural disasters and emergencies, adverse weather conditions or events, legal challenges, permitting, regulatory or environmental processes, or inaccurate project cost estimates;
variations in the size, scope, costs and margins of ongoing projects, as well as the mix of our customers, contracts and business;
fluctuations in economic, political and market conditions on a regional, national or global basis, including as a result of, among other things, global conflicts, political unrest, or inflationary pressure that impacts our costs associated with labor, equipment and materials;
pricing pressures as a result of competition;
changes in the budgetary spending patterns or strategic plans of customers or governmental entities;
supply chain and other logistical difficulties, as well as sourcing restrictions on materials necessary for the services we provide;
liabilities and costs incurred in our operations that are not covered by, or that are in excess of, our third-party insurance or indemnification rights, including significant liabilities that arise from the inherently hazardous conditions of our operations (e.g., explosions, fires) and the operations of our subcontractors, and which could be exacerbated by the geographies in which we operate;
disputes with customers or delays and payment risk relating to billing and payment under our contracts and change orders, including customers affected by the volatility of commodity prices or production 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;
restructuring, severance and other costs associated with, among other things, winding down certain operations and exiting markets;
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 our operations or growth internally or through acquisitions.
We may not realize the anticipated benefits and synergies from our acquisition of Blattner.
The success of our acquisition of Blattner will depend, in part, on our ability to realize the anticipated benefits from successfully integrating Blattner’s business. We plan on devoting substantial management attention and resources to integrating
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our and Blattner’s business practices and operations so that we can fully realize the anticipated benefits of the acquisition. Nonetheless, the business and assets acquired may not be successful, achieve the anticipated financial results or continue to grow at the same rate as when operated independently or may require greater resources and investments than originally anticipated. The acquisition of Blattner could also result in the assumption of unknown or contingent liabilities. Potential difficulties we may encounter in the integration process include the following:
the inability to successfully integrate Blattner’s business in a manner that permits us to achieve the strategic operational benefits, additional opportunities with customers, reputational benefits or cost savings anticipated to result from the acquisition, which would result in some anticipated benefits of the acquisition not being realized in the time frame currently anticipated, or at all;
the failure to integrate operations and internal systems, programs and controls;
the inability to successfully realize the anticipated value from some of Blattner’s assets;
lost revenues and lost or damaged commercial relationships with significant customers;
the complexities and difficulties associated with our decentralized management structure;
the additional complexities of integrating a business with a different customer base, markets, history, culture and strategy;
the failure to retain key employees of Blattner that may be difficult to replace;
the disruption of our ongoing businesses or inconsistencies in our services, standards, controls, procedures and policies;
potential unknown, unforeseen or greater than expected liabilities and expenses associated with the acquired business;
changes in estimates related to revenues and costs associated with Blattner’s ongoing contracts with customers; and
performance shortfalls as a result of the diversion of management’s attention caused by integrating Blattner’s operations.
We have also incurred, and expect to continue to incur, substantial expenses in connection with the acquisition of Blattner and integrating the business, operations, practices, policies and procedures of Blattner. While we assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our and Blattner’s control that could affect the total amount or the timing of their integration expenses. The overall expenses in connection with the acquisition are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present.
The effects of the COVID-19 pandemic and related economic repercussions have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will negatively impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. We have experienced some resulting disruptions to our business operations, and we expect the COVID-19 pandemic could continue to have a material adverse impact on our business and financial performance. Specifically, we have been negatively impacted by the COVID-19 pandemic as a result of the shelter-in-place restrictions and work disruptions in some of our service areas creating disruptions to portions of our operations, including (i) our Canadian operations and financial results during 2020 and 2021; (ii) our Australian operations and financial results during 2020 and 2021; (iii) our operations in certain major U.S. metropolitan markets that were meaningfully impacted by the pandemic during the first half of 2020; and (iv) our Latin American operations during 2020. During the course of the pandemic we have also experienced permitting and regulatory delays and certain restrictions on operations at industrial facilities, as well as reduced demand for refined products, which resulted in suspensions and delays related to our high-pressure and critical-path turnaround services to the downstream and midstream energy markets.
Additionally, governmental requirements related to COVID-19, as well as certain standards and guidance as to preventing the spread of COVID-19, have impacted and may continue to impact our business in the future. These include vaccination or testing standards and requirements issued by federal, state and local governmental entities that require employers to ensure their workforce is fully vaccinated or to require testing for unvaccinated workers. For example, Executive Order 14042 issued by President Biden requires federal contractors and subcontractors to mandate their employees be fully vaccinated against COVID-19. This executive order could apply to employees at certain of our operating companies if such companies or their customers are considered federal contractors and may result in employee attrition and difficulty securing future labor needs and could impair our ability to perform certain contractual services, retain such contracts and obtain new business, which could
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have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, many of our customers have established vaccination requirements that could apply to our employees performing work on their premises, or in proximity of their employees. The implementation of vaccination and testing requirements could have a material adverse effect on our business, financial condition, results of operations or cash flows in the event that, among other things, a significant portion of our workforce does not choose to become vaccinated, as such employees may not be able to perform work for certain customers that require vaccination. Moreover, the costs related to mandatory testing for unvaccinated employees are significant, and time away from work for testing is disruptive to our operations.
In addition to these current dynamics, the COVID-19 pandemic may create or exacerbate risks related to our operations and regulatory and compliance matters, including as a result of:
evolving governmental guidance or requirements, including travel and movement restrictions and vaccination and testing requirements, that could impact our ability to perform services or complete projects in accordance with required delivery schedules, which could result in additional costs or penalties (e.g., liquidated damages);
additional delays with respect to permitting and regulatory matters and additional project deferrals, delays, and cancellations and changes in customer spending patterns and strategic plans as a result of, among other things, prolonged decreases in energy demand, lack of available financing for our customers’ businesses or termination of, or force majeure events arising under, existing customer agreements;
potential illness that negatively impacts the availability or productivity of our key personnel or a significant number of employees or causes other disruptions to our business, corporate governance or financial reporting processes;
increased payment risk associated with customers experiencing financial difficulties (including bankruptcy) and an increase in disputes with customers relating to billing and payment under contracts and change orders;
potential liabilities and reputational harm related to occupational health and safety matters;
our inability to execute our business strategy, including with respect to certain capital investments such as acquisitions, investments and service offering expansions;
limitations on the ability of our suppliers, vendors and subcontractors to perform;
additional impairment charges related to goodwill, other intangible assets, other long-lived assets and investments;
additional costs associated with restructuring, severance and related matters or other increased employment-related costs (e.g., workers’ compensation insurance claims); and
an increase in cyber-attacks and attempted intrusions into our information technology systems as a result of, among other things, increased reliance on such systems.
The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic, the resulting governmental and other measures implemented to address the pandemic and the continued development and availability of effective treatments and vaccines, which are uncertain and cannot be predicted. As a result, the ultimate impact of the COVID-19 pandemic is difficult to predict, and the pandemic may continue to materially impact our business, financial condition, results of operations or cash flows.
A variety of issues could affect the timing or profitability of our 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, additional costs or project performance issues as a result of, among other things:
inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project, which can result in increased costs, through rework, replacement or otherwise, or the payment of liquidated damages to the customer or contract termination;
failure to accurately estimate project costs or accurately establish the scope of our services;
failure to make judgments in accordance with applicable professional standards (e.g., engineering standards);
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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;
changes in laws or permitting and regulatory requirements during the course of our work (e.g., challenge to nationwide permits issued by the U.S. Army Corps of Engineers);
delays in the delivery or management of design or engineering information, equipment or materials;
our or a customer’s failure to manage a project, including the inability to timely obtain permits or rights of way or meet other permitting, regulatory or environmental requirements or conditions;
schedule changes;
natural disasters or emergencies, including wildfires and earthquakes, as well as significant weather events (e.g., hurricanes, tropical storms, tornadoes, floods, droughts, blizzards and extreme temperatures) and adverse or unseasonable weather conditions (e.g., prolonged rainfall or snowfall, early thaw in Canada and the northern United States);
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 (e.g., recent federal appeals court ruling invalidating certain federal approvals for the Mountain Valley natural gas pipeline under construction from West Virginia to Virginia);
other factors such as terrorism, military action and public health crises (e.g., the COVID-19 pandemic);
changes in the cost or availability of equipment, commodities, materials or labor; and
delay or failure to perform by suppliers, subcontractors or other third parties, or our failure to coordinate performance of such parties, as approximately 20% of our work is subcontracted to other service providers.
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 associated with delays may be substantial and not recoverable from third parties, and in some cases, we may be required to compensate the customer for such delays, including in circumstances where we have guaranteed project completion or performance by a scheduled date and incur liquidated damages if we do not meet such schedule.
Furthermore, we generate a significant portion of our revenues under fixed price contracts, including contracts for projects where we provide engineering, procurement and construction (EPC) services (e.g., large transmission and pipeline projects, facility and terminal projects), and we have strategically expanded these service offerings in recent years, including with respect to renewable energy projects through our acquisition of Blattner. These contracts often involve complex pricing, scope of services and other bid preparation components that require challenging estimates and assumptions on the part of our personnel, which increases the risk that costs incurred on such projects can vary, sometimes substantially, from our original estimates.
To the extent our costs on a project exceed our revenues, we incur a loss. Additionally, performance difficulties can result in project cancellation by a customer and damage to our reputation or relationship with a customer, which can adversely affect our ability to secure new contracts. As a result, 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 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, the termination of a telecommunications project in Peru resulted in a $79.2 million charge to earnings in the second quarter of 2019.
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.
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In particular, we perform a significant amount of services, including operational, consulting and other services, for customers that operate electrical power, natural gas, communications and other 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 companies perform inspection, consulting, construction, repair and maintenance and other services for utilities and other customers that operate electric power, natural gas, communications and other infrastructure in California and other areas in the western United States, including inspection of, and construction, upgrade, repair and maintenance and other services relating to, the electrical power and natural gas transmission and distribution infrastructure operated by PG&E Corporation and its primary operating subsidiary, Pacific Gas and Electric Company (together, PG&E), Southern California Edison Company (SCE) and San Diego Gas and Electric Company, as well as their affiliates, and other utilities and customers in California and other western states. PG&E, SCE and certain other utility customers have been determined to be or are potentially responsible for catastrophic wildfire events that have occurred in recent years. In connection with certain of these events, some of Quanta’s operating companies have received document hold requests and subpoenas, and in connection with one of these events, as described further in Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, two of Quanta’s operating companies have received tenders of defense and demands for preservation of documents. Additionally, certain of these wildfire events remain under investigation and additional claims or legal proceedings involving Quanta and its operating companies related to these events may be brought 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. For example, one of our larger operating companies 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, and we assumed certain contingent liabilities related to a natural gas explosion in connection with our acquisition of this business in 2019, which are described further in Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Additionally, we operate a significant number of helicopters in the performance of our services, including the transportation of line workers, the setting of poles, the stringing of wires and wildfire control and prevention, among other activities, including in locations that have a higher risk of wildfires and in densely populated areas. Our operation of helicopters is subject to various risks, such as crashes, collisions, fires, adverse weather conditions or mechanical failures.
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 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 years after we complete our services, and potential claims and liabilities arising from significant accidents and events can take years and significant legal costs to resolve.
Potential liabilities include, among other things, claims associated with personal injury, including severe injury or loss of life, and destruction of or significant damage to property and equipment as well as harm to 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 liabilities and legal costs. In addition, if any of these events or losses related thereto are alleged or found to be the result of our or our customer’s activities or services, we could be subject to government enforcement actions, regulatory penalties, civil litigation and governmental actions, including investigations, citations, fines and suspension of operations. Insurance coverage may not be available to us or may be insufficient to cover the cost of any of these liabilities and legal costs, and our insurance costs may increase if we incur liabilities associated with operational hazards. 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.
As described further in Note 2 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, we maintain a significant amount of 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. Such insurance is subject to deductibles and limits and may be canceled or may not cover all of our losses. We also 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, and issue letters of credit to secure our obligations in connection with our casualty insurance programs. Our insurance policies include various coverage requirements, including notice requirements, 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, and there is no assurance that any of our 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. For example, due to the increased occurrence and future risk of wildfires in California and other areas in the western United States, Australia and other locations, insurers have reduced coverage availability and increased the cost of insurance coverage for such events in recent years. As a result, Quanta’s level of insurance coverage for wildfire events has decreased in recent years, and the current level of coverage may not be sufficient to cover potential losses in connection with these events. Furthermore, our third-party insurers could also decide to further reduce or exclude coverage for wildfires or other events in connection with future insurance renewals. 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 unreported incidents. 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 and operating results are subject to physical risks associated with climate change.
Changes in climate have caused, and are expected to continue to cause, among other things, increasing temperatures, rising sea levels and changes to patterns and intensity of wildfires, hurricanes, floods, other storms and severe weather-related events and natural disasters. These changes have and could continue to significantly impact our future operating results and may have a long-term impact on our business, results of operation, financial condition and cash flows. While we seek to mitigate our risks associated with climate change, we recognize that there are inherent climate-related risks regardless of how and where we conduct our operations. For example, a catastrophic natural disaster could negatively impact any of our projects or office locations and the locations and service regions of our customers. Accordingly, a natural disaster has the potential to disrupt our and our customers’ businesses and may cause us to experience work stoppages, project delays, financial losses and additional costs to resume operations, including increased insurance costs or loss of coverage, legal liability and reputational losses.
Physical risks associated with climate change have also increased hazards associated with certain of our operations, which in turn has increased the potential for liability and increased the costs associated with such operations. For example, as discussed above, severe drought and high wind speeds in the western United States, Australia and other locations have significantly increased the risk of wildfires, which in turn has exposed us and other contractors to increased risk of liability in connection with our operations in those locations, as these events can be started by failure of electrical power and other infrastructure on which we have performed services. Given the potentially significant liabilities associated with these events, to the extent we are deemed liable for a wildfire event, it could have a material adverse impact on our business, financial condition, results of operations and cash flows. Furthermore, these climate conditions have also resulted in increased costs for wildfire-related third-party insurance and reduced the amount insurance carriers are willing to make available to us under such policies.
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 demand for labor resources has continued to increase in response to the increasing duration and complexity of customer capital budgets, the commencement of new, large-scale infrastructure projects, increased demand for infrastructure improvements and reliability and increased pressure to reduce costs. The pool of skilled workers in certain of our industries has also been reduced, and may be further reduced, due primarily to an aging utility workforce and longer-term labor availability issues, including with respect to experienced program managers and qualified journeyman linemen available for our Electric Power Infrastructure Solutions segment and experienced supervisors and foremen for our Underground Utility and Infrastructure Solutions segment. The cyclical nature of certain of the industries in which we operate can also create shortages of qualified labor during periods of high demand and production, and the amount of travel required for project management-level positions can impact the number of potential candidates that decide to enter our industries. A shortage in the supply of personnel creates competitive hiring markets that may result in increased labor expenses, and we have incurred, and expect to continue to incur, significant
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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.
Additionally, the recent inflationary pressure in the United States has increased, and is expected to continue to increase, our labor costs. Under certain of our contracts, labor costs are passed through to customers, and the portion of our workforce that is represented by labor unions typically operates under multi-year collective bargaining agreements that provide some visibility into future labor costs. However, the costs related to a significant amount of our workforce are subject to market conditions, and therefore inflationary pressure could significantly increase our labor costs, which could in turn have a material adverse effect on our business, financial condition, results of operations or cash flows.
The loss of, or reduction in business from, certain significant 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 38% of our consolidated revenues for the year ended December 31, 2021. 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. A significant customer may also 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.
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 4 of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report. 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. For example, as of December 31, 2021, the amount recognized related to unapproved change orders and claims was $367.8 million and is discussed further in Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Actual amounts collected in connection with change orders and claims 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.
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.
During the ordinary course of our business, we are subject to lawsuits, claims and other legal proceedings, as well as bonding claims and related reimbursement requirements.
We have in the past been, and may in the future be, named as a defendant in lawsuits, claims and other legal proceedings
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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, as well as interest and attorneys’ fees associated with such claims. 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 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 or damages caused by accidents and events related to such systems, even if our services are not the cause of such failures and damages. 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.
In addition, many customers, particularly in connection with new construction, require us to post performance and payment bonds. These bonds provide a guarantee that we will perform under the terms of a contract and pay our subcontractors and vendors. If we fail to perform, the customer may demand that the surety make payments or provide services under the bond, and we must reimburse the surety for any expenses or outlays it incurs. For example, we were required to make material reimbursements to our sureties for bond-related costs in connection with the exercise of approximately $112 million of on-demand advance payment and performance bonds related to a terminated telecommunications project in Peru. As of December 31, 2021, the total amount of our outstanding performance bonds was estimated to be approximately $3.9 billion. To the extent reimbursements are required, the amounts could be material and could adversely affect our consolidated business, financial condition, results of operations or cash flows. For details on our existing litigation, claims and other legal proceedings, refer to Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
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. Our ability to generate internal growth will be affected by, among other factors, our ability to profitably scale the services we currently offer and expand our overall service offerings, attract new customers, increase the number of projects we perform for existing customers; hire and retain qualified employees and expand geographically within our current markets, as well as our ability to address regulatory, environmental and permitting requirements and economic or market conditions that affect us or our customers. Inability to successfully generate internal growth may adversely affect our financial condition, results of operations and cash flows.
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 our customers cancel or suspend contracts having significant value, we fail to renew or replace a significant number of our existing contracts when they expire or are completed or the anticipated volume of work under an existing master service agreement is not assigned to us.
The nature of our business exposes us to potential liability for warranty, engineering and other related claims.
We typically provide contractual warranties for our services and materials, guaranteeing the work performed against, among other things, defects in workmanship, and we may agree to indemnify our customers for losses related to our services. The length of these warranty periods varies 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 materials suppliers to provide us warranties that are consistent with those we provide customers, if any of these suppliers default on their warranty obligations to us, we may incur costs to
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repair or replace the defective materials. For example, as discussed in further detail in Legal Proceedings within Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, we are involved in litigation with respect to a claim of approximately $59 million in damages related to alleged warranty defects on a pipeline project.
Furthermore, our business involves professional judgments regarding the planning, design, development, construction, operations and management of electric power, renewable generation, communications, underground utility 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, warranty, engineering and other related 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 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 precautions designed to mitigate this risk, 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, revocation of operating licenses, 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 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.
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, and our reliance on those systems has increased as a result of remote working arrangements necessitated by the COVID-19 pandemic. 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, or systems of key third parties and information technology vendors that we rely upon, 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. For example, a cyber-attack on one of our vendors or vulnerabilities identified in proprietary or open-source code disclosed by vendors or federal agencies could potentially impact our systems. While to date we have not experienced any material impact as a result of cyber-attacks, the ultimate impact of these and similar events remains unknown, and additional vulnerabilities will arise in the future. Additionally, 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. While we have security measures and technology in place to protect our and our clients’ confidential or proprietary company information, there can be no assurance that our efforts will prevent all threats to our computer systems. 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, which could have a material adverse impact on our business, financial condition, results of operations and cash flows. Additionally, because the techniques used to obtain unauthorized access or sabotage information technology systems change frequently and are generally not identifiable until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As a result, we may be required to expend
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significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.
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.
Our brands and our reputation are among our most important assets, 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, or negative publicity related to, a high-profile project, including our joint venture in LUMA Energy, LLC (LUMA), which was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico;
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, 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 or customers lose confidence in us, our business, financial condition, results of operations, or cash flows could be adversely affected.
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, 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, and as a result actual results 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. For example, 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 recognize. 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. As described further in Note 7 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, we record goodwill when we acquire a business, and goodwill must be tested at least annually for impairment. Additionally, 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. 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 years ended December 31, 2021, 2020 and 2019, we recorded asset impairment charges that primarily related to certain investments and property and equipment, as described further in Notes 8 and 18 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
Our inability to successfully execute our acquisition strategy may have an adverse impact on our growth.
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 and stock issuances, the incurrence or assumption of debt and other known and unknown liabilities and expose us to burdensome regulatory requirements. For example, we incurred a
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significant amount of debt and issued a significant amount of our common stock in connection with our acquisition of Blattner, which is described further in Note 6 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Furthermore, we may discover previously unknown liabilities or, due to market conditions, be required pursuant to specific transaction terms to assume certain prior known liabilities associated with an acquired business, and we may have inadequate or no recourse under applicable indemnification provisions and due to the unavailability of representation and warranty insurance coverage at rates we believe to be reasonable and competitive. 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, cybersecurity, 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.
Additionally, we also generally require that key management and former principals of the businesses we acquire enter into non-competition agreements in our favor. Enforceability of these non-competition agreements varies by jurisdiction and typically is dependent upon specific facts and circumstances, making it difficult to predict their enforceability. Therefore, if a member of the key management of the businesses we acquire is terminated, we might be subject to increased competition if the restrictive covenants entered into by such person are not enforceable or have expired, which could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our decentralized management structure could negatively impact our business.
We cannot be certain that our management structure will be adequate to support our operations as they expand. Our decentralized structure places significant control and decision-making powers in the hands of the management of our operating companies. 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. For example, our ability to coordinate and utilize resources, including our fleet of vehicles, equipment and labor resources, depends on effective communications and processes among our operating companies. As a result, the ability to internally communicate, coordinate and execute business strategies, plans and tactics may be negatively impacted by our increasing size and complexity. Our decentralized organization can also result in our operating companies assuming excessive risk without appropriate guidance from our centralized legal, accounting, safety, tax, treasury, insurance and other 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, or our inability to attract, key personnel could disrupt our business.
We depend on the continued efforts of our executive officers, senior corporate management and management of our operating companies, which includes leadership and key personnel of the businesses we acquire. 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
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time. We also depend on our ability to attract key operational and professional personnel as we grow our business and in order to establish and maintain an effective succession planning process. A shortage of these employees for various reasons, including intense competition for skilled employees, labor shortages, increased labor costs and the preference of some candidates to work remotely, could jeopardize our ability to successfully manage our decentralized operations or our ability to grow and expand our business. As a result, the loss of key personnel, as well as our inability to attract, develop and retain qualified employees that can succeed these key personnel, could negatively impact our ability to manage our business.
Our investments, including our joint ventures, 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, joint ventures and other investment arrangements with various partners, including customers and infrastructure investors, through which we have invested in infrastructure assets and businesses, and we expect this activity to continue in the future. For additional information on our investment activity, including our joint venture in LUMA, see Note 8 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. These types of investments expose us to increased risks, including poor performance by the infrastructure projects or businesses 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), changes to the supply or demand and fluctuations in the price of commodities, or fluctuations in the market price of the equity securities we hold in a company. 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. Furthermore, our investments are often illiquid, as they are typically investments in private companies and/or subject to contractual restrictions that impose restrictions or lock-up periods affecting our ability to sell our interest, and as a result, we may not be able to exit an investment that is performing poorly, declining in value or resulting in reputational harm. Poor or incomplete performance of our investments or an investment fund in which we participate could also 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. 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 as a result of the structure of our investment arrangements. For example, in these structures, Quanta can be the contractor for construction of a project as well as an equity investor in an entity that owns, manages or operates the project or possibly the manager of investments in the 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 certain of these conflicts of interest are governed by applicable laws and regulations and we have also taken certain actions that we believe minimize or address anticipated conflicts of interest, including through internal management practices and the terms of agreements governing the investment arrangement, failure to properly manage such conflicts of interest, or even the appearance of a potential conflict 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.
Additionally, the purpose of our joint ventures is typically to combine skills and resources to allow for the bidding and performance of particular projects, and the 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. We and our joint venture partners are also generally jointly and severally liable for all liabilities and obligations of a joint venture. 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. As a result, 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 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 primarily include utilities, renewable energy developers, communications providers, industrial companies and energy delivery companies located primarily in the United States, Canada and Australia. 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
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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 amounts owed, or retain amounts paid to us, our cash flows are reduced, and we could experience losses. For example, as described further in Note 4 and Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, during 2020 and 2021 certain customers within our Underground Utility and Infrastructure Solutions segment encountered financial and operational difficulties that resulted in the delayed payment or nonpayment of a material amount of receivables owed. 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, thereby increasing the risk of loss in those circumstances. 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 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 and Australia, we also perform work in other foreign countries and U.S. territories. For the year ended December 31, 2021, we derived $1.91 billion, or 14.7%, of our consolidated revenues from foreign operations, the substantial majority of which was related to Canada and Australia. Changes in economic conditions, including those resulting from wars and other conflicts, civil unrest, public health crises, such as the COVID-19 pandemic, 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 are subject to fluctuating foreign currency exchange rates and 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. During the year ended December 31, 2021, foreign revenues increased by approximately $114 million as compared to the year ended December 31, 2020 as a result of more favorable foreign currency exchange rates, primarily the U.S. dollar as compared to 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.
There are numerous other risks associated with operating in international markets and U.S. territories, including, but not limited to, changes in applicable regulatory requirements; political, economic and social instability; expropriation or nationalization of our assets and operations; unfamiliar legal systems or business and labor 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 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, 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 or liabilities 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 and liabilities associated with winding down or exiting an existing market. For example, we incurred operating losses of $74.0 million, including asset impairment charges of $7.0 million, during 2020 in connection with the exit of our Latin American operations. These risks could restrict our ability to provide services to these customers, operate our business in these locations profitably or fund our strategic objectives, which could negatively impact our overall business, financial condition, results of operations and cash flows.
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 necessary materials and subcontractors to perform portions of our services, and our customers rely on suppliers for materials necessary for the construction, upgrade and repair and maintenance of their infrastructure. We also rely on equipment manufacturers to provide us with the equipment required to conduct our operations, including a significant number of specialty vehicles. Limitations on the availability of suppliers, subcontractors or equipment manufacturers could negatively impact our or our customers’ 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, customers in certain states and Canada, in order to receive certain funding or for other reasons, may expect or compel us to engage a specified percentage of suppliers or subcontractors that meet diversity-ownership requirements, which can further limit our pool of available suppliers and limit our ability to secure contracts, maintain our services or grow in those areas. Availability of suppliers and manufacturers may also be limited by U.S. trade and other foreign policies that restrict business relationships with certain suppliers and manufacturers. For example, some participants in the renewable energy market, including potentially some of our customers, could experience delays and shortages of, and increased costs for, materials necessary for certain renewable energy projects in the near term as a result of sourcing restrictions related to solar panels manufactured in China.
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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. As a result, regulatory or other requirements that require us to outsource a percentage of services to subcontractors, whether they are businesses meeting diversity-ownership requirements or otherwise, also limit our ability to self-perform our services, thereby potentially increasing performance risk associated with our services. Furthermore, services subcontracted to other service providers generally yield lower margins, and therefore these regulatory requirements can impact our profitability and results of operations.
A lack of availability or an increase in the price of fuel, materials or equipment necessary for our business or our customers projects could adversely affect our business.
Pursuant to certain contracts, including fixed price and EPC contracts where we have assumed responsibility for procuring materials for a project, we are exposed to availability issues and price increases for materials that are utilized in connection with our operations, including, among other things, copper, steel and aluminum. In addition, the timing of our customers’ ongoing projects, as well as their capital budgets and decision-making with respect to the timing of the future projects, can be negatively impacted by a lack of availability or an increase in prices of certain materials. Prices and availability could be materially impacted by, among other things, supply chain and other logistical challenges, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and geopolitical conditions (e.g., inflation). For example, recent logistical challenges in connection with the COVID-19 pandemic and sourcing restrictions have resulted in uncertainty concerning availability and pricing of certain commodities and goods important to our and our customers’ businesses, including renewable energy project components (e.g., solar panels and wind turbine blades). The lack of availability of necessary materials could result in project delays, some of which could be attributable to us, and an increase in prices of materials could reduce our profitability on projects or negatively impact our customers, which could have an adverse effect on demand for our services or our business, financial condition, results of operations and cash flows.
Additionally, supply chain and other logistical challenges have negatively impacted suppliers of certain equipment necessary for the performance of our business, including, among other things, new vehicles for our fleet (both on-road and specialty vehicles) and vehicle parts (e.g., tires). Based on the significant worldwide shortage of semiconductors, as well as other factors, vehicle manufacturers are experiencing production delays with respect to vehicles we utilize in our operations, and certain of our vehicle delivery orders scheduled for delivery in 2022 have been delayed or cancelled. To the extent these production issues worsen or become longer-term in nature, our operations could be negatively impacted.
We are also exposed to increases in energy prices, particularly fuel prices for our large fleet of vehicles, which have increased during the COVID-19 pandemic and could increase further due to future regulatory, legislative and policy changes that result from, among other things, climate change initiatives. Furthermore, some of our fixed price contracts do not allow us to adjust our prices and, as a result, increases in fuel costs could reduce our profitability with respect to such projects. Our ability to utilize certain existing vehicles within our fleet may also be limited by new emissions or other regulations, and, due to lack of production or availability, we may not be able to procure a sufficient number of vehicles meeting any such regulations. To the extent we are unable to utilize a significant portion of our existing fleet, we may be unable to perform services, which could have an adverse effect on our future financial condition, results of operations and cash flows. The broader and longer-term implications of these challenges, as a result of the COVID-19 pandemic, the transition to a carbon-neutral economy and otherwise, remains highly uncertain and variable and could negatively impact our overall business, financial condition, results of operations and cash flows.
Increasing scrutiny and changing expectations from investors and customers with respect to corporate sustainability practices may impose additional costs on us or expose us to reputational or other risks.
Investors and other interested constituencies have focused increasingly on the environmental, social and governance (ESG) practices of companies, including practices with respect to human capital resources, emissions and environmental impact and political spending. 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 in order to 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 reputational harm to our business and could have a material adverse effect on us. In addition, organizations that provide ratings information to investors on ESG matters may assign unfavorable ratings to Quanta or our industries, which 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.
Moreover, while we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may not be representative
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of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters.
Risks Related to Our Industries
Negative macroeconomic conditions and industry-specific economic and market conditions can adversely impact our business.
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. Macroeconomic conditions, including inflation, slow growth or recession, changes to fiscal and monetary policy, and tighter credit and higher interest rates could materially adversely affect demand for our services and the availability and cost of the materials and equipment that we need to deliver our services or our customers need for their projects. During periods of elevated economic uncertainty, our customers may reduce or eliminate their spending on the services we provide. In addition, volatility in the debt or equity markets may impact our customers’ access to capital and result in the reduction or elimination of spending on the services we provide. Our vendors, suppliers and subcontractors may also be, to varying degrees, adversely affected by these conditions. These conditions, which can develop rapidly, could adversely affect our revenues, results of operations, and liquidity.
A number of factors can also adversely affect the industries we serve, including, among other things, the economic impact and supply chain and other logistical issues associated with the COVID-19 pandemic, financing conditions, potential bankruptcies and global and U.S. trade relationships and other geopolitical events, such as the conflicts between Ukraine and Russia. 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.
Services within our Underground Utility and Infrastructure Solutions segment are exposed to risks associated with the oil and gas industry. These risks, which are not subject to our control, include the volatility of commodity prices and production volumes, 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 or 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. For example, the COVID-19 pandemic and corresponding preventative measures taken around the world resulted in downward pressure on commodity prices, which negatively impacted certain services within our Underground Utility and Infrastructure Solutions segment and resulted in impairment losses of $8.7 million related to certain non-integral equity method investments during the year ended December 31, 2020. Additionally, demand for our industrial services operations declined during 2020 and 2021 as customers reduced and deferred regularly scheduled maintenance due to lack of demand for refined products and economic uncertainty as a result of the COVID-19 pandemic. Furthermore, future restrictions imposed on oil and gas production activities, including as a result of concerns about the impact of climate change, could have a material adverse effect on the oil and gas industry as a whole. Certain of our operations within our Underground Utility and Infrastructure Solutions segment could also result in reputational risks, such as how our values and practices regarding a low carbon transition are viewed by external and internal stakeholders, which could have a material adverse impact on our business, results of operations, financial condition and cash flows. If the profitability of our Underground Utility and Infrastructure Solutions segment were to decline, our overall financial position, results of operations and cash flows could also be adversely affected. A decline in prices, production or the development of resource plays can also negatively impact demand for certain electric power infrastructure services performed in energy-reliant markets, including Canada and Australia.
Our revenues and profitability can be negatively impacted 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 fail 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, as discussed in further detail in Note 4 and in Legal Proceedings within Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, we have filed certain international arbitration proceedings against the customer in connection with the terminated telecommunications project in Peru, which seeks to recover,
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among other things, amounts related to a net receivable position of approximately $120 million as of December 31, 2021. A failure to 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, as described further in Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, during 2020 and 2021 certain customers within our Underground Utility and Infrastructure Solutions segment encountered financial and operational difficulties that resulted in the delayed payment or nonpayment of a material amount of receivables owed. Additionally, 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, delaying our collection of approximately $165 million of our pre-petition receivables, which were ultimately collected or sold to a third party during the second half of 2019 and 2020. Furthermore, 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 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 highly competitive, and competitive pressures could negatively affect our business.
We cannot be certain that we will maintain or enhance our competitive position or maintain our current customer base. 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, and may have or develop expertise, experience and resources to provide services that are superior in both price and quality to our services. Certain of our competitors may also 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 increasing amount of the services we currently perform for them, thereby reducing the services they outsource to us in the future. We also subcontract approximately 20% of our services, including pursuant to customer and regulatory requirements, and certain of these subcontractors may develop into a competitor to us on prime contracts with our customers.
Furthermore, a substantial portion of our revenues is directly or indirectly dependent upon obtaining new contracts, which is unpredictable and often involves complex and lengthy negotiations and bidding processes that are impacted by a wide variety of factors, including, among other things, price, governmental approvals, financing contingencies, commodity prices, environmental conditions, overall market and economic conditions, and a potential customer’s perception of our ability to perform the work or the technological advantages held by our competitors. 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 recently experienced, and may in the future experience, more competitive pricing for smaller scale projects. 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.
Technological advancements and other market developments could negatively affect our business.
Technological advancements, market developments and other factors may increase our costs or alter our customers’ existing operating models or the services they require, which could result in reduced demand for our services. For example, a reduction in demand for hydrocarbons or plastics or an increase in demand for renewable energy sources or otherwise could negatively impact certain of our customers and reduce demand for certain of our services. Additionally, a transition to a decentralized electric power grid, which relies on more dispersed and smaller-scale renewable energy sources, could reduce the need for large infrastructure projects and significant maintenance and rehabilitation programs, thereby reducing demand for, or profitability of, our services. Our future success will depend, in part, on our ability to anticipate and adapt to these and other potential changes in a cost-effective manner and to offer services that meet customer demands and evolving industry standards. If we fail to do so 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.
Furthermore, we view our portfolio of energized services tools and techniques, as well as our other process and design technologies, as competitive strengths, which we believe differentiate our service offerings. If our intellectual property rights or
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work processes become obsolete, through technological advancements or otherwise, 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.
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, customers in our industries have faced heightened regulatory requirements and increased regulatory enforcement, as well as private legal challenges related to regulatory requirements, which have resulted in delays, reductions in scope and cancellations of projects. For example, a recent legal challenge that resulted in changes to certain U.S. Army Corps of Engineers nationwide permits related to the Clean Water Act impacted certain projects and resulted in increased costs and project interruptions and delays. Additionally, a recent federal appeals court ruling invalidated certain federal approvals for a large natural gas pipeline project from West Virginia to Virginia that we were constructing for a customer. 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.
With respect to certain services in our Underground Utility and Infrastructure Solutions segment, concerns about climate-related issues could potentially result in new legislation, regulation, regulatory actions or other requirements at the local, state or federal level, which could negatively affect certain of our customers and decrease demand for their services, result in increased costs associated with our operations, or impact the prices we charge our customers. Any new 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 certain of our services. New regulations addressing greenhouse gas emissions from mobile sources could also significantly increase costs for our large fleet of vehicles, render portions of our fleet of vehicles obsolete or reduce the availability of vehicles we need to perform our services. In addition, if a portion of our operations are perceived to result in high greenhouse gas emissions, our reputation could suffer. 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.
Additionally, with respect to certain services within our Renewable Energy Infrastructure Solutions segment, current and potential legislative or regulatory initiatives may not be implemented or extended or result in incremental increased demand for our services, including legislation or regulation that mandates percentages of power to be generated from renewable sources, requires utilities to meet reliability standards, provides for existing or new production tax credits for renewable energy developers, or encourages 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. In addition, new legislation and regulatory requirements related to sourcing restrictions on materials necessary for certain renewable energy projects could negatively impact our renewable energy customers and delay or jeopardize the viability of certain renewable energy projects in the future. For example, sourcing restrictions on certain solar project materials produced in China (e.g., solar panels) could decrease the availability and increase the pricing of such materials, and negatively impact our customers and certain solar infrastructure projects in the near term, which could adversely affect our business, financial condition, results of operations and growth prospects.
Our unionized workforce and related obligations may adversely affect our operations.
As of December 31, 2021, approximately 35% of our employees were covered by collective bargaining agreements and the number of our employees covered by collective bargaining agreements could increase in the future for a variety of reasons, including acquisitions, unionization of a non-union operating company, project requirements and changes in law. 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 strikes or work stoppages could occur in the future. Our ability to complete future acquisitions also could be adversely affected because of our operating companies’ 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 our operating companies that have employees covered by collective bargaining obligations. 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
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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 a projected minimum funding deficiency). Plans in these classifications must adopt remedial measures, 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 have these funding statuses, 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. For additional information on our contributions to, and the funding status of, these plans, see Note 15 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
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 certain opportunities in countries 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, which 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 can be expensive and consume significant time and attention of our senior management, in-country management, and other personnel.
Changes in tax laws could adversely affect our financial results.
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, all of 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. Since future changes to federal and state tax legislation and regulations are unknown, we cannot predict the ultimate impact such changes may have on our business. 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 any parties providing the incorrect information. We also 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. Additionally, we own and lease facilities that contain above- and below-ground fuel storage tanks, which could leak and cause us to 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 or the stricter enforcement of existing laws and regulations, as well as 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
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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 various corporate governance and financial reporting requirements, 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 control over financial reporting was effective as of December 31, 2021; however, there can be no assurance that our internal control over financial reporting will be determined to be effective in future years. Furthermore, the current assessment of our internal control over financial reporting excludes businesses acquired during the year ended December 31, 2021, including our acquisition of Blattner, and significant costs and effort are required to ensure that newly acquired businesses are operating effectively. Failure to maintain effective internal controls, including the identification and remediation of 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.
Additionally, 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), which imposes 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.
Furthermore, our wholly-owned captive insurance company is a registered insurance company 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. Our postsecondary educational institution is subject to authorization and regulatory oversight in the various states in which it operates, and failure to comply with these requirements could result in significant monetary damages or subject these entities to fines, limitations on operations, injunctions or other penalties. The postsecondary educational institution is also accredited by the Accrediting Commission of Career Schools and Colleges, and 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 also collect and retain information about our customers, stockholders, vendors and employees. Legislation and regulatory requirements, as well as contractual commitments, affect how we must store, use, transfer and process the confidential information of our customers, stockholders, vendors and employees. 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 and 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
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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.
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 or delays that prevent the future transfer of our foreign employees to the United States, we may incur additional costs to hire and train new employees. For example, as a result of the COVID-19 pandemic, we have experienced delays and restrictions due to immigration processes that have prevented certain foreign workers from entering and working in the United States and Canada. 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.
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. For example, during 2021 we incurred approximately $2.30 billion of debt to complete our acquisition of Blattner. 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 credit facility and the indenture for our senior notes contain certain restrictions, including financial covenants and other restrictions on our ability to borrow amounts under the credit 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 credit facility is also dependent upon additional commitments from our lenders. Furthermore, if we 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 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. If we are unable to borrow under our senior 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, which could have a material adverse impact on our business, financial condition, results of operations and cash flows. For additional information on the terms of our senior credit facility and senior notes, please read Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
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.
We have a significant amount of debt, and our significant indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under our other debt.
We have a significant amount of debt and debt service requirements. As of December 31, 2021, we had approximately $3.72 billion of outstanding long-term debt, net of current maturities, which includes amounts borrowed during 2021 to finance a portion of the closing consideration paid in connection with our acquisition of Blattner. We also had $1.87 billion of undrawn borrowing capacity under our senior credit facility as of December 31, 2021. This level of debt could have significant consequences on our future operations, including:
• making it more difficult for us to meet our payment and other obligations under our outstanding debt;
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• resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in all of our debt becoming immediately due and payable;
• reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments, dividends and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
• subjecting us to the risk of increasing interest expense on variable rate indebtedness, including borrowings under our senior credit facility;
• limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to changes in our business, the industries in which we operate and the general economy;
• limiting our ability to pursue business opportunities that become available to us; and
• placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations on our existing indebtedness.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our operations to pay our indebtedness.
Our ability to generate cash in order to make scheduled payments on the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, legislative, regulatory and other factors beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our senior credit facility and our other financing and other agreements we may enter into in the future. Specifically, we will need to maintain certain financial ratios. Our business may not continue to generate sufficient cash flow from operations in the future and future borrowings may not be available to us under our senior credit facility or from other sources in an amount sufficient to service our indebtedness to make necessary capital expenditures or to fund our other liquidity needs. If we are unable to generate cash from our operations or through borrowings, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to make payments on our indebtedness or refinance our indebtedness will depend on factors including the state of the capital markets and our financial condition at such time, as well as the terms of our financing agreements. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Our variable rate indebtedness subjects us to interest rate risk and the transition away from LIBOR could have an adverse impact on us.
Borrowings under our senior 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, 2021 was 1.9%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $6.0 million based on our December 31, 2021 balance of variable rate debt. Additionally, financial markets are in the process of transitioning away from the London Interbank Offered Rate (LIBOR) to alternative benchmark rate(s), and such transition is scheduled to be complete by mid-2023. As described in further detail in Senior Credit Facility within Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, the credit agreement for our senior credit facility contains LIBOR benchmark replacement provisions. However, at this time, there can be no assurance as to whether any alternative benchmark or resulting interest rates may be more or less favorable than LIBOR or any other unforeseen impacts of the discontinuation of LIBOR. As a result, the proposals or consequences related to this transition could have a material adverse effect on our debt service obligations, financing costs, liquidity, financial condition, results of operations or cash flows and could impair our access to the capital markets.
We may be unable to compete for 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
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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.
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.
A downgrade in our debt rating could restrict our ability to access the capital markets.
The terms of our financings are, in part, dependent on the credit ratings assigned to our debt by independent credit rating agencies. We cannot provide assurance that our current credit rating will remain in effect for any given period of time or that it will not be lowered or withdrawn entirely by a rating agency. Factors that may impact our credit rating include, among other things, our debt levels and liquidity, capital structure, financial performance, planned asset purchases or sales, near- and long-term growth opportunities, customer base and market position, geographic diversity, regulatory environment, project performance and risk profile. A downgrade in our credit rating, particularly to non-investment grade levels, could limit our ability to access the debt capital markets or refinance our existing debt or cause us to refinance or issue debt with less favorable terms and conditions. An increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing, as well as have a material adverse effect on our business, financial condition, results of operations and cash flows.
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 142,633,934 shares were outstanding as of December 31, 2021. 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.
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.
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ITEM 1B.Unresolved Staff Comments
None.

ITEM 2.Properties
Facilities
We lease office space for our corporate headquarters in Houston, Texas, and own and lease other facilities throughout the United States, Canada, Australia and certain other foreign countries where we conduct business. These facilities are utilized for operations in all of our reportable segments and include offices, equipment yards, warehouses, storage, maintenance shops and training and educational facilities. As of December 31, 2021, we owned 76 of our facilities and leased the remainder. Included in the owned facilities is certain real property, including associated buildings and facilities, located in Houston, Texas, that we purchased through our wholly-owned captive insurance company during 2021 and that is being developed for our future corporate headquarters, as further described in Note 8 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. We believe that our existing facilities are suitable and adequate for our current needs; however, we continue to evaluate real estate strategies to support our recent growth.
Equipment
We operate a fleet of owned and leased trucks and trailers, support vehicles and specialty construction equipment, such as bucket trucks, digger derricks, backhoes, excavators, trenchers, generators, boring machines, cranes, robotic arms, wire pullers, tensioners and helicopters. As of December 31, 2021, the total size of our rolling stock fleet was approximately 70,000 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 is suitable 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 damage, environmental liabilities, wage and hour claims and other employment-related damages, punitive damages, consequential damages, civil penalties or other losses, or injunctive or declaratory relief, as well as interest and attorneys’ fees associated with such claims. 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 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report, which is incorporated by reference in this Item 3, for additional information regarding litigation, claims and other legal proceedings.

ITEM 4.Mine Safety Disclosures
Not applicable.

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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 22, 2022, there were approximately 517 holders of record of our common stock. This number does not include stockholders for whom shares of our common stock are held in “nominee” or “street name.” See Note 13 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional discussion of our equity securities.
Unregistered Sales of Securities During the Fourth Quarter of 2021
On October 13, 2021, we completed the acquisition of Blattner. A portion of the consideration for the acquisition consisted of 3,326,955 shares of our common stock, valued at $345.4 million as of the acquisition date. Additionally, on October 1, 2021, December 1, 2021, December 17, 2021 and December 21, 2021, we completed acquisitions in which a portion of the consideration consisted of the unregistered issuance of shares of our common stock. The aggregate consideration paid at closing in these acquisitions included 154,271 shares of our common stock, valued at $14.4 million as of the acquisition dates.
For additional information about these acquisitions, see Note 6 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. 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 businesses acquired in a privately negotiated transaction not involving any public offering or solicitation.
Issuer Purchases of Equity Securities During the Fourth Quarter of 2021
The following table contains information about our purchases of equity securities during the three months ended December 31, 2021.
PeriodTotal Number of Shares Purchased Average Price Paid per ShareTotal 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, 2021
Open Market Stock Repurchases (1)
— $— — $472,819,735 
Tax Withholdings (2)
7,767 $116.98 — 
November 1 - 30, 2021
Open Market Stock Repurchases (1)
— $— — $472,819,735 
Tax Withholdings (2)
5,999 $117.89 — 
December 1 - 31, 2021
Open Market Stock Repurchases (1)
— $— — $472,819,735 
Tax Withholdings (2)
3,443 $115.08 — 
Total17,209 — $472,819,735 
_______________
(1)On August 6, 2020, 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, 2023, 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. The 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 unit awards or the settlement of previously vested but deferred restricted stock unit and performance stock unit awards.
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Dividends
We have declared a quarterly dividend during each quarter beginning in the fourth quarter of 2018, and we currently expect that comparable cash dividends will continue to be paid for the foreseeable future. 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 Notes 10 and 13 in Item 8. Financial Statements and Supplementary Data of this Annual Report, the credit agreement for our senior credit facility 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, 2016 to December 31, 2021, 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 Mid-Cap 400) and a peer group selected by our management that includes public companies within our industries. The companies in the peer group were selected to represent a broad group of publicly held corporations with operations similar to ours, and 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 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 and the peer group on December 31, 2016 and tracks their relative performance through December 31, 2021. The returns of each company in the peer group is weighted based on the market capitalization of that company at the
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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 and the Peer Group

pwr-20211231_g2.jpg
December 31,
201620172018201920202021
Quanta Services, Inc. $100.00 $112.22 $86.48 $117.48 $208.81 $333.05 
S&P 500$100.00 $121.83 $116.49 $153.17 $181.35 $233.41 
S&P MidCap 400$100.00 $116.24 $103.36 $130.44 $148.26 $184.96 
Peer Group$100.00 $113.46 $84.16 $116.31 $133.60 $186.09 


ITEM 6.[Reserved]
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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 of Quanta Services, Inc. (together with its subsidiaries, Quanta, we, us or our) should be read in conjunction with our consolidated financial statements and related notes in Item 8. Financial Statements and Supplementary Data of this Annual Report. 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 Cautionary Statement About Forward-Looking Statements and Information above and Item 1A. Risk Factors of this Annual Report.
Overview
We are a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the utility, renewable energy, communications, pipeline and energy 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 design, engineering, procurement, new construction, upgrade and repair and maintenance services for infrastructure within each of the industries we serve, such as electric power transmission and distribution networks; substation facilities; wind and solar energy generation and transmission and battery storage facilities; communications and cable multi-system operator networks; gas utility systems; pipeline transmission systems and facilities; and downstream industrial facilities. 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 new construction contracts.
Beginning with the three months ended December 31, 2021, we report our results under three reportable segments: (1) Electric Power Infrastructure Solutions, (2) Renewable Energy Infrastructure Solutions and (3) Underground Utility and Infrastructure Solutions, as further described in Item 1. Business – Reportable Segments of this Annual Report. This structure is generally focused on broad end-user markets for our services. Included within the Electric Power Infrastructure Solutions segment are the results related to our communications infrastructure services.
Current Year Financial Results and Significant Operational Trends and Events
Key consolidated financial results for the year ended December 31, 2021 included:
Revenues increased 15.9%, or $1.78 billion, to $12.98 billion as compared to revenues of $11.20 billion for the year ended December 31, 2020;
Operating income increased 8.5%, or $52.2 million, to $663.5 million as compared to $611.4 million for the year ended December 31, 2020;
Net income attributable to common stock increased 9.1%, or $40.4 million, to $486.0 million as compared to $445.6 million for the year ended December 31, 2020;
Diluted earnings per share increased 8.8%, or $0.27, to $3.34 as compared to $3.07 for the year ended December 31, 2020;
EBITDA (a non-GAAP financial measure) increased 22.0%, or $200.5 million, to $1.11 billion as compared to $912.7 million for the year ended December 31, 2020, and adjusted EBITDA (a non-GAAP financial measure) increased 19.9%, or $209.3 million, to $1.26 billion as compared to $1.05 billion for the year ended December 31, 2020;
Net cash provided by operating activities decreased 47.8%, or $533.6 million, to $582.4 million as compared to net cash provided by operating activities of $1.12 billion for the year ended December 31, 2020;
Remaining performance obligations increased 47.9%, or $1.91 billion, to $5.90 billion as of December 31, 2021 as compared to $3.99 billion as of December 31, 2020; and
Total backlog (a non-GAAP financial measure) increased 27.4%, or $4.14 billion, to $19.27 billion as of December 31, 2021 as compared to $15.13 billion as of December 31, 2020.
For a reconciliation of EBITDA and adjusted EBITDA to net income attributable to common stock, the most comparable GAAP financial measure, and a reconciliation of backlog to remaining performance obligations, the most comparable GAAP financial measure, see Non-GAAP Financial Measures below.
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As described below, during the year ended December 31, 2021, our results reflected certain significant operational trends and events as compared to the year ended December 31, 2020, with certain of our segment results of operations recast to conform to our current segment reporting structure.
Electric Power Infrastructure Solutions Segment
Revenues increased by 17.9% to $7.62 billion, as compared to $6.47 billion.
Operating income increased by 33.5% to $865.4 million, as compared to $648.4 million, and operating income as a percentage of revenues increased to 11.4%, as compared to 10.0%.
Revenues increased primarily due to growth in spending by our utility customers on grid modernization, resulting in increased demand for our electric power services, as well as approximately $245 million of revenues attributable to acquired businesses and a $90 million positive impact related to more favorable foreign currency exchange rates, primarily the Canadian dollar and U.S. dollar exchange rate.
Operating income increased primarily due to higher revenues. The increase in operating income as a percentage of revenues was primarily attributable to improved performance across the segment, higher levels of fixed cost absorption, and favorable contributions associated with the timing of projects and project mix. Also positively impacting operating income was $44.1 million of equity in earnings in LUMA and other integral affiliates, which represented a $32.8 million increase from the year ended December 31, 2020. Additionally, although we had substantially completed our exit from Latin America as of December 31, 2020, Electric Power Infrastructure Solutions operating income for the year ended December 31, 2020 included $74.0 million of operating losses related to Latin American operations. Partially offsetting the positive impact of these items were losses associated with certain communications projects during the year ended December 31, 2021 due to various production issues, poor subcontractor performance, challenging site conditions, permitting delays, increased completion costs and weather and seasonal impacts.
Renewable Energy Infrastructure Solutions Segment
Revenues increased by 39.9% to $1.83 billion, as compared to $1.31 billion.
Operating income increased by 2.2% to $181.9 million, as compared to $177.9 million, and operating income as a percentage of revenues decreased to 10.0%, as compared to 13.6%.
Revenues increased primarily due to a $450 million increase in revenues attributable to acquired businesses, primarily Blattner, the results of operations of which are included since the acquisition date of October 13, 2021.
The increase in operating income was primarily due to higher revenues associated with the acquisition of Blattner. Blattner’s results as a percentage of operating income were largely in line with results associated with the transmission and interconnection construction related to the renewable energy infrastructure. The decrease in operating income as a percentage of revenues for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the favorable close-out of certain projects in 2020.
Underground Utility and Infrastructure Solutions Segment
Revenues increased by 3.0% to $3.53 billion, as compared to $3.43 billion.
Operating income decreased by 11.7% to $150.1 million, as compared to $170.1 million, and operating income as a percentage of revenues decreased to 4.3%, as compared to 5.0%.
Revenues increased primarily due to higher demand for our services from our gas utility and industrial customers; $25 million related to more favorable foreign currency exchange rates, primarily the Canadian dollar and U.S. dollar exchange rate; and approximately $20 million of revenues attributable to acquired businesses.
Operating income and operating income as a percentage of revenues decreased primarily due to the recognition of $31.7 million of provision for credit losses related to receivables owed from a customer that declared bankruptcy in July 2021, and its affiliate, which is described further in Accounts Receivable and Allowance for Credit Losses
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within Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
See Business Environment, Results of Operations and Liquidity and Capital Resources below for additional information and discussion related to consolidated and segment results.
Recent Significant Acquisition and Related Debt Financing
On October 13, 2021, we completed the acquisition of Blattner, a large and leading utility-scale renewable energy infrastructure solutions provider that is located in and primarily operates in North America. Consideration for this acquisition was $2.37 billion paid or payable in cash (subject to certain adjustments) and 3,326,955 shares of Quanta common stock, which had a fair value of $345.4 million as of the date of the acquisition. The final amount of consideration for the acquisition remains subject to certain post-closing adjustments, including with respect to net working capital (inclusive of cash) and certain assumed liabilities. Additionally, the former owners of Blattner are eligible to receive the potential payment of up to $300.0 million of contingent consideration, payable to the extent the acquired business achieves certain financial performance targets over a three-year period beginning in January 2022. Based on the estimated fair value of the contingent consideration, we recorded a $125.6 million liability as of the date of the acquisition. Blattner’s results of operations have been included in our consolidated financial statements since the acquisition date, with its results included in the Renewable Energy Infrastructure Solutions segment.
Additionally, we entered into certain debt financing arrangements in connection with our acquisition of Blattner. On September 23, 2021, we received net proceeds from the issuance of senior notes of $1.48 billion, net of the original issue discount and underwriting discounts and deferred financing costs, and on October 13, 2021, we borrowed $750.0 million from a term loan facility under our senior credit facility. We utilized these proceeds, together with approximately $50.9 million of revolving loans borrowed under our senior credit facility, to pay the cash consideration due at closing for the acquisition of Blattner.
Business Environment
We believe there are long-term growth opportunities across our industries, and we continue to have a positive long-term outlook. Although not without risks and challenges, including those discussed in Item 1A. Risk Factors of this Annual Report, 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 Solutions. Utilities are continuing to invest 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. While the COVID-19 pandemic resulted in a short-term overall decline in electricity usage in 2020, primarily related to commercial and industrial users, demand recovered and continued to increase in 2021, and 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. Furthermore, to the extent that electrification trends increase, including through, among other things, electric vehicle (EV) adoption, demand for electricity could be greater than currently anticipated. To accommodate this growth, we expect continued demand for new or expanded transmission, substation and distribution infrastructure to reliably transport power to meet demand driven by electrification and the modification and reengineering of existing infrastructure as existing coal and nuclear generation facilities are retired or shut down. 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 to improve grid management and create efficiencies, and in preparation for emerging technologies, such as EVs.
A number of utilities also continue to implement system upgrades and hardening programs in response to recurring severe weather events, such as hurricanes and wildfires. For example, utilities along the Eastern and Gulf Coasts of the United States are executing storm hardening programs to make their systems more resilient to hurricanes and other severe weather events, which we expect to continue for the foreseeable future. Additionally, there are significant system resiliency initiatives underway in California and other regions in the western United States that are designed to prevent and manage the impact of wildfires. While these resiliency initiatives provide additional opportunities for our services, they also increase our potential exposure to significant liabilities, as these events can be started by the failure of electric power and other infrastructure on which we have performed services. Utilities are also executing significant initiatives to underground critical infrastructure, including additional underground transmission and distribution initiatives by utilities in California, underground transmission projects in the northeast United States, underground distribution circuits along U.S. coastlines and underground transmission lines for offshore wind generation projects.
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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 consumers and commercial applications. Additionally, recent legislative and regulatory initiatives, including the Rural Digital Opportunity Fund enacted by the Federal Communications Commission and the Infrastructure Investment and Jobs Act, have dedicated billions of dollars of funding to support broadband service to underserved markets. As a result of these industry trends, we believe there will be meaningful demand for our engineering and construction services. We also reoriented our communications service offerings to strategically focus on the North American market, substantially completing the exit of our Latin American communications operations during 2020, which we anticipate will result in improved profitability within our communications services operations.
Renewable Energy Infrastructure Solutions. We believe the transition to a carbon-neutral economy, which is being driven by consumer and investor preferences, increasing electrification trends, supportive public policy actions and declining levelized costs of renewable energy, will require sizeable long-term investment in renewable generation and related infrastructure, including meaningful repowering and modernization of existing assets. To that end, renewable energy developers are expected to continue to increase investments in wind and solar projects, as well as energy storage projects. Utilities have increased the percentage of renewable electricity bought through power purchase agreements (PPAs) with renewable energy developers, and we believe are in the early stages of investing directly in renewable generation facilities, which could expand significantly over time as they pursue clean energy strategies and emissions-reduction initiatives. Also, a growing number of corporate enterprises, particularly technology companies, are entering into PPAs with renewable energy developers to source renewable electricity to power their facilities and achieve their own carbon reduction initiatives. We believe increased battery storage can support increased renewable energy development by providing shorter-term storage of electricity from renewable energy generation, particularly from solar facilities, which helps to manage the amount and timing of intermittent power placed on the grid from renewable generation. Though the current capacity of installed battery storage is much smaller than the amount of wind and solar capacity installed in North America, utility-scale battery storage capacity is expected to grow significantly and at higher rates over the longer term, which we believe will provide significant growth opportunities for us.
We believe these dynamics will generate significant demand in the near- and longer-term for our renewable energy infrastructure services, including our generation construction services and engineering expertise in utility-scale solar, wind and battery storage projects, as well as our services related to the development and construction of related infrastructure, including high-voltage electric transmission and substation infrastructure and battery storage facilities, which are necessary to interconnect and transmit electricity from new renewable energy generation facilities into the existing electric power grid and enhance grid reliability.
While the demand for certain renewable energy services could fluctuate in the short term due to, among other things, supply chain and other logistical difficulties that could delay projects, the availability of production tax credits, sourcing restrictions on materials and components necessary for certain projects (e.g., solar panels) or permitting delays, we believe we are well positioned, through our recent acquisition of Blattner and our existing renewable energy and transmission services offerings, to capitalize on the longer term growth trends with respect to the development of renewable energy generation and related infrastructure.
Underground Utility and Infrastructure Solutions. For several years we have focused on increasing our underground utility and infrastructure solutions related to specialty services and industries that we believe are driven by regulated utility spending, regulation, replacement and rehabilitation of aging infrastructure and safety and environmental initiatives, which we believe provide a greater level of business sustainability and predictability. These service offerings include gas utility services, pipeline integrity services and downstream industrial services. We believe focusing on these services helps to offset the seasonality and cyclicality of our larger pipeline project business, and although our strategic focus on larger pipeline projects has decreased, we continue to pursue project opportunities to the extent they satisfy our margin and risk profiles and support the needs of our customers.
Though we experienced short-term disruptions in 2020 and to a lesser extent in 2021 due to the COVID-19 pandemic, we believe demand for our gas utility distribution services will increase as a result of customer desire to upgrade and replace aging infrastructure and increasing regulatory requirements. In particular, natural gas utilities have implemented multi-decade modernization programs to replace aging cast iron, bare steel and plastic system infrastructure with modern materials for safety, reliability and environmental purposes. We believe there are also growth opportunities for our pipeline integrity, rehabilitation and replacement services, as regulatory measures have increased the frequency and stringency of pipeline integrity testing requirements that require our customers to test, inspect, repair, maintain and replace pipeline infrastructure to ensure that it operates in a safe, reliable and environmentally conscious manner. Further, permitting challenges associated with construction of new pipelines can make existing pipeline infrastructure more valuable, motivating owners to extend the useful life of existing pipeline assets through integrity initiatives.
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Broader challenges and uncertainties in the energy market, which have been compounded by the COVID-19 pandemic, have materially impacted, and may continue to materially impact, our Underground Utility and Infrastructure Solutions segment. The extent to which these challenges continue depends on the pace of recovery of the global economy and our end market conditions. In particular, demand for our midstream and industrial services operations has declined as customers reduced and deferred regularly scheduled maintenance and capital projects due to lack of demand for refined products. Our services to downstream industrial energy customers, which are primarily located along the Gulf Coast of the United States and in other select markets in North America, have been negatively impacted by an overall decline in global demand for refined products during 2020 and 2021. While demand for our critical path catalyst services has remained solid, in the second half of 2020 customers began reducing onsite activity for our other services and have deferred maintenance and certain turnaround projects to 2022. However, to the extent commodity prices continue to strengthen and the global economy continues to recover, we believe the outlook for services with respect to these customers will continue to improve. We also believe there are significant long-term opportunities for these services, including our high-pressure and critical-path turnaround services, as well as our capabilities with respect to instrumentation and electrical services, piping, fabrication and storage tanks services, and other industrial services, and that processing facilities located along the U.S. Gulf Coast region should have certain long-term strategic advantages due to their proximity to affordable hydrocarbon resources. However, these processing facilities can also be negatively impacted for short-term periods due to severe weather events, such as hurricanes, tropical storms and floods.
Furthermore, the broader oil and gas industry is highly cyclical and subject to price and production volume 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 by uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic. As a result of these dynamics, our revenues related to larger pipeline projects have declined significantly over the last few years. This dynamic is supportive of our increased focus on specialty services and industries that are driven by regulated utility spending, regulation, replacement and rehabilitation of aging infrastructure and safety and environmental initiatives, which we believe provide a greater level of business sustainability and predictability.
Lastly, we believe there are also longer-term opportunities that may arise in this segment. For example, we believe natural gas, due to its expected abundant supply and attractive price over the long-term, will remain a fuel of choice for both primary power generation and backup power generation for renewable power plants in North America. We believe the favorable characteristics of natural gas could also position North America as a leading competitor in the global LNG export market. In certain areas, the existing pipeline system infrastructure is insufficient to support any future LNG export facilities, which could provide additional opportunities for our business. We also believe that customers in this segment are implementing strategies to reduce carbon emissions produced from their operations, which are providing incremental opportunities for our services, including developing infrastructure for blending hydrogen into natural gas flow to customers, carbon capture projects, which could include building or repurposing pipeline infrastructure. While certain customers are in various stages of evaluating or implementing these types of strategies, certain near-term opportunities exist and we believe more meaningful opportunities could occur over the longer term to the extent these strategies and opportunities progress and mature.
COVID-19 Pandemic Impact. The effects of the COVID-19 pandemic continue to significantly impact global economies due to, among other things, workforce and travel restrictions and supply chain, production and other logistical disruptions. While we have continued to operate substantially all of our activities as a provider of essential services, during the course of the pandemic our operations and financial results have been adversely impacted by reduced customer spending and demand for certain of our services (including as described above), as well as governmental responses to the COVID-19 pandemic, including shut-down orders and limitations on work site practices implemented by governments, which have negatively impacted (i) our Canadian operations and financial results during 2020 and 2021; (ii) our Australian operations and financial results during 2020 and 2021; (iii) our operations in certain major U.S. metropolitan markets that were meaningfully impacted by the pandemic during the first and second quarters of 2020; and (iv) our Latin American operations during 2020. Additionally, governmental vaccination and testing requirements related to COVID-19, as well as certain standards and guidance as to preventing the spread of COVID-19, have impacted and may continue to impact our business in the future. These include vaccination or testing standards and requirements issued by federal, state and local governmental entities that require employers to ensure their workforce is fully vaccinated or to require testing for unvaccinated workers. In addition, many of our customers have established vaccination requirements that could apply to our employees performing work on their premises, or in proximity of their employees. The implementation of vaccination and testing requirements could have a material adverse effect on our business in the event that, among other things, a significant portion of our workforce does not choose to become vaccinated, as such employees may not be able to perform work for certain customers that require vaccination. Moreover, the costs related to mandatory testing for unvaccinated employees are significant, and time away from work for testing is disruptive to our operations.
The broader and longer-term implications of the COVID-19 pandemic on our results of operations and overall financial performance and position remain highly uncertain and variable, and we expect continued operational challenges for portions of
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our operations in the future. The future impact that the pandemic, or any resulting market disruption and volatility, will have on our business, cash flows, liquidity, financial condition and results of operations will depend on future developments, including, among others, the duration and severity of the pandemic; the actions taken by governmental authorities, customers, suppliers and other third parties in response to the pandemic and the consequences of those actions; our workforce availability; and the timing and extent to which normal economic and operating conditions resume and continue.
Regulatory Challenges and Opportunities. The regulatory environment creates both challenges and opportunities for our business, and in recent years our margins have been impacted by regulatory and permitting delays, as well as private legal challenges related to regulatory requirements, particularly with respect to large transmission and large pipeline projects. As a result, regulatory and environmental permitting processes continue to create uncertainty for projects and negatively impact customer spending. However, we believe that there are also several existing, pending or proposed legislative or regulatory actions that may alleviate certain regulatory and permitting 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. Additionally, as described above, we consider renewable energy, including solar and wind generation facilities, to be an ongoing opportunity; however, policy and economic incentives designed to support and encourage such projects, as well as limitations on the availability or sourcing of materials or components for such projects, can create variability of project timing.
Labor Resource Availability and Cost. We continue to address the longer-term need for additional labor resources in our markets, as our customers continue to seek additional specialized labor resources to address an aging utility workforce and longer-term 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 such a degree that demand for labor resources will outpace supply. Furthermore, the increased demand for our services based on the dynamics described above can create shortages of qualified labor in our markets. Our ability to capitalize on available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel, and therefore we are taking proactive steps to develop our workforce, including through 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 prove challenging.
Additionally, we continue to monitor our labor markets and expect labor costs to increase based on increased demand for our services. Our labor costs are passed through in certain of our contracts, and the portion of our workforce that is represented by labor unions typically operate under multi-year collective bargaining agreements, which provide some visibility into future labor costs. While we do not currently believe this environment will materially impact our profitability and would expect to be able to adjust contract pricing with certain customers to the extent wages and other labor costs increase, whether due to renegotiation of collective bargaining agreements or market conditions, meaningful increases in our labor costs could have a material adverse effect on our business, financial condition, results of operations or cash flows to the extent we cannot do so.
Materials and Equipment Procurement. We continue to monitor supply chain and other logistical challenges, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and political conditions (e.g., inflation) with respect to availability and costs of certain materials and equipment necessary for the performance of our business and for materials necessary for our customers’ projects, including, among other things, steel, copper, aluminum, and components for renewable energy projects. For example, we believe some participants in the renewable energy market are experiencing supply chain challenges, resulting in delays and shortages of, and increased costs for, materials necessary for the construction of certain renewable energy projects in the near term, including as a result of sourcing restrictions related to solar panels manufactured in China. While we believe many of our renewable energy customers are generally better equipped to manage near-term supply chain disruptions than their smaller competitors, these challenges could delay our customers’ ongoing projects or impact their future project schedules, which in turn could impact the timing of or demand for our renewable energy services. While these delays are not anticipated to result in exposure to liquidated damages or commodity risks, such delays could cause customers to cancel projects as higher than expected costs impact project profitability projections.
Additionally, based on, among other things, the significant worldwide shortage of semiconductors, vehicle manufacturers are experiencing production delays with respect to new vehicles for our fleet (both on-road and specialty vehicles) and vehicle parts (e.g., tires), all of which we utilize in our operations, and certain of our vehicle delivery orders scheduled for delivery in 2022 have been delayed or cancelled. While we believe we have taken steps to secure delivery of a sufficient amount of vehicles in the near term and do not anticipate any significant disruptions with respect to our fleet, to the extent the production issues become worse than expected or become longer-term in nature, our operations could be negatively impacted. Delays impacting construction schedules resulting from supply chain disruption impacting project materials could result in risks. In addition, as a result of the recent inflationary pressure, our results of operations could be negatively impacted by price inflation related to costs of materials and equipment to the extent we are not able to pass such costs through to our contracts.
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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 due to capital or liquidity constraints. While the desirability of certain of these opportunities could be impacted by the recent inflationary pressure in the short term, 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, profit, margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Business Environment above, Results of Operations below and Item 1A. Risk Factors of this Annual Report, 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, natural disasters and emergencies. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events, natural disasters or other emergencies, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, post-wildfire floods and debris flows, pandemics (including the ongoing COVID-19 pandemic) and earthquakes. These conditions and events can negatively impact our financial results due to, among other things, the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities. See Business Environment above for further discussion regarding the impact of the COVID-19 pandemic. However, 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, and we had a significant amount of emergency restoration services revenues in 2020 and 2021.
Demand for services. We perform the majority of our services under existing contracts, including master service agreements (MSAs) and similar agreements pursuant to which our customers are not committed to specific volumes of our services. Therefore, our volume of business can be positively or negatively affected by fluctuations in the amount of work our customers assign us in a given period, which may vary by geographic region. For example, to the extent our customers accelerate grid modernization or hardening programs or face deadlines to meet regulatory requirements for rehabilitation, reliability or efficiency, our volume of work could increase under existing agreements. Also, as described above in Business Environment, we have experienced reductions in demand for certain services as a result of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic. 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, their capital spending and their access to capital; economic and political conditions on a regional, national or global scale, including availability of renewable energy tax credits; interest rates; governmental regulations affecting the sourcing of materials and equipment; other changes in U.S. and global trade relationships; and project deferrals and cancellations.
Revenue mix and impact on margins. 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. Our larger or more complex projects typically include, among others, transmission projects with higher voltage capacities; pipeline projects with larger-diameter throughput capacities; large-scale renewable generation projects, which we expect to increase subsequent to our acquisition of Blattner; and projects with increased engineering, design or construction complexities, more difficult terrain or geographical requirements, or longer distance requirements. These projects typically yield opportunities for higher margins than our recurring services under MSAs described above, as we assume a greater degree of performance risk and there is greater utilization of our resources for longer construction timeframes. However, larger projects are subject to additional risk of regulatory delay and cyclicality. For example, our revenues with respect to large pipeline projects have declined significantly in
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recent years, and a significant number of larger projects have been delayed or cancelled during that same period. 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. 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 transitioning between a greater number of smaller projects versus continuous production on fewer larger projects. As a result, 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 (including in connection with difficult geographic characteristics); 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; the performance of third parties; and the impact of the COVID-19 pandemic. Moreover, we currently generate a significant portion of our revenues under fixed price contracts, and fixed price contracts are more common in connection with our larger and more complex projects that typically involve greater performance risk. Furthermore, subsequent to our acquisition of Blattner, we expect the portion of our revenues generated under fixed price contracts to increase significantly. Under these contracts, we assume risks related to project estimates and execution, and project revenues can vary, sometimes substantially, from our original projections due to a variety of factors, including the additional complexity, timing uncertainty or extended bidding, regulatory and permitting processes associated with these projects. These variations can result in a reduction in expected profit or the incurrence of losses on a project or the issuance of change orders or assertion of contract claims against customers. See Revenue Recognition - Contract Estimates in Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report for further information regarding changes in estimated contract revenues and/or project costs, including any significant project gains or losses in connection with fixed price contracts that have impacted our results, and determinations with respect to the recognition of change orders and claims as contract price adjustments.
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 20% of our work to other service providers. Our customers are usually responsible for supplying the materials for their projects. However, under some contracts, including contracts for projects where we provide engineering, procurement and construction (EPC) services, 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, as our markup on materials is generally lower than our markup on labor costs, and in a given period an increase in the percentage of work with greater materials procurement requirements may decrease our overall margins. Furthermore, as discussed further in Overview - Business Environment, fluctuations in the price or availability of materials and equipment we or our customers utilize could impact demand for our services or costs to complete projects.
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 dollars and Australian dollars, can materially impact our results of operations and impact comparability between periods.

Results of Operations
A discussion of the changes in our consolidated results of operations between the years December 31, 2021 and December 31, 2020 and the changes in our segment results of operations between the years ended December 31, 2021, 2020 and 2019 is included below, with certain of our segment results of operations recast to conform to our current segment reporting structure. A discussion of the changes in our consolidated results of operations between the years ended December 31, 2020 and 2019 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, 2020, which was filed with the SEC on March 1, 2021. The results of acquired businesses have been included in the following results of operations since their respective acquisition dates.
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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
 20212020$%
Revenues$12,980,213 100.0 %$11,202,672 100.0 %$1,777,541 15.9 %
Cost of services (including depreciation)11,026,954 85.0 9,541,825 85.2 1,485,129 15.6 %
Gross profit1,953,259 15.0 1,660,847 14.8 292,412 17.6 %
Equity in earnings of integral unconsolidated affiliates44,061 0.3 11,303 0.1 32,758 289.8 %
Selling, general and administrative expenses(1,155,956)(8.9)(975,074)(8.7)(180,882)18.6 %
Amortization of intangible assets(165,366)(1.2)(76,704)(0.6)(88,662)115.6 %
Asset impairment charges(5,743)— (8,282)(0.1)2,539 (30.7)%
Change in fair value of contingent consideration liabilities(6,734)(0.1)(719)— (6,015)836.6 %
Operating income663,521 5.1 611,371 5.5 52,150 8.5 %
Interest and other financing expenses(68,899)(0.5)(45,013)(0.4)(23,886)53.1 %
Interest income3,194 — 2,449 — 745 30.4 %
Other income, net25,085 0.2 2,539 — 22,546 888.0 %
Income before income taxes622,901 4.8 571,346 5.1 51,555 9.0 %
Provision for income taxes130,918 1.0 119,387 1.1 11,531 9.7 %
Net income491,983 3.8 451,959 4.0 40,024 8.9 %
Less: Net income attributable to non-controlling interests6,027 0.1 6,363 — (336)(5.3)%
Net income attributable to common stock$485,956 3.7 %$445,596 4.0 %$40,360 9.1 %
`
Revenues. Revenues increased primarily due to a $1.16 billion increase in revenues from our Electric Power Infrastructure Solutions segment, largely due to growth in spending by our utility customers on grid modernization resulting in increased demand for our electric power services and approximately $245 million of revenues attributable to acquired businesses. Also contributing to the increase was a $520.1 million increase in revenues from our Renewable Energy Infrastructure Solutions segment, primarily due to our acquisition of Blattner in the fourth quarter of 2021, as well as a $101.4 million increase in revenues from our Underground Utility and Infrastructure Solutions segment, primarily due to increased demand from our gas utility and industrial customers. See Segment Results below for additional information and discussion related to segment revenues.
Gross profit. Gross profit increased primarily due to an increase in revenues across all segments. Gross profit as a percentage of revenues increased due to improved utilization and fixed cost absorption from our Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions segments. Gross profit was positively impacted in 2020 by the favorable close-out of certain projects in the Renewable Energy Infrastructure Solutions segment. Gross profit for the Underground Utility and Infrastructure Solutions segment in 2021 was adversely impacted by the recognition of a $31.7 million provision for credit loss related to receivables owed by a customer that declared bankruptcy in July 2021 and its affiliate, which is described further in Accounts Receivable and Allowance for Credit Losses within Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Additionally, gross profit for the Underground Utility and Infrastructure Solutions segment was adversely impacted during the years ended December 31, 2021 and 2020 by uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, which negatively impacted our margins and ability to cover fixed and overhead costs. See Segment Results below for additional information and discussion related to segment operating income (loss).
Equity in earnings of integral unconsolidated affiliates. The amounts include our portion of amounts earned by integral unconsolidated affiliates and primarily relate to our portion of amounts earned by LUMA. The increase with respect to LUMA is mostly related to the completion of the steps necessary to transition operation and maintenance of the Puerto Rican electric transmission and distribution system from the owner to LUMA in mid-2021 and the entry into an interim services agreement that covers the interim services period for the project. See Note 9 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report for further information on LUMA. During the interim services period, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for costs
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and expenses. Additionally, we acquired a 44% interest in an entity that provides right-of-way solutions, including site preparation and clearing, materials delivery and installation and management of permitting requirements and traffic control at the beginning of the fourth quarter of 2021, and our portion of the amounts earned by this investment are included beginning as of that investment date.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily attributable to a $95.6 million increase in expenses associated with acquired businesses and a $31.2 million increase in the provision for credit losses, the majority of which related to the recognition of the provision for credit loss related to a receivable from a customer that declared bankruptcy in July 2021, and its affiliate, which is described further in Accounts Receivable and Allowance for Credit Losses within Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Also contributing to the increase was a $31.2 million increase in compensation expense, largely associated with increased incentive compensation expense as a result of higher levels of operating performance and an increase in salaries and benefits due to increased personnel to support business growth. Compensation expense for the year ended December 31, 2020 included a $14.0 million correction of prior period amounts related to the valuation of and accounting for certain performance-based equity awards that were awarded during the years 2017 to 2019. Also contributing to the 2021 increase were a $11.4 million increase in travel and related expenses, which were below historical levels in 2020 as a result of reduced travel due to the COVID-19 pandemic, and a $2.9 million increase in expense related to deferred compensation liabilities. The fair market value changes in deferred compensation liabilities were largely offset by changes in the fair value of the company-owned life insurance (COLI) policies associated with the deferred compensation plan, which are included in other income, net as discussed below. Partially offsetting these increases were $6.3 million of incremental gains on sales of property and equipment.
Amortization of intangible assets. The increase was primarily due to amortization of intangible assets associated with recently acquired businesses, including the recent acquisition of Blattner, partially offset by reduced amortization expense associated with older acquired intangible assets, as certain of these assets became fully amortized.
Asset impairment charges. During the year ended December 31, 2021, we recognized a $5.7 million asset impairment charge related to certain equipment not utilized in our core operations, some of which was sold in October 2021 and the remainder of which was classified as assets held for sale as of December 31, 2021. Management reviews long-lived assets for potential impairment whenever events or changes in circumstances indicate the carrying amount may not be realizable, which may arise in connection with regular evaluations as to whether business operations have the ability to contribute long-term strategic value. As part of such evaluations during the fourth quarter of 2020, we recognized $8.3 million of asset impairment charges, $7.0 million of which related to our Latin American operations and $1.3 million of which related to the planned sale of certain equipment.
Change in fair value of contingent consideration liabilities. Contingent consideration liabilities are payable in the event certain performance objectives are achieved by an acquired business during designated post-acquisition periods. The change in fair value associated with these liabilities was primarily due to the effect of present value accretion on fair value calculations and, to a lesser extent, changes in performance in post-acquisition measurement periods by certain acquired businesses. Further changes in fair value are expected to be recorded periodically until the contingent consideration liabilities are settled, including potentially significant changes associated with the potential payment of up to $300.0 million of contingent consideration in connection with our acquisition of Blattner, the amount for which will be determined during a three-year post-acquisition period that began in January 2022. See Notes 6 and 17 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information related to these liabilities.
Interest and other financing expenses. Interest and other financing expenses increased primarily due to higher levels of debt and, to a lesser extent, a higher weighted average interest rate during the year ended December 31, 2021 compared to 2020. Our long-term debt increased significantly during the year ended December 31, 2021 in connection with our acquisition of Blattner, as described in further detail in Liquidity and Capital Resources below, and we expect that our interest expense will increase during the year ending December 31, 2022 as a result of this higher level of debt. Additionally, we paid $4.4 million of fees to the lenders related to a bridge facility commitment entered into but not utilized in connection with our acquisition of Blattner, all of which was amortized to interest and other financing expenses in the year ended December 31, 2021. For additional information on our debt instruments, including our senior notes, senior credit facility, the bridge facility commitment and interest requirements related to our debt instruments, see Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report.
Interest income. Interest income increased primarily due to interest received related to a settlement with a customer.
Other income, net. Other income, net increased primarily due to unfavorable results in the year ended December 31, 2020 primarily due to a $9.3 million impairment charge associated with an investment in a water and gas pipeline infrastructure contractor located in Australia that is accounted for using the cost method of accounting and $8.7 million of impairment charges associated with two non-integral equity investments that were negatively impacted by the decline in demand for refined
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petroleum products. Higher income related to investments in unconsolidated affiliates and COLI policies associated with our deferred compensation plan positively impacted results for the year-ended December 31, 2021, while an $8.9 million legal settlement favorably impacted results for the year ended December 31, 2020.
Provision for income taxes. The effective tax rates for the years ended December 31, 2021 and 2020 were 21.0% and 20.9%. The rate for the year ended December 31, 2021 was favorably impacted by the recognition of a $21.3 million tax benefit that resulted from equity incentive awards vesting at a higher fair market value than their grant date fair market value, as compared to the recognition of $3.1 million associated with this tax benefit for the year ended December 31, 2020, which was due to a smaller difference between the vest date fair market value and grant date fair market value of vested equity incentive awards. The effective tax rate for the year ended December 31, 2021 was also favorably impacted by $6.7 million of tax benefits related to a decrease in reserves for uncertain tax positions as a result of the expiration of certain U.S. federal and state statutes of limitations periods, a $7.8 million benefit related to a favorable clarification by the Internal Revenue Service regarding deductions for certain per diem amounts, a $7.0 million benefit related to certain COLI policies, and a $2.4 million reduction in our deferred tax asset valuation allowance related to U.S. state net operating losses. The effective tax rate for the year ended December 31, 2020 was also favorably impacted by a $45.1 million reduction in our deferred tax asset valuation allowance related to foreign tax credits and $8.2 million of tax benefits related to a decrease in reserves for uncertain tax positions, which resulted from the expiration of certain federal and state statutes of limitations periods. The effective tax rates for the years ended December 31, 2021 and 2020 include the impact of taxable losses of $9.6 million and $60.8 million associated with our Latin American operations, for which no income tax benefit was recognized. Absent the items described above, the effective tax rates for December 31, 2021 and 2020 would have been 27.8% in each period. We expect our effective tax rate to be approximately 25.0% to 25.5% for 2022. 
Other comprehensive income (loss), net of taxes. Other comprehensive income (loss) results from translation of the balance sheets of our foreign operating companies, which are primarily located in Canada and Australia and have functional currencies other than the U.S. dollar, and therefore are affected by the strengthening or weakening of the U.S. dollar against such currencies. The loss in the year ended December 31, 2021 was impacted primarily by the strengthening of the U.S. dollar against the Australian dollar as of December 31, 2021 when compared to December 31, 2020. The gain in the year ended December 31, 2020 was impacted primarily by the weakening of the U.S. dollar against both the Australian and Canadian dollars as of December 31, 2020.

Segment Results
Reportable segment information, including revenues and operating income by type of work, is gathered from each of our operating companies for the purpose of evaluating segment performance. Classification of our operating company revenues by type of work for segment reporting purposes can at times require judgment on the part of management. Our operating companies 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. Integrated operations and common administrative support for operating companies require that certain allocations be made to determine segment profitability, including allocations of corporate shared and indirect operating costs, as well as general and administrative costs. Certain corporate costs are not allocated, including facility costs, acquisition and integration 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.
Year ended December 31, 2021 compared to the year ended December 31, 2020
The following tables set forth segment revenues, segment operating income (loss) and operating margins for the periods indicated, as well as the dollar and percentage change from the prior period. Operating margins are calculated by dividing operating income by revenues. Management utilizes operating margins as a measure of profitability, which can be helpful for
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monitoring how effectively we are performing under our contracts. Management also believes operating margins are a useful metric for investors to utilize in evaluating our performance. The following table shows dollars in thousands.
 Year Ended December 31,Change
 20212020$%
Revenues:
     
Electric Power Infrastructure Solutions$7,624,240 58.7 %$6,468,192 57.7 %$1,156,048 17.9 %
Renewable Energy Infrastructure Solutions1,825,259 14.1 1,305,151 11.7 520,108 39.9 %
Underground Utility and Infrastructure Solutions3,530,714 27.2 3,429,329 30.6 101,385 3.0 %
Consolidated revenues$12,980,213 100.0 %$11,202,672 100.0 %$1,777,541 15.9 %
Operating income (loss):    
Electric Power Infrastructure Solutions$865,409 11.4 %$648,405 10.0 %$217,004 33.5 %
Renewable Energy Infrastructure Solutions181,908 10.0 %177,920 13.6 %3,988 2.2 %
Underground Utility and Infrastructure Solutions150,147 4.3 %170,074 5.0 %(19,927)(11.7)%
Corporate and Non-Allocated costs(533,943)(4.1)%(385,028)(3.4)%(148,915)38.7 %
Consolidated operating income$663,521 5.1 %$611,371 5.5 %$52,150 8.5 %
Electric Power Infrastructure Solutions Segment Results
The increase in revenues for the year ended December 31, 2021 was primarily due to growth in spending by our utility customers on grid modernization, resulting in increased demand for our electric power services, as well as approximately $245 million of revenues attributable to acquired businesses. Additionally, revenues for the year ended December 31, 2021 were positively impacted by $90 million related to more favorable foreign currency exchange rates, primarily the Canadian dollar and U.S. dollar exchange rate.
Operating income increased for the year ended December 31, 2021 primarily due to the increase in revenues explained above. The increase in operating income as a percentage of revenues was primarily attributable to improved performance across the segment, and the higher revenues contributed to higher levels of fixed cost absorption and favorable contributions associated with the timing of projects and project mix. Also positively impacting operating income and operating income as a percentage of revenues during the year ended December 31, 2021 was the $44.1 million impact of our equity interests in LUMA and other integral affiliates, which represented a $32.8 million increase from the year ended December 31, 2020. Partially offsetting the positive impact of these items were losses associated with certain communications projects resulting from various production issues, poor subcontractor performance, challenging site conditions, permitting delays, increased completion costs and weather and seasonal impacts.
In addition, in early 2020, we decided to pursue an exit of our operations in Latin America and substantially completed such exit as of December 31, 2020. For the year ended December 31, 2020, Electric Power Infrastructure Solutions operating income included $74.0 million of operating losses related to Latin American operations, which negatively impacted operating margin by 120 basis points. These operating losses included $7.0 million of asset impairment charges and $2.7 million of regulatory required severance payments.
Renewable Energy Infrastructure Solutions Segment Results
The increase in revenues for the year ended December 31, 2021 was primarily due to a $450 million increase in revenues attributable to acquired businesses, primarily Blattner, the results of operations of which were included since the acquisition date of October 13, 2021. The remaining increase is due to an overall increase in transmission and interconnection construction services related to the renewable energy infrastructure.
The increase in operating income was primarily due to higher revenues associated with the acquisition of Blattner. Blattner’s results as a percentage of operating income was largely in line with our results attributable to transmission and interconnection construction services related to the renewable energy infrastructure The decrease in operating income as a percentage of revenues for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the favorable close-out of certain projects in 2020.
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Underground Utility and Infrastructure Solutions Segment Results
The increase in revenues for the year ended December 31, 2021 was primarily due to increased revenues associated with higher demand from our gas utility and industrial customers; $25 million related to more favorable foreign currency exchange rates, primarily the Canadian dollar and U.S. dollar exchange rate; and approximately $20 million in revenues from acquired businesses.
The decreases in operating income and operating margin for the year ended December 31, 2021 were primarily due to the recognition of a $31.7 million provision for credit loss related to receivables from a customer that declared bankruptcy in July 2021 and its affiliate, which is described further in Accounts Receivable and Allowance for Credit Losses within Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report. Operating income was also adversely impacted during the years ended December 31, 2021 and 2020 by the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, which negatively impacted our margins and ability to cover fixed and overhead costs.
Corporate and Non-Allocated Costs
The increase in corporate and non-allocated costs during the year ended December 31, 2021 included an $88.7 million increase in intangible asset amortization primarily related to the acquisition of Blattner; a $27.6 million increase in acquisition and integration costs; and a $15.6 million increase in cash incentive compensation as a result of higher levels of operating performance relative to incentive compensation targets. Also contributing to the increase was a $6.7 million increase in the fair value of contingent consideration liabilities recognized during the year ended December 31, 2021 as compared to a $0.7 million increase in fair value recognized during the year ended December 31, 2020. Additionally, there was a $4.9 million increase in travel-related costs, which were below historical levels in 2020 as a result of reduced travel due to the COVID-19 pandemic; a $4.6 million increase in salaries and benefits expense due to increased personnel to support business growth; and a $2.8 million increase in expense related to deferred compensation liabilities. The changes in fair market value of deferred compensation liabilities were largely offset by corresponding changes in the fair market value of the COLI policies associated with the deferred compensation plan, which are recorded in other income, net. Partially offsetting these increases was a $3.4 million decrease in stock-based compensation. Non-cash stock-based compensation for the year ended December 31, 2020 included a $14.0 million correction of prior period amounts related to the valuation of and accounting for certain performance-based equity awards that were awarded during the years 2017 to 2019.
Year ended December 31, 2020 compared to the year ended December 31, 2019
As described above, certain amounts in the following table have been recast to reflect the new Renewable Energy Infrastructure Solutions segment. The following table sets forth segment revenues, segment operating income (loss) and
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operating margins for the periods indicated, as well as the dollar and percentage change from the prior period (dollars in thousands):
 Year Ended December 31,Change
 20202019$%
Revenues:
     
Electric Power Infrastructure Solutions$6,468,192 57.7 %$6,346,837 52.4 %$121,355 1.9 %
Renewable Energy Infrastructure Solutions1,305,151 11.7 775,000 6.4 530,151 68.4 %
Underground Utility and Infrastructure Solutions3,429,329 30.6 4,990,316 41.2 (1,560,987)(31.3)%
Consolidated revenues$11,202,672 100.0 %$12,112,153 100.0 %$(909,481)(7.5)%
Operating income (loss):    
Electric Power Infrastructure Solutions$648,405 10.0 %$554,824 8.7 %$93,581 16.9 %
Renewable Energy Infrastructure Solutions177,920 13.6 %36,353 4.7 %141,567 389.4 %
Underground Utility and Infrastructure Solutions170,074 5.0 %332,011 6.7 %(161,937)(48.8)%
Corporate and Non-Allocated costs(385,028)(3.4)%(368,314)(3.0)%(16,714)4.5 %
Consolidated operating income$611,371 5.5 %$554,874 4.6 %$56,497 10.2 %
Electric Power Infrastructure Solutions Segment Results
Overall, revenues increased as a result of growth in spending from our utility customers on grid modernization, resulting in increased demand for our electric power services, including a $220 million increase in emergency restoration services revenues, a $125 million increase in revenues from our North American communication operations and approximately $175 million of incremental revenues attributable to acquired businesses. These increases were partially offset by decreased revenues associated with fire hardening programs in the western United States as compared to the year ended December 31, 2019 as the projects were successfully completed.
We had substantially completed the exit of our Latin American operations as of December 31, 2020. These operations were adversely impacted by the COVID-19 pandemic due to shelter-in-place restrictions and other work disruptions that resulted in our acceleration of various contract terminations and other activities during 2020 in order to expedite cessation of operations in the region. As a result of these factors, during the year ended December 31, 2020, our Latin American operations generated an operating loss of $74.0 million, including $7.0 million of asset impairment charges and $2.7 million of regulatory required severance payments. During the year ended December 31, 2019, our Latin American operations generated an operating loss of $85.7 million, which included a $79.2 million charge associated with the termination of a telecommunications project in Peru, composed of a $48.8 million reversal of revenues and a $30.4 million increase in cost of services. The charge included a reduction of previously recognized earnings on the project, a reserve against a portion of the project costs incurred through the project termination date, a reserve against a portion of alleged liquidated damages and recognition of estimated costs to complete the project turnover and close out the project. See Legal Proceedings in Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplemental Data of this Annual Report for additional information regarding this project.
Operating income increased for the year ended December 31, 2020 due to the increase in revenues explained above. Operating income as a percentage of revenues was positively impacted during the year ended December 31, 2020 by increased revenues from emergency restoration services revenues, which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs. The year ended December 31, 2019 was also negatively impacted by severe weather and other project delays in Canada that resulted in elevated levels of unabsorbed costs. However, partially offsetting these increases was a reduction in fire hardening services in the western United States during the year ended December 31, 2020, as well as the negative impact associated with our Latin American operations described above.
Included in operating income is the equity in earnings of integral unconsolidated affiliates, which primarily relates to the commencement of transition services under the operation and maintenance agreement awarded to LUMA in June 2020.
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Renewable Energy Infrastructure Solu