Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

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Acquisitions
3 Months Ended
Mar. 31, 2021
Business Combinations [Abstract]  
Acquisitions ACQUISITIONS:
During the three months ended March 31, 2021, Quanta acquired a business located in the United States that primarily provides horizontal directional drilling services. The consideration for this acquisition was $3.5 million paid in cash. During the year ended December 31, 2020, Quanta acquired a contractor located in the United States that provides electric power distribution, transmission and substation maintenance and construction, directional boring and emergency restoration services; a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services; a business located in the United States that provides aviation services primarily for the utility industry; an electric power infrastructure business located in the United States that primarily provides underground conduit services; a business located in the United States that specializes in the deployment of short- and long-haul fiber optic cable and utilities; an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, for customers in the refining and chemical industries; and a business located in the United States that provides heavy, civil, industrial and energy related services and specializes in the construction and maintenance of pipelines and metering stations. The aggregate consideration for these acquisitions was $349.3 million paid or payable in cash (subject to certain adjustments) and 1,334,469 shares of Quanta common stock, which had a fair value of $57.1 million as of the respective acquisition dates. Additionally, one of the acquisitions includes the potential payment of up to $6.9 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a five-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded $2.3 million of liabilities as of the acquisition date.
The results of the acquired businesses have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates, with the results of the industrial services business and the business that specializes in the construction and maintenance of pipelines and metering stations generally included in the Underground Utility and
Infrastructure Solutions segment and the results of the remaining businesses generally included in the Electric Power Infrastructure Solutions segment.
The following table summarizes the aggregate consideration paid or payable as of March 31, 2021 for the acquisitions completed in 2021 and 2020 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these condensed consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.
Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired subsequent to March 31, 2020, and further adjustments to the purchase price allocations may occur. As of March 31, 2021, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to tax estimates and inventory. Consideration amounts are also subject to the finalization of closing working capital adjustments and the completion of conditions precedent in order to close on agreements for the purchase of real property related to a business acquired in 2020. The aggregate consideration paid or payable for businesses acquired between March 31, 2020 and March 31, 2021 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $217.5 million to net tangible assets, $92.7 million to identifiable intangible assets and $75.8 million to goodwill. The following table summarizes the fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed (in thousands).
2021 2020
Consideration:
Cash paid or payable $ 3,500  $ 349,310 
Value of Quanta common stock issued —  57,119 
Contingent consideration —  2,250 
Fair value of total consideration transferred or estimated to be transferred $ 3,500  $ 408,679 
Accounts receivable $ —  $ 74,492 
Contract assets —  8,919 
Other current assets —  51,807 
Property and equipment 1,327  133,511 
Other assets —  14 
Identifiable intangible assets 393  96,827 
Contract liabilities —  (3,750)
Other current liabilities —  (34,890)
Deferred tax liabilities, net —  (3,185)
Total identifiable net assets 1,720  323,745 
Goodwill 1,780  84,934 
Fair value of net assets acquired $ 3,500  $ 408,679 
Goodwill represents the amount by which the purchase price for an acquired business exceeds the net fair value of the assets acquired and liabilities assumed.
The acquisitions completed in 2021 and 2020 strategically expanded Quanta’s domestic and international underground utility and infrastructure solutions and domestic electric power infrastructure solutions, which Quanta believes contributes to the recognition of goodwill. Approximately $1.8 million and $73.3 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in 2021 and 2020.
The following table summarizes the estimated fair values of identifiable intangible assets for the acquisition completed in 2021 as of the acquisition date and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).    
Estimated Fair Value Weighted Average Amortization Period in Years
Customer relationships $ 218  3.0
Trade names 50  2.0
Non-compete agreements 125  5.0
Total intangible assets subject to amortization $ 393  3.5
The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in 2021 and 2020, have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts).
Three Months Ended
March 31,
2021 2020
Revenues $ 2,704,247  $ 2,840,654 
Gross profit $ 373,332  $ 350,910 
Selling, general and administrative expenses $ (243,748) $ (241,089)
Amortization of intangible assets $ (21,375) $ (22,025)
Net income $ 91,328  $ 43,091 
Net income attributable to common stock $ 89,770  $ 40,274 
Earnings per share attributable to common stock:
Basic $ 0.64  $ 0.28 
Diluted $ 0.62  $ 0.27 
The pro forma combined results of operations for the three months ended March 31, 2021 and 2020 were prepared by adjusting the historical results of Quanta to include the historical results of the acquisition completed in 2021 as if it occurred January 1, 2020. The pro forma combined results of operations for the three months ended March 31, 2020 were prepared by also adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2020 as if they occurred January 1, 2019. These pro forma combined historical results were adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest expense as a result of the cash consideration paid; an increase in amortization expense due to the incremental intangible assets recorded; changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies; an increase in the number of outstanding shares of Quanta common stock; and reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs or any cost savings or other synergies that resulted or may result from the acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.
There were nominal amounts of revenues and income before income taxes included in Quanta’s condensed consolidated results of operations for the three months ended March 31, 2021 related to the acquisition completed in 2021. Revenues of $1.9 million and a loss before income taxes of $0.9 million, which included $0.8 million of acquisition-related costs, are included in Quanta’s condensed consolidated results of operations for the three months ended March 31, 2020 related to the acquisitions completed in 2020.