QUANTA SERVICES INC

5. SEGMENT INFORMATION:

Quanta reports its results under three reportable segments: Electric Power Infrastructure Solutions (Electric Power), Renewable Energy and Underground and Infrastructure.

Electric Power. Quanta’s Electric Power segment provides comprehensive services for the electric power and communications markets. Services include, but are not limited to, the 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, including services that support the implementation of upgrades by utilities to modernize and harden the electric power grid in order to ensure its safety and enhance reliability and to accommodate increased residential and commercial use of electric vehicles. In addition, this segment provides emergency restoration services, including the repair of infrastructure damaged by fire and inclement weather and the installation of “smart grid” technologies on electric power networks. This segment also provides comprehensive design and construction solutions to wireline and wireless communications companies, cable multi-system operators and other customers within the communications industry, as well as other related services. Additionally, this segment manufactures power transformers and components for the electric utility, municipal power and industrial markets.

Renewable Energy. Quanta’s Renewable Energy segment provides comprehensive infrastructure solutions to customers that are involved in the renewable energy industry. Services include, but are not limited to, engineering, procurement, new construction, repowering and repair and maintenance services for renewable generation facilities, such as utility-scale wind, solar and hydropower generation facilities and battery storage facilities, and engineering and construction services for transmission and other electrical infrastructure needed to interconnect and transmit electricity from renewable energy generation and battery storage facilities.

Underground and Infrastructure. Quanta’s Underground and Infrastructure segment provides comprehensive infrastructure solutions to customers involved in the transportation, distribution, storage, development and processing of natural gas, oil and other products. Services include, but are not limited to design, engineering, procurement, new construction, upgrade and repair and maintenance services for natural gas systems for gas utility customers; and pipeline protection, integrity testing, rehabilitation and replacement services. Additionally, Quanta serves the midstream and downstream industrial energy markets through catalyst replacement services, high-pressure and critical-path turnaround services, instrumentation and electrical services, piping, fabrication and storage tank services.

Corporate and Non-allocated Costs include corporate facility costs; non-allocated corporate salaries, benefits and incentive compensation; 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.

Quanta’s segment results are derived from the types of services provided across its operating companies in each of its end user markets. Quanta’s entrepreneurial business model allows multiple operating companies to serve the same or similar customers and to provide a range of services across end user markets. Reportable segment information, including revenues and operating income by type of work, is gathered from each operating company. Classification of operating company revenues by type of work for segment reporting purposes can require judgment on the part of management. Quanta’s 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, Quanta performs joint trenching projects to install distribution lines for electric power and natural gas customers.

In addition, integrated operations and common administrative support for Quanta’s operating companies require that allocations be made to determine segment profitability, including allocations of certain corporate shared and indirect operating costs as well as general and administrative costs.

The following table sets forth segment revenues and segment operating income (loss) for the years ended December 31, 2023, 2022 and 2021. Operating margin is calculated by dividing operating income (loss) by revenues. The following table shows dollars in thousands:

(1)Includes equity in earnings of integral unconsolidated affiliates of $41.6 million, $52.5 million and $44.1 million for the years ended December 31, 2023, 2022 and 2021, primarily related to Quanta’s equity interest in LUMA Energy, LLC (LUMA).

(2) Quanta recorded $11.7 million of asset impairment charges related to a software implementation project at an acquired company, which commenced prior to Quanta’s acquisition and was discontinued in the fourth quarter of 2022. The fair value of this software waszero at December 31, 2022.

(3)Includes amortization expense of $289.0 million, $354.0 million and $165.4 million and non-cash stock-based compensation of $126.8 million, $105.6 million and $88.3 million for the years ended December 31, 2023, 2022 and 2021.

Depreciation Expense

Separate measures of Quanta’s assets and cash flows by reportable segment, including capital expenditures, are not produced or utilized by management to evaluate segment performance. Certain of Quanta’s fixed assets are used on an interchangeable basis across its reportable segments. The following table sets forth depreciation expense by segment for the years ended December 31, 2023, 2022, and 2021. The table shows dollars in thousands: