QUANTA SERVICES INC

9. LEASES:

Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):

(1)Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.

(2)Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. When these purchase options are exercised by a third-party lessor on behalf of Quanta, the transaction is deemed to be a financing transaction for accounting purposes, which results in the recognition of an asset equal to the purchase price and a corresponding liability.

(3)Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant.

Related party lease expense was $4.7 million and $3.9 million for the three months ended March 31, 2024 and 2023.

Future minimum lease payments for operating leases and finance leases were as follows (in thousands):

Future minimum lease payments for short-term leases were $26.5 million as of March 31, 2024. As of March 31, 2024, Quanta also had minimum lease payments related to operating lease obligations of $17.5 million for leases that had not yet commenced as of such date, are expected to commence in 2024 and have lease terms ofone toten years. Additionally, as described above, certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. The future payments related to these lease financing transactions totaled $95.2 million and comprise principal and interest payments.

The weighted average remaining lease terms (other than for short-term leases) and discount rates were as follows:

Quanta has also guaranteed the residual value under certain of its equipment operating leases and real estate finance leases, agreeing to pay any difference between the residual value and the fair market value of the underlying asset at the date of lease termination. Historically, the fair value of the assets at the time of lease termination generally has approximated or exceeded the residual value guarantees, and therefore such guarantees are not expected to result in significant payments.