QUANTA SERVICES INC

5. ACQUISITIONS:

The results of operations of acquired businesses have been included in Quanta’s consolidated financial statements since their respective acquisition dates.

On July 17, 2024, Quanta completed the acquisition of Cupertino Electric, Inc. (Cupertino), which provides electrical infrastructure solutions, including engineering, procurement, project management, construction and modularization services, to the technology, renewable energy and infrastructure and commercial industries. Cupertino is located in the United States, and its results will be included in the Electric Power and Renewable Energy segments. The consideration, excluding cash acquired and subject to certain adjustments, was approximately $1.5 billion, which included cash and shares of Quanta common stock (valued at $216.3 million as of the acquisition date). Additionally, the former equity holders and award holders of Cupertino are eligible for a potential contingent consideration payment of up to $200.0 million to the extent certain financial performance targets are achieved by Cupertino during athree-year post-acquisition period beginning in January 2025. 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, Quanta is in the process of performing procedures to determine the consideration and fair value of assets acquired and liabilities assumed related to the acquisition of Cupertino, including the fair value assessment of contingent consideration, and will include the preliminary purchase price allocation in its Quarterly Report on Form 10-Q for the period ending September 30, 2024.

During the six months ended June 30, 2024, Quanta acquired five businesses located in the United States, including: a business that provides specialty environmental solutions to industrial and petrochemical companies (primarily included in the Underground and Infrastructure segment); a business that specializes in testing, manufacturing and distributing safety equipment and supplies (primarily included in the Electric Power and Renewable Energy segments); a business that specializes in electrical infrastructure services for substations, data centers and governmental entities (primarily included in the Electric Power segment), a business that manufactures transmission and distribution equipment for the electric utility industry (primarily included in the Electric Power and Renewable Energy segments) and a business that provides services and equipment related to aerial telecommunications infrastructure and networks (primarily included in the Electric Power segment). The consideration for these businesses acquired during the six months ended June 30, 2024 consisted of approximately $463.9 million paid or payable in cash on the acquisition dates and 286,425 shares of Quanta common stock, which had a fair value of $60.8 million as of the acquisition dates. The final amount of consideration for these acquisitions remains subject to certain post-closing adjustments, including with respect to net working capital.

During the year ended December 31, 2023, Quanta acquired five businesses located in the United States, including: a business that provides services related to high-voltage transmission lines, overhead and underground distribution, emergency restoration and industrial and commercial wiring and lighting (primarily included in the Electric Power segment); a business that procures parts, assembles kits for sale, manages logistics and installs solar tracking equipment for utility and development customers (primarily included in the Renewable Energy segment); a business that provides concrete construction services (primarily included in the Electric Power and Renewable Energy segments); a business specializing in power studies, maintenance testing and commissioning primarily for utility and commercial customers (included in the Electric Power segment) and a business that manufactures power transformers for the electric utility, renewable energy, municipal power and industrial markets (included in the Electric Power and Renewable Energy segments). The consideration for these transactions consisted of approximately $777.3 million paid or payable in cash (subject to certain adjustments) and 1,238,576 shares of Quanta common stock, which had a fair value of $158.9 million as of the dates of the acquisitions.

Additionally, the former owners of certain acquired businesses are eligible to receive potential payments of contingent consideration to the extent the acquired businesses achieve certain financial performance targets over specified post-acquisition periods.

Purchase Price Allocation

Quanta is finalizing its purchase price allocations related to certain businesses acquired subsequent to June 30, 2023, and further adjustments to the purchase price allocations may occur, with possible updates primarily related to intangible asset values, property and equipment values, certain contingent liabilities, tax estimates, and the finalization of closing working capital adjustments. The aggregate consideration paid or payable for businesses acquired between June 30, 2023 and June 30, 2024 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $183.0 million to net tangible assets, $265.5 million to identifiable intangible assets and $434.6 million to goodwill.

The following table summarizes the estimated fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed as of their respective acquisition dates as of June 30, 2024 for acquisitions completed in the six months ended June 30, 2024 (in thousands):

As of June 30, 2024, approximately $15.2 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in the six months ended June 30, 2024.

The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in the six months ended June 30, 2024 as of the acquisition dates and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).

The significant estimates used by management in determining the fair values of customer relationship intangible assets include future revenues, margins, discount rates and customer attrition rates. The following table includes the discount rates and customer attrition rates used to determine the fair value of customer relationship intangible assets for businesses acquired during the six months ended June 30, 2024 as of the respective acquisition dates:

Contingent Consideration

As described above, certain business acquisitions have contingent consideration liabilities associated with the transactions. The aggregate fair value of outstanding contingent consideration liabilities for acquisitions completed prior to June 30, 2024 and their classification in the accompanying consolidated balance sheets is as follows (in thousands):

Quanta’s aggregate contingent consideration liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, accretion in present value, changes in estimated fair value, the performance of acquired businesses in post-acquisition periods, and in certain cases, management discretion. These changes are reflected in “Change in fair value of contingent consideration liabilities” in the accompanying consolidated statements of operations.

The fair value determinations for contingent consideration liabilities incorporate significant inputs not observable in the market, including revenue forecasts, operating margins, discount rates and the probability of acquired businesses achieving certain performance targets during designated post-acquisition periods. Accordingly, the level of inputs used for these fair value measurements is Level 3.

All of Quanta’s outstanding contingent consideration liabilities are subject to a maximum payment amount, and the aggregate maximum payment amount of these liabilities for acquisitions completed prior to June 30, 2024 totaled $365.6 million as of June 30, 2024. During the six months ended June 30, 2023, Quanta settled certain contingent consideration liabilities with cash payments of $5.0 million.

Pro Forma Results of Operations

The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in the six months ended June 30, 2024 and the year ended December 31, 2023, have been provided for illustrative purposes only and may not 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 (in thousands).

The pro forma combined results of operations for the three and six months ended June 30, 2024 and 2023 were prepared by adjusting the historical results of Quanta to include the historical results of the businesses acquired in 2024 as if such acquisitions had occurred January 1, 2023. The pro forma combined results of operations for the three and six months ended June 30, 2023 were prepared by further adjusting the historical results of Quanta to include the historical results of the business acquired in 2023 as if such acquisition had occurred January 1, 2022. These pro forma combined historical results were adjusted for the following: a reduction of interest and other financing expenses as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest and other financing expenses as a result of the cash consideration paid; an increase in amortization expense due to the intangible assets recorded; elimination of inter-company sales; and changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs incurred by Quanta or any cost savings or other synergies that resulted or may result from the acquisitions.

Impact on Consolidated Results of Operations Related to Acquisitions

Included in Quanta’s condensed consolidated results of operations for the three months ended June 30, 2024 were revenues of $76.6 million and a loss before income taxes of $4.7 million, which included $7.0 million of amortization expense and $4.3 million of acquisition-related costs, related to the acquisitions completed in 2024. Included in Quanta’s condensed consolidated results of operations for the six months ended June 30, 2024 were revenues of $144.3 million and a loss before income taxes of $13.8 million, which includes $11.8 million of amortization expense and $10.2 million of acquisition-related costs, related to the acquisitions completed in 2024. Included in Quanta’s condensed consolidated results of operations for the three months ended June 30, 2023 were revenues of $143.1 million and income before income taxes of $12.9 million, which included $6.4 million of amortization expense andno acquisition-related costs, related to the acquisitions completed in 2023. Included in Quanta’s condensed consolidated results of operations for the six months ended June 30, 2023 were revenues of $236.6 million and a loss before income taxes of $3.2 million, which includes $15.0 million of amortization expense and $17.8 million of acquisition-related costs, related to the acquisitions completed in 2023.