Quanta Services 10-Q 2021-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2021.

Quanta Services, Inc.

(Exact name of registrant as specified in its charter)

2800 Post Oak Boulevard, Suite 2600

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 629-7600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 2, 2021, the number of outstanding shares of Common Stock of the registrant was 142,499,280.

QUANTA SERVICES, INC. AND SUBSIDIARIES

INDEX

Cautionary Statement About Forward-Looking Statements and Information

This Quarterly Report on Form 10-Q (Quarterly 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);

• 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 responses to the pandemic (including, among other things, implementation of vaccination and testing requirements) 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 and larger electric transmission and pipeline projects;

• Future capital allocation initiatives, including the amount and timing of, and strategies with respect to, any future 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 the following:

• Market, industry, economic, financial or political conditions that are outside of our control, including economic, energy, infrastructure and environmental policies and plans that are adopted or proposed by the U.S. federal and state governments or other governments in territories or countries in which we operate, weakness in the capital markets and the ongoing and potential impact on financial markets and worldwide economic activity of the COVID-19 pandemic and governmental responses thereto;

• Quarterly variations in our operating and financial results, liquidity, financial condition, cash flows, capital requirements, and reinvestment opportunities, including the ongoing and potential impact to our business, operations, workforce and supply chains resulting from the COVID-19 pandemic and governmental responses thereto (including, among other things, implementation of vaccination and testing requirements);

• The severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of business and governmental responses thereto on our operations, personnel and supply chains, and on commercial activity and demand across our business and our customers’ businesses, as well as our inability to predict the extent to which the COVID-19 pandemic will adversely impact our business, financial performance, results of operations, financial position, liquidity, cash flows, the price of our securities and the achievement of our strategic objectives;

• Trends and growth opportunities in relevant markets, including our ability to obtain future project awards;

• The time and costs required to exit and resolve outstanding matters related to our Latin American operations, as well as the business and political climate in Latin America;

• Delays, deferrals, reductions in scope or cancellations of anticipated, pending or existing projects as a result of, among other things, the COVID-19 pandemic, supply chain disruptions, weather, regulatory or permitting issues, environmental processes, project performance issues, claimed force majeure events, protests or other political activity, legal challenges, reductions or eliminations in governmental funding or customer capital constraints;

• The effect of commodity prices and commodity production volumes on our operations and growth opportunities and on our customers’ capital programs and demand for our services;

• The successful negotiation, execution, performance and completion of anticipated, pending and existing contracts;

• Risks associated with operational hazards that arise due to the nature of the services we provide and the conditions in which we operate, including, among others, wildfires and explosions;

• Unexpected costs, liabilities, fines or penalties that may arise from legal proceedings, indemnity obligations, reimbursement obligations associated with letters of credit or bonds, multiemployer pension plans (e.g., underfunding of liabilities, termination or withdrawal liability) or other claims or actions asserted against us, including amounts that are not covered by, or are in excess of the coverage under, our third-party insurance;

• Potential unavailability or cancellation of third-party insurance coverage, as well as the exclusion of coverage for certain losses, potential increases in premiums for coverage deemed beneficial to us, or the unavailability of coverage deemed beneficial to us at reasonable and competitive rates (e.g., coverage for wildfire events);

• Damage to our brands or reputation arising as a result of cyber-security breaches, environmental and occupational health and safety matters, corporate scandal, failure to successfully perform a high-profile project, involvement in a catastrophic event (e.g., fire, explosion) or other negative incidents;

• Disruptions in, or failure to adequately protect, our information technology systems;

• Our dependence on suppliers, subcontractors, equipment manufacturers and other third parties and the impact of the COVID-19 pandemic on these service providers;

• Estimates and assumptions related to our financial results, remaining performance obligations and backlog;

• Our ability to attract, the potential shortage of, and increased costs with respect to skilled employees, as well as our ability to retain key personnel and qualified employees;

• Our dependence on fixed price contracts and the potential that we incur losses with respect to these contracts, including as a result of inaccurate estimates of project costs or inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project;

• Adverse weather conditions, natural disasters and other emergencies, including wildfires, pandemics (including the ongoing COVID-19 pandemic), hurricanes, tropical storms, floods, debris flows, earthquakes and other geological- and weather-related hazards;

• Our ability to generate internal growth;

• Competition in our business, including our ability to effectively compete for new projects and market share;

• The future development of natural resources;

• The failure of existing or potential legislative actions and initiatives to result in increased demand for our services;

• Fluctuations of prices of certain materials and equipment used in our and our customers’ businesses, including as a result of inflation, supply chain disruptions, governmental regulations on sourcing, the imposition of tariffs, and other changes in U.S. trade relationships with foreign countries;

• Cancellation provisions within our contracts and the risk that contracts expire and are not renewed or are replaced on less favorable terms;

• Loss of customers with whom we have long-standing or significant relationships;

• The potential that our participation in joint ventures or similar structures exposes us to liability or harm to our reputation as a result of acts or omissions by our partners;

• Our inability or failure to comply with the terms of our contracts, which may result in additional costs, unexcused delays, warranty claims, failure to meet performance guarantees, damages or contract terminations;

• The inability or refusal of our customers or third-party contractors to pay for services, which could be attributable to, among other things, the COVID-19 pandemic or challenged energy markets, and which could result in our inability to collect our outstanding receivables, failure to recover amounts billed to, or avoidance of certain payments received from, customers in bankruptcy or failure to recover on change orders or contract claims;

• Budgetary or other constraints that may reduce or eliminate tax incentives or government funding for projects, including renewable energy projects, which may result in project delays or cancellations;

• Our inability to successfully complete our remaining performance obligations or realize our backlog;

• Technological advancements and market developments that could reduce demand for our services;

• Risks associated with operating in international markets, including instability of foreign governments, currency exchange fluctuations, and compliance with unfamiliar foreign legal systems and cultural practices, the U.S. Foreign Corrupt Practices Act and other applicable anti-bribery and anti-corruption laws, and complex U.S. and foreign tax regulations and international treaties;

• Our inability to successfully identify, complete, integrate and realize synergies from acquisitions, including the inability to retain key personnel from acquired businesses;

• The potential adverse impact of acquisitions and investments, including the potential increase in risks already existing in our operations, poor performance or decline in value of acquired businesses or investments and unexpected costs or liabilities that may arise from acquisitions or investments;

• The adverse impact of impairments of goodwill, other intangible assets, receivables, long-lived assets or investments;

• Difficulties arising from our decentralized management structure;

• The impact of the unionized portion of our workforce on our operations, including labor stoppages or interruptions due to strikes or lockouts;

• An inability to access sufficient funding to finance desired growth and operations, including our ability to access capital markets on favorable terms, as well as fluctuations in the price and trading volume of our common stock, debt covenant compliance, interest rate fluctuations, a downgrade in our credit ratings and other factors affecting our financing and investing activities;

• Our ability to obtain bonds, letters of credit and other project security;

• Risks related to the implementation of new information technology systems;

• New or changed tax laws, treaties or regulations;

• Inability to realize deferred tax assets;

• Significant fluctuations in foreign currency exchange rates; and

• The other risks and uncertainties described elsewhere herein, including in Item 1A. Risk Factors of Part II of this Quarterly Report and in Item 1A. Risk Factors of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 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.

PART I - FINANCIAL INFORMATION

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUANTA SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)

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The following discussion and analysis of the 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 condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and with our 2020 Annual Report, which was filed with the SEC on March 1, 2021 and is available on the SEC’s website at www.sec.gov and on our website at www.quantaservices.com. 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, in Item 1A. Risk Factors of Part II of this Quarterly Report and in Item 1A. Risk Factors of Part I of our 2020 Annual Report.

Overview

We are 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. 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 the design, engineering, new construction, upgrade and repair and maintenance of infrastructure within each of the industries we serve, such as electric power transmission and distribution networks; substation facilities; wind and solar energy generation and battery storage facilities; communications and cable multi-system operator networks; gas utility systems; and pipeline transmission systems and 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.

We report our results under two reportable segments: (1) Electric Power Infrastructure Solutions and (2) Underground Utility and Infrastructure Solutions. 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 Quarter Financial Results and Significant Operational Trends and Events

Key financial results for the three months ended September 30, 2021 included:

• Consolidated revenues increased 11.0%, or $333.1 million, to $3.35 billion as compared to consolidated revenues of $3.02 billion for the three months ended September 30, 2020;

• Operating income increased 2.4%, or $5.9 million, to $248.1 million as compared to $242.2 million for the three months ended September 30, 2020;

• Net income attributable to common stock increased 7.0%, or $11.5 million, to $174.4 million as compared to $162.9 million for the three months ended September 30, 2020;

• Diluted earnings per share increased 7.1%, or $0.08, to $1.21 as compared to $1.13 for the three months ended September 30, 2020;

• EBITDA (a non-GAAP financial measure) increased 5.8%, or $18.8 million, to $340.3 million, as compared to $321.6 million for the three months ended September 30, 2020, and adjusted EBITDA (a non-GAAP financial measure) increased 3.8%, or $13.6 million, to $366.9 million, as compared to $353.3 million for the three months ended September 30, 2020;

• Net cash provided by operating activities decreased by $97.0 million to $17.9 million, as compared to net cash provided by operating activities of $114.9 million for the three months ended September 30, 2020;

• Remaining performance obligations increased 9.6%, or $382.9 million, to $4.37 billion as of September 30, 2021 as compared to $3.99 billion as of December 31, 2020; and

• Total backlog (a non-GAAP financial measure) increased 12.5%, or $1.89 billion, to $17.02 billion as of September 30, 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.

As described below, during the three months ended September 30, 2021, our results reflected certain significant operational trends and events as compared to the three months ended September 30, 2020.

Electric Power Infrastructure Solutions Segment

• Revenues increased by 10.5% to $2.33 billion, as compared to $2.11 billion.

• Operating income increased by 7.4% to $288.3 million, as compared to $268.4 million, and operating income as a percentage of revenues decreased to 12.4%, as compared to 12.7%.

• Revenues increased primarily due to continued favorable dynamics across our core utility market and increased demand for our electric power services, as well as approximately $55 million of revenues from acquired businesses, $27 million in incremental emergency restoration services revenues and a $15 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 increased revenues and operating income as a percentage of revenues decreased due to normal project variability and higher general and administrative expenses during the three months ended September 30, 2021 as compared to lower than normal levels for the three months ended September 30, 2020.

Underground Utility and Infrastructure Solutions Segment

• Revenues increased by 12.3% to $1.02 billion, as compared to $912.5 million.

• Operating income decreased by 10.6% to $68.2 million, as compared to $76.2 million, and operating income as a percentage of revenues decreased to 6.7%, as compared to 8.4%.

• Revenues increased primarily due to increased revenues from gas distribution and industrial services and a $10 million increase in revenues attributable to acquired businesses.

• Operating income and operating income as a percentage of revenues decreased in the three months ended September 30, 2021 primarily due to adjustments on certain large pipeline projects that favorably impacted the three months ended September 30, 2020, which were associated with the recognition of previously deferred milestone payments and reduced contingencies due to a reduction in the scope of work on a project that is now complete, as well as the completion of certain other projects earlier than anticipated.

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

On October 13, 2021, we completed the acquisition of Blattner, a large utility-scale renewable energy infrastructure solutions provider that is located in and primarily operates in North America. Consideration for this transaction consisted of approximately $2.29 billion paid in cash on the date of acquisition and 3.3 million 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 Blattner owners are eligible for the potential payment of up to $300 million o

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The information in this section should be read in connection with the information on financial market risk related to changes in interest rates and currency exchange rates in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of Part II of our 2020 Annual Report. Our primary exposure to market risk relates to unfavorable changes in concentration of credit risk, interest rates and currency exchange rates.

Credit Risk. We are subject to concentrations of credit risk related to our cash and cash equivalents and net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and contract assets net of advanced billings with the same customer. Substantially all of our cash and cash equivalents are managed by what we believe to be high credit quality financial institutions. In accordance with our investment policies, these institutions are authorized to invest cash and cash equivalents in a diversified portfolio of what we believe to be high-quality investments, which primarily include interest-bearing demand deposits, money market investments and money market mutual funds. Although we do not currently believe the principal amounts of these cash and cash equivalents are subject to any material risk of loss, changes in economic conditions could impact the interest income we receive from these investments.

In addition, we grant credit under normal payment terms, generally without collateral, and therefore are subject to potential credit risk related to our customers’ inability to pay for services provided. Furthermore, the risk of nonpayment may be heightened as a result of depressed economic and financial market conditions, including in connection with the ongoing COVID-19 pandemic and the currently challenged energy market. We believe the concentration of credit risk related to billed and unbilled receivables and contract assets is limited because of the diversity of our customers, and we perform ongoing credit risk assessments of our customers and financial institutions and in some cases obtain collateral or other security from our customers. For example, certain customers within our Underground Utility and Infrastructure Solutions segment have encountered operational and/or financial difficulties. For additional information regarding these matters, see Revenue Recognition - Current and Long-Term Accounts Receivable and Allowance for Credit Losses in Note 2 and Concentrations of Credit Risk in Note 10 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report.

Interest Rate Risk. As of September 30, 2021, we had no derivative financial instruments to manage interest rate risk. As such, we were exposed to earnings and fair value risk due to changes in interest rates with respect to our variable rate debt, which is comprised of borrowings under the credit agreement for our senior credit facility. As of September 30, 2021, the fair value of our variable rate debt of $415.9 million approximated book value, and our weighted average interest rate on our variable rate debt for the three months ended September 30, 2021 was 2.13%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $2.1 million based on our September 30, 2021 balance of variable rate debt.

Additionally, the transition in financial markets away from the LIBOR beginning in 2021 may lead to additional volatility in interest rates and could cause our debt service obligations to increase significantly as further described in Liquidity and Capital Resources - Debt Instruments in Item 2. Management’s Discussion and Analysis of Part I of this Quarterly Report.

Foreign Currency Risk. The U.S. dollar is the functional currency for the majority of our operations, which are primarily located within the United States. The functional currency for our foreign operations, which are primarily located in Canada and Australia, is typically the currency of the country in which the foreign operating unit is located. Accordingly, our financial performance is subject to fluctuation due to changes in foreign currency exchange rates relative to the U.S. dollar. During the three and nine months ended September 30, 2021, revenues from our foreign operations accounted for 13.7% and 15.3% of our consolidated revenues. Fluctuations in foreign currency exchange rates during the three and nine months ended September 30, 2021 caused a net increase of approximately $21 million and $99 million related to foreign revenues when compared to the three and nine months ended September 30, 2020.

We are also subject to foreign currency risk with respect to sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of our operating units. To minimize the risk from changes in foreign currency exchange rates, we may enter into foreign currency derivative contracts to hedge our foreign currency risk on a cash flow basis. We had no outstanding foreign currency derivative contracts at September 30, 2021.

We also have foreign exchange risk related to cash and cash equivalents in foreign banks. Based on the balance of cash and cash equivalents in foreign banks of $31.2 million as of September 30, 2021, an assumed 5% adverse change to foreign exchange rates would result in a fair value decline of $1.2 million.

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of Quanta’s Chief Executive Officer and Chief Financial Officer that are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This item includes information concerning the controls and controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls and Procedures

Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act, as such disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.

Evaluation of Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Design and Operation of Control Systems

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur because of simple errors or mistakes. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of

compliance with policies or procedures.

PART II — OTHER INFORMATION

Item 1. 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, property damage, breach of contract, negligence or gross negligence, 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. 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 10 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report, which is incorporated by reference in this Item 1, for additional information regarding litigation, claims and other legal proceedings.

Our business is subject to a variety of risks and uncertainties that are difficult to predict and many of which are outside of our control. For a detailed discussion of the risks that affect our business, refer to Item 1A. Risk Factors of Part I of our 2020 Annual Report. As of the date of this filing, there have been no material changes to the risk factors previously described in our 2020 Annual Report, except as set forth below with respect to our acquisition of Blattner and except that the potential effects of the acquisition of Blattner, and the financing thereof, may also have the effect of heightening certain other risks described in our 2020 Annual Report. The matters specifically identified are not the only risks and uncertainties facing our company, and additional risks and uncertainties not known to us or not specifically identified may also impair our business. If any of these risks and uncertainties occur, our business, financial condition, results of operations and cash flows could be negatively impacted, which could negatively impact the value of an investment in our company.

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 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;

• 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 either of the two companies 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.

In addition, laws and regulations related to renewable energy could adversely impact our business, financial condition, results of operations and growth prospects of Blattner, including, among other things, changes to legislation and regulation that mandate percentages of power to be generated from renewable sources, require utilities to meet reliability standards, and encourage installation of new electric power transmission and renewable energy generation facilities. Furthermore, supply chain and other logistical difficulties, as well as sourcing restrictions on materials necessary for certain renewable energy projects, could negatively impact renewable energy customers and delay or jeopardize the viability of certain renewable energy projects in the future. For example, delays in the transportation of materials for renewable projects (e.g., solar panels) from ports to project sites, as well as sourcing restrictions on certain solar project materials produced in China, could increase the pricing of such materials, and negatively impact Blattner’s customers and certain solar infrastructure projects in the near term. Any of these risks could adversely affect our ability to fully realize the anticipated benefits of our acquisition of Blattner within the expected timeframe or at all or such benefits may take longer to realize or cost more than expected, which could adversely affect our business, financial condition, results of operations and growth prospects.

We have incurred, and expect to continue to incur, substantial expenses related to our acquisition of Blattner.

We have 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. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. 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.

**Item 2.**Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

On July 30, 2021, we completed an acquisition 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 the acquisition included 32,822 shares of our common stock, which had a fair value of $2.5 million as of the acquisition date. Additionally, subsequent to September 30, 2021, we completed two acquisitions, on October 1, 2021 and October 13, 2021, in which a portion of the consideration for each acquisition consisted of the unregistered issuance of shares of our common stock. The aggregate consideration paid at closing in these acquisitions included 3,369,703 shares of our common stock.

For additional information about these acquisitions, see Note 4 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report. The issuance of shares of our common stock in connection with these acquisitions were not registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Rule 506 of Regulation D promulgated by the SEC under that section. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement.

Issuer Purchases of Equity Securities During the Third Quarter of 2021

The following table contains information about our purchases of equity securities during the three months ended September 30, 2021.

(1)Includes shares repurchased as of the trade date of such repurchases. 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 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.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

None.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Quanta Services, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

QUANTA SERVICES, INC.

Dated: November 4, 2021