Leases

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Leases

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):

		Three Months Ended				Six Months Ended
		June 30,				June 30,
Lease cost	Classification	2021		2020		2021		2020
Finance lease cost:
Amortization of lease assets	Depreciation (1)	$	230	$	260	$	474	$	462
Interest on lease liabilities	Interest expense	23		17		50		34
Operating lease cost	Cost of services and Selling, general and administrative expenses	26,947		29,975		54,723		59,712
Short-term and variable lease cost (2)	Cost of services and Selling, general and administrative expenses	160,342		147,953		318,241		318,318
Total lease cost		$	187,542	$	178,205	$	373,488	$	378,526

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

(2)    Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant and primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.

Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. Quanta utilizes third party market valuations to evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to 10 years, subject to renewal options. Related party lease expense was $3.2 million and $4.3 million for the three months ended June 30, 2021 and 2020 and $8.0 million and $8.7 million for the six months ended June 30, 2021 and 2020.

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

	As of June 30, 2021
	Operating Leases		Finance Leases		Total
Remainder of 2021	$	48,043	$	585	$	48,628
2022	76,476		842		77,318
2023	55,090		618		55,708
2024	34,195		386		34,581
2025	22,640		102		22,742
Thereafter	32,987		—		32,987
Total future minimum operating and finance lease payments	$	269,431	$	2,533	$	271,964
Less imputed interest	(21,747)		(121)		(21,868)
Total lease liabilities	$	247,684	$	2,412	$	250,096

Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $21.7 million as of June 30, 2021. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.

The weighted average remaining lease terms and discount rates were as follows:

	As of June 30, 2021
Weighted average remaining lease term (in years):
Operating leases	4.16
Finance leases	2.96
Weighted average discount rate:
Operating leases	4.1	%
Finance leases	3.9	%

Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between this residual value and the fair market value of the underlying asset at the date of lease termination. As of June 30, 2021, the maximum guaranteed residual value of this equipment was $889.5 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.

As of June 30, 2021, Quanta had additional operating lease obligations of $5.7 million for leases that had not yet commenced but that are expected to commence in the third and fourth quarters of 2021 and have lease terms of one to seven years.

Leases

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):

		Three Months Ended				Six Months Ended
		June 30,				June 30,
Lease cost	Classification	2021		2020		2021		2020
Finance lease cost:
Amortization of lease assets	Depreciation (1)	$	230	$	260	$	474	$	462
Interest on lease liabilities	Interest expense	23		17		50		34
Operating lease cost	Cost of services and Selling, general and administrative expenses	26,947		29,975		54,723		59,712
Short-term and variable lease cost (2)	Cost of services and Selling, general and administrative expenses	160,342		147,953		318,241		318,318
Total lease cost		$	187,542	$	178,205	$	373,488	$	378,526

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

(2)    Short-term lease cost includes both leases and rentals with initial terms of one year or less. Variable lease cost is insignificant and primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.

Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. Quanta utilizes third party market valuations to evaluate rental rates for these properties and facilities, and the lease agreements generally have remaining lease terms of up to 10 years, subject to renewal options. Related party lease expense was $3.2 million and $4.3 million for the three months ended June 30, 2021 and 2020 and $8.0 million and $8.7 million for the six months ended June 30, 2021 and 2020.

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

	As of June 30, 2021
	Operating Leases		Finance Leases		Total
Remainder of 2021	$	48,043	$	585	$	48,628
2022	76,476		842		77,318
2023	55,090		618		55,708
2024	34,195		386		34,581
2025	22,640		102		22,742
Thereafter	32,987		—		32,987
Total future minimum operating and finance lease payments	$	269,431	$	2,533	$	271,964
Less imputed interest	(21,747)		(121)		(21,868)
Total lease liabilities	$	247,684	$	2,412	$	250,096

Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $21.7 million as of June 30, 2021. Month-to-month rental expense associated primarily with certain equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future rental amounts.

The weighted average remaining lease terms and discount rates were as follows:

	As of June 30, 2021
Weighted average remaining lease term (in years):
Operating leases	4.16
Finance leases	2.96
Weighted average discount rate:
Operating leases	4.1	%
Finance leases	3.9	%

Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between this residual value and the fair market value of the underlying asset at the date of lease termination. As of June 30, 2021, the maximum guaranteed residual value of this equipment was $889.5 million. While Quanta believes that no significant payments will be made as a result of these residual value guarantees, there can be no assurance that significant payments will not be required in the future.

As of June 30, 2021, Quanta had additional operating lease obligations of $5.7 million for leases that had not yet commenced but that are expected to commence in the third and fourth quarters of 2021 and have lease terms of one to seven years.