Investments in Affiliates and Other Entities

3 Months Ended

Mar. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

Investments in Affiliates and Other Entities

INVESTMENTS IN AFFILIATES AND OTHER ENTITIES:

Investments in Affiliates and Other Entities

The carrying values for Quanta’s unconsolidated equity method investments were $123.3 million and $101.2 million as of March 31, 2022 and December 31, 2021 and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets. Quanta’s share of net income or losses of these investments is included within operating income in the accompanying condensed consolidated statements of operations when the investee is operationally integral to the operations of Quanta and is reported as “Equity in earnings (losses) of integral unconsolidated affiliates.” Quanta’s share of net income or losses for investments considered non-integral to the operations of Quanta is reported as “Other income (expense).”

Quanta’s equity method investment balance includes investments in various entities, one of which is Quanta’s 50% interest in LUMA Energy, LLC (LUMA), an integral equity method investment, with a carrying investment value of $39.9 million and $30.6 million as of March 31, 2022 and December 31, 2021. During 2020, the LUMA joint venture was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico, and in June 2021 completed the steps necessary to transition operation and maintenance of the system from the owner to LUMA and entered into an interim services agreement. During the interim services period covered by this agreement, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for costs and expenses. The 15-year operation and maintenance period is scheduled to begin once the owner emerges from its Title III debt restructuring process, and during this period LUMA will continue to be reimbursed for costs and expenses and receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. LUMA has not assumed and will not assume ownership of the electric transmission and distribution system assets and is not responsible for operation of the power generation assets. Quanta’s ownership interest and participation in LUMA is accounted for as an equity method investment due to Quanta’s and its joint venture partner’s equal ownership of LUMA. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.”

Also included within the equity method investments described above is a 44% interest in an entity that provides right-of-way solutions, including site preparation and clearing, materials delivery and installation and management of permitting requirements and traffic control, which Quanta acquired in October 2021. As of March 31, 2022, the carrying value of the investment was $33.7 million. This investment is operationally integral to the operations of Quanta, and therefore Quanta’s share of the entity’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.”

As of March 31, 2022, Quanta had receivables of $54.9 million and payables of $62.0 million from its integral unconsolidated affiliates. During the three months ended March 31, 2022, Quanta had revenues of $25.1 million and costs of sales of $50.4 million from its integral unconsolidated affiliates.

As of March 31, 2022, the carrying value for an investment accounted for using the accounting guidance for equity securities with a readily determinable fair value was $83.1 million, which is described further below; and the carrying value for investments accounted for using the accounting guidance for equity securities without a readily determinable fair value was $28.1 million. This is compared to the carrying value of investments as of December 31, 2021 of $130.2 million for equity securities without readily determinable fair values. These amounts are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.

During the three months ended March 31, 2021, Quanta acquired a preferred non-controlling interest in a broadband technology provider for $90.0 million. On March 29, 2022, pursuant to the terms of an agreement and plan of merger with a special purpose acquisition company, the broadband technology provider became Starry Group Holdings, Inc. (Starry), which became a publicly traded company in March 2022, and Quanta’s preferred equity interest converted to a common equity interest, without preferential liquidation rights, in the publicly traded company. Additionally, during the three months ended March 31, 2022, Quanta entered into a subscription agreement pursuant to which it acquired an additional common equity interest in the publicly traded company for $1.5 million. Quanta remeasured the fair value of this investment based on the market price of the publicly traded company’s stock as of March 31, 2022, which resulted in a $8.4 million decrease in the fair value of the investment balance to $83.1 million. The change in fair value was recorded within “Other income (expense), net” on Quanta’s condensed consolidated statements of operations for the three months ended March 31, 2022. Additionally, the shares of common equity held by Quanta in Starry remain subject to a lock-up period that restricts the transfer of such shares for 180 days after March 29, 2022.

During the three months ended March 31, 2022, Quanta sold its non-controlling ownership interest in a technology company and recognized a gain of $6.7 million ($5.0 million, net of tax expense). The gain was recorded in “Other income (expense), net.”During the three months ended March 31, 2021, Quanta also purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, that is being developed for its future corporate headquarters. A portion of this property is currently leased to third-party lessees and is expected to continue to be leased to third-party lessees in the future. As a result, an investment in real estate of $23.5 million was recognized at cost for the third-party leased portion of the property during the three months ended March 31, 2021, and the carrying amount of $23.2 million is included in “Other assets, net” in the accompanying condensed consolidated balance sheet as of March 31, 2022.