Investments in Affiliates and Other Entities

9 Months Ended

Sep. 30, 2022

Equity Method Investments and Joint Ventures [Abstract]

Investments in Affiliates and Other Entities

8. INVESTMENTS IN AFFILIATES AND OTHER ENTITIES:

Equity Method Investments

The carrying values for Quanta’s unconsolidated equity method investments were $135.4 million and $101.2 million as of September 30, 2022 and December 31, 2021 and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets. Included in the carrying value as of September 30, 2022 was $82.2 million related to integral unconsolidated affiliates and $53.2 million related to non-integral unconsolidated affiliates, and included in the carrying value as of December 31, 2021 was $67.8 million related to integral unconsolidated affiliates and $33.4 million related to non-integral unconsolidated affiliates. 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.” For non-integral investments, such amounts are reported as “Other income (expense), net.”

Quanta’s integral equity method investment balance includes Quanta’s 50% interest in LUMA, which had a carrying investment value of $40.3 million and $30.6 million as of September 30, 2022 and December 31, 2021. 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. 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. During the 15-year period under the operation and maintenance agreement, LUMA would be entitled to reimbursement of specific costs and expenses and receive a fixed annual management fee, with the opportunity to receive additional annual performance-based incentive fees. Under the terms of the agreement, LUMA will not assume ownership of the electric transmission and distribution system assets or be responsible for operation of the associated power generation assets.

In June 2021 under the terms of an interim services agreement, LUMA took over operation and maintenance of the system from the utility that owns it prior to commencement of the 15-year term, which is not expected to begin until the satisfaction or waiver of several remaining conditions precedent, including the utility’s emergence from its Title III debt restructuring process. During this interim period, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for specific costs and expenses.

The initial term of the interim services agreement continues through November 30, 2022 and, if requested by the utility’s public-private partnership administrator, can be extended by agreement of LUMA, the utility and the administrator. However, if the interim services agreement is not extended it would expire effective December 1, 2022, the 15-year period under the operation and maintenance agreement would not commence, and LUMA would begin work to transition the operation and maintenance of the transmission and distribution system back to the utility or another operator designated by the administrator.

Additionally, to the extent the interim services agreement is not extended, LUMA would be entitled to a $115 million termination fee.

Also included within the integral equity method investment balances described above is Quanta’s 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. Quanta acquired this interest in October 2021, and the carrying value of the investment was $27.0 million and $28.5 million as of September 30, 2022 and December 31, 2021.

As of September 30, 2022, Quanta had receivables of $83.0 million from and payables of $23.2 million to its integral unconsolidated affiliates. As of December 31, 2021, Quanta had receivables of $49.0 million from and payables of $56.3 million to its integral unconsolidated affiliates. During the three and nine months ended September 30, 2022, Quanta recognized revenues of $38.2 million and $89.7 million for services provided to such affiliates and costs of sales of $38.8 million and $111.1 million for services provided by such affiliates.

Other Equity Investments

As of September 30, 2022, the carrying value for an investment accounted for using the accounting guidance for equity securities with a readily determinable fair value was $15.0 million, which relates to Starry Group Holdings, Inc. (Starry) and 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 $27.8 million. As of December 31, 2021, the carrying value for investments in equity securities without readily determinable fair values was $130.2 million, which included Starry prior to it becoming a publicly traded company. 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. In March 2022, pursuant to the terms of an agreement and plan of merger with a special purpose acquisition company, the broadband technology provider became Starry, a publicly traded company, and Quanta’s preferred equity interest converted to a common equity interest, without preferential liquidation rights, in the publicly traded company. Additionally, in March 2022, Quanta acquired an additional common equity interest in Starry for $1.5 million. Quanta remeasured the fair value of this investment based on the market price of Starry’s common stock as of September 30, 2022, which resulted in $26.5 million and $76.5 million decreases in value for the three and nine months ended September 30, 2022. The changes in fair value are recorded within “Other income (expense), net” on Quanta’s condensed consolidated statements of operations for the three and nine months ended September 30, 2022. The lock-up period that previously restricted the transfer of substantially all of the shares of common equity held by Quanta in Starry expired in September 2022. In the interval between September 30, 2022 and the date of this filing, the fair value of Quanta’s investment in Starry declined further.

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) in the nine months ended September 30, 2022. The gain is recorded in “Other income (expense), net.”

Investment in Real Property

During the three months ended March 31, 2021, Quanta purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, that Quanta has utilized as its corporate headquarters since September 2022. A portion of this property is currently leased to third-party lessees and is expected to continue to be leased to third-party lessees for the foreseeable future. As a result, an investment in real estate in the amount 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 $26.3 million as of September 30, 2022 is included in “Other assets, net” in the accompanying condensed consolidated balance sheet.