SecProbe.io

CORRESP
1
filename1.htm

CORRESP

 May 26, 2016

John Cash

 Branch Chief

Office of Manufacturing and Construction

Division of Corporation Finance

United States Securities and Exchange Commission

100 F Street, N.E.

 Washington,
DC 20549

Re:
 Quanta Services, Inc.

Form 10-K for the year ended December 31, 2015

Filed February 29, 2016

File No. 1-13831

 Dear
Mr. Cash:

 We are providing the following responses to the comment letter dated April 28, 2016 from the staff
(the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) regarding the above-referenced filings by Quanta Services, Inc. (the “Company” or “Quanta”). The
responses provided below are numbered to correspond to the Staff’s comments, which have been reproduced herein for ease of reference.

 Form
10-K for the Fiscal Year Ended December 31, 2015

 Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 36

 Results of Operations, page 42

1.
 Please revise future filings to more fully explain the specific facts and circumstances that resulted in
declines in revenues and gross profit margin. Please expand your current disclosures to address:

 To
facilitate the Staff’s review of the Company’s response to this comment, the Company will respond in turn to each question raised.

•

 the reasons for reduced customer spending and delays in project timing in your electric power segment;

 Response:

The Company advises the Staff that it will include in future filings disclosure addressing the reasons for reduced customer
spending and project delays to the extent such information is

 U.S. Securities and Exchange Commission

 Page
 2

 material and
reasonably available to support reliable disclosure. For example, the Company included the following disclosure with respect to regulatory challenges causing reduced customer spending and project delays in its Quarterly Report on Form 10-Q for the three months ended March 31, 2016 (the “Form 10-Q”) (emphasis added):

Revenues decreased $147.6 million, or 7.9%, to $1.71 billion for the three months ended March 31,
2016. This decrease is primarily attributable to a decrease in revenues from oil and gas infrastructure services due to fluctuations in project timing primarily as a result of regulatory delays on certain larger pipeline projects associated
with access and environmental permits from government agencies and, to a lesser extent, from reduced demand for services due to lower oil prices and their impact on customer spending. Also contributing to the decrease in revenues was lower
electric power infrastructure services revenues resulting from reduced customer spending on large electric transmission projects as customers in this industry face heightened regulatory and environmental requirements from state and federal
agencies and more stringent permitting processes with various regional system operators. This increased regulatory environment has impacted the timing of existing projects and delayed the development of other necessary infrastructure
projects, which had a corresponding negative impact on the level of demand for our services.

•

 how you determine if revenue declines are due to general industry conditions as opposed to a
reduction in your market share;

 Response:

The Company advises the Staff that management makes such distinctions based on knowledge of general industry trends, including
the projects being awarded industry-wide, and knowledge of the Company’s overall project portfolio, customer feedback and resource deployment, and the projects awarded to the Company. The Company also compares its level of activity, including
revenue growth or decline, against those of industry peers to determine if changes in revenue are consistent with industry trends. For example, management believes that the Company’s decline in consolidated revenues of approximately 7.9% for
the first quarter of 2016 is comparable to the Company’s industry peers, as a majority of the Company’s peers also reported comparable revenue declines in the first quarter of 2016. In addition, the Company monitors commentary by its peers
and industry publications about market dynamics and outlook to determine if they are identifying trends that differ from what Quanta is experiencing.

•

 the percent of revenues related to large electric transmission projects during each period; and

 Response:

The Company notes that it sometimes references “large electric transmission projects” and similar descriptions in its
MD&A disclosure. This discussion is supplemental and qualitative in nature, and is provided in an effort to enhance the quantitative disclosure. Perhaps the most significant example of this disclosure is the paragraph captioned “Larger
versus smaller transmission projects” in the “Understanding Margins” section of MD&A on page 43 of the

 2

 U.S. Securities and Exchange Commission

 Page
 3

 Form 10-Q. This disclosure is intended to provide users with an understanding of how the Company’s margins can be affected by changes in the mix of revenues from larger versus smaller projects as a general
concept and as a basis of reference in MD&A for factors impacting customer spending and Quanta’s results of operations for the period. For example, the Company notes in MD&A that “larger projects typically yield opportunities for
higher margins as [the Company assumes] a greater degree of performance risk and allow for a higher degree of utilization of [the Company’s] resources for longer construction timeframes.”

Although Quanta believes this disclosure can add to investors’ understanding of the business, the Company advises the
Staff that “larger projects” and similar descriptions are relative terms, which include a multitude of qualitative considerations, and management has not historically defined specific parameters regarding such terms or quantitative metrics
with respect thereto as part of managing the Company’s business. Additionally, such terms do not lend themselves to precise, quantitative categorization; instead, the “larger” versus “smaller” distinctions are based on
management’s general knowledge of its project portfolio, customer feedback, resource deployment, industry trends and other specific project knowledge. Management has used such terms to highlight to investors differences in risk or margin
opportunity profiles when it describes certain projects that may have longer terms or other qualitative characteristics such as higher voltage capacities, larger diameter throughput capacities, increased construction or design complexities, more
difficult terrain requirements or longer distance requirements. These and other types of qualitative characteristics, which can lead to higher margin opportunities, may vary by project and are inherently difficult to distill into a repeatable set of
criteria that can be applied across the Company’s business to produce a reliable quantitative metric that is meaningful for comparisons over a multi-year basis.

Even if the Company were able to use an objective, revenue-based measure to delineate “large” projects, such an
approach would raise difficult categorization issues, such as those raised by including the impact of substantial change orders to contract values on initially smaller, lower margin projects, excluding relatively simple and competitively bid
projects that initially exceed the threshold value and including larger contracts that have a high percentage of value attributable to materials (for which little or no margin is attributable) or a high percentage of work subcontracted to third
parties (thereby transferring risk and related margin opportunities to third parties). Management believes that such distinctions would ultimately require an arbitrary cut–off for reporting the difference between larger and smaller projects,
which may lead to similar projects with similar attributes being categorized differently. Therefore, the reporting of revenues based on the “larger/smaller” project metric may cloud, rather than illuminate, investor understanding of the
Company’s business and results of operations.

 The Company further advises the Staff that its financial systems and
processes are not designed to reliably categorize projects for quantitative disclosure on a sub-segment basis. The Company’s financial systems and processes enable management to review individual projects; however, reliable categorizations of
projects based on specific sub-segment attributes such as “electric transmission” or “larger electric transmission” are not available. Further, the percent of revenue attributable to such projects is not used by management to
evaluate or manage the business, and as a result the Company has not implemented financial systems or disclosure controls and procedures necessary to enable reliable, precise quantification at the sub-segment level for disclosure purposes.

 3

 U.S. Securities and Exchange Commission

 Page
 4

•

 the additional factors beyond contract losses that resulted in the significantly lower gross profit margin.

 Response:

The Company respectfully advises the Staff that it has historically presented disclosure of consolidated gross profit and gross
margin in MD&A in a manner that both provides a discussion of the significant directional drivers of the business and includes additional detail on the underlying components of these changes in the segment results to the extent material. For
example, in the Results of Operations for the Electric Power Infrastructure Services segment of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Form 10-K”), the Company provided the
following discussion of additional factors beyond contract losses that resulted in lower gross margin (emphasis added):

Operating income decreased $100.7 million, or 21.7%, to $362.3 million for the year ended
December 31, 2015. Operating income as a percentage of segment revenues decreased to 7.3% for the year ended December 31, 2015 from 8.7% for the year ended December 31, 2014. These decreases were primarily due to a decrease in
revenues from large electric transmission projects mentioned above, which typically yield higher margins, and a corresponding increase in lower margin revenues from smaller scale transmission work. This change in revenue mix also resulted in
increased inefficiencies associated with transitioning between smaller projects that are not experienced during continuous production on larger projects, as well as certain large transmission resources being underutilized during the year ended
December 31, 2015. In addition, operating income and operating income as a percentage of segment revenues decreased in 2015 due to the negative impact of approximately $66 million in aggregate losses recorded during the year ended
December 31, 2015 on two projects due to increased costs associated with performance and site related factors that adversely impacted production. These projects include a power plant project in Alaska expected to be complete in mid-2016 and an
electric transmission project in Canada that was substantially completed during the third quarter of 2015. Also contributing to the decreases was the negative impact on production for various projects due to heavy snowfall and other
unfavorable weather conditions in certain areas of Canada and the northern United States during the first three months of 2015 and a property and equipment impairment of $6.6 million related to certain international renewable energy services
operations. Additionally, lower emergency restoration services revenues impacted margins since such services typically yield higher margins. Operating income and margins during 2014 were negatively impacted by the $102.5 million charge to
provision for long-term contract receivable associated with an electric power infrastructure services project completed in 2012 described above.

The Company acknowledges the Staff’s comment and, in future filings, will continue to include narrative discussion
related to the underlying reasons for material changes in gross margin to the extent available.

 4

 U.S. Securities and Exchange Commission

 Page
 5

2.
 For contracts for which you recorded losses during 2015, please tell us and revise future filings to
address:

 To facilitate the Staff’s review of the Company’s response to this comment, the
Company will respond in turn to each question raised.

•

 How losses are estimated …

Response:

 The Company
advises the Staff that it views the process for the development of loss project estimates as inherent to, and the same as, the project cost estimation process applied across all of Quanta’s customer contracts, which is more fully described in
Note 2 of the Notes to Consolidated Financial Statements in the Form 10-K, at pages 98-99, and reproduced below:

The cost estimation process is based on professional knowledge and experience of our engineers, project
managers and financial professionals. Changes in job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts
and therefore, our profit recognition. Changes in these factors may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. These factors are routinely evaluated on a project by
project basis throughout the project term, and the impact of corresponding revisions in management’s estimates of contract value, contract cost and contract profit are recorded as necessary in the period in which the revisions are determined.
Provisions for losses on uncompleted contracts are made in the period in which such losses are determined to be probable and the amount can be reasonably estimated. If actual results significantly differ from our estimates used for revenue
recognition and claim assessments, our financial condition and results of operations could be materially impacted.

Considering the Staff’s comments and in order to more fully disclose how losses are estimated and the specific facts and
circumstances that can lead to them, the Company notes that in future filings it will expand the revenue recognition accounting policy disclosure by incorporating the following language, which was previously included in Item 1A. Risk Factors in
the Form 10-K, into the discussion referenced above and the related discussion included in MD&A:

Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in
a variety of factors including unforeseen circumstances not included in our cost estimates or covered by our contract for which we cannot obtain adequate compensation, including concealed or unknown environmental conditions; changes in the cost of
equipment, commodities, materials or labor; unanticipated costs or claims due to customer-caused delays, customer failure to provide required materials or equipment, errors in engineering, specifications or designs, project modifications, or
contract termination and our inability to obtain reimbursement for such costs or recover on such claims;

 5

 U.S. Securities and Exchange Commission

 Page
 6

weather conditions; and quality issues requiring rework or replacement. These factors, along with other risks
inherent in performing fixed price contracts may cause actual revenues and gross profits for a project to differ from previous estimates and could result in reduced profitability or losses on projects.

•

 … and the specific facts and circumstances that lead to [the losses];

•

 The total contract value and percent complete;

•

 If applicable, the specific facts and circumstances that resulted in additional losses beyond initial loss
estimates;

•

 The current status of loss contracts …

Response:

 The Company
advises the Staff that, with respect to the $73 mi