UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 02, 2022~~April 01, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 000-11917

THE DAVEY TREE EXPERT COMPANY

(Exact name of registrant as specified in its charter)


Ohio									34-0176110
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification Number)

1500 North Mantua Street

P.O. Box 5193

Kent, OH 44240

(Address of principal executive offices) (Zip code)

(330) 673-9511

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

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~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☐

Emerging Growth Company

☐

Non-Accelerated Filer

☒

Smaller Reporting Company

☐

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 ☒

There were ~~44,016,789~~42,153,420 Common Shares, $.50 par value, outstanding as of ~~August~~May 5, ~~2022.~~2023. The registrant's Common Shares are not traded on a public market.

Index

The Davey Tree Expert Company

Quarterly Report on Form 10-Q

~~July 2, 2022~~April 1, 2023

INDEX


						Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets				2
		Condensed Consolidated Statements of Operations				3
		Condensed Consolidated Statements of Comprehensive Income				4
		Condensed Consolidated Statements of Shareholders' Equity				5
		Condensed Consolidated Statements of Cash Flows				76
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	87
			B	—	Seasonality of Business	98
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	9
			D	—	Business Combinations	1110
			E	—	Marketable Securities	12
			F	—	Identified Intangible Assets and Goodwill, Net	13
			G	—	Short and Long-Term Debt and Commitments Related to Letters of Credit	1415
			H	—	Leases	1718
			I	—	Stock-Based Compensation	1819
			J	—	Income Taxes	2122
			K	—	Accumulated Other Comprehensive Income (Loss)	2223
			L	—	Per Share Amounts and Common and Redeemable Shares Outstanding	24
			M	—	Operations by Business Segment	2526
			N	—	Revenue Recognition	2827
			O	—	Fair Value Measurements and Financial Instruments	3028
			P	—	Commitments and Contingencies	3331
			Q	—	The Davey 401KSOP and Employee Stock Ownership Plan	3634

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations					3735
		Results of Operations				3836
		Liquidity and Capital Resources				4338
			Cash Flow Summary			4339
			Contractual Obligations Summary and Commercial Commitments			4540
			Capital Resources			4540
		Critical Accounting Policies and Estimates				4540
		Note Regarding Forward-Looking Statements				4641

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					4742

Item 4.	Controls and Procedures					4742

Part II.	Other Information					4743

Item 1.	Legal Proceedings					4743

Item 1A.	Risk Factors					4945

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					5045

Item 6.	Exhibits					5147

Exhibit Index						5247

Signatures						5348

"“We,~~" "us," "our,"~~” “us,” “our,” the ~~"Company," "The~~“Company,” “The Registrant,~~" "Davey"~~” “Davey” and ~~"Davey~~“Davey Tree,"” unless the context otherwise requires, means The Davey Tree Expert Company and its subsidiaries.

- 1 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data dollar amounts)


		July 2, 2022		December 31, 2021			April 1, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	10,462	$	19,460	Cash	$	24,677	$	18,526
Accounts receivable, net	Accounts receivable, net	319,845		278,280		Accounts receivable, net	347,570		321,810
Operating supplies	Operating supplies	16,084		12,662		Operating supplies	21,410		17,976
Other current assets	Other current assets	27,753		37,853		Other current assets	81,995		83,952
Total current assets	Total current assets	374,144		348,255		Total current assets	475,652		442,264

Property and equipment, net	Property and equipment, net	253,367		227,985		Property and equipment, net	285,066		268,539
Right-of-use assets - operating leases	Right-of-use assets - operating leases	95,162		86,423		Right-of-use assets - operating leases	109,709		104,612
Marketable securities and other investments	Marketable securities and other investments	39,174		25,401		Marketable securities and other investments	24,799		28,909
Other assets	Other assets	15,085		17,264		Other assets	22,148		22,841
Intangible assets, net	Intangible assets, net	11,623		11,633		Intangible assets, net	17,012		18,949
Goodwill	Goodwill	58,326		55,980		Goodwill	69,854		70,107
Total assets	Total assets	$	846,881	$	772,941	Total assets	$	1,004,240	$	956,221
Liabilities and shareholders' equity	Liabilities and shareholders' equity					Liabilities and shareholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	44,774	$	43,021	Accounts payable	$	55,380	$	50,171
Accrued expenses	Accrued expenses	75,985		75,138		Accrued expenses	54,218		77,454
Current portion of long-term debt and finance lease liabilities	Current portion of long-term debt and finance lease liabilities	11,108		25,268		Current portion of long-term debt and finance lease liabilities	18,867		26,872
Other current liabilities	Other current liabilities	78,094		77,549		Other current liabilities	91,949		90,873
Total current liabilities	Total current liabilities	209,961		220,976		Total current liabilities	220,414		245,370
Long-term debt	Long-term debt	182,083		123,531		Long-term debt	291,939		230,768
Lease liabilities - finance leases	Lease liabilities - finance leases	8,395		8,646		Lease liabilities - finance leases	10,357		9,481
Lease liabilities - operating leases	Lease liabilities - operating leases	62,789		57,335		Lease liabilities - operating leases	72,236		68,878
Self-insurance accruals	Self-insurance accruals	88,481		77,099		Self-insurance accruals	85,588		77,926
Other noncurrent liabilities	Other noncurrent liabilities	12,279		11,583		Other noncurrent liabilities	22,743		24,020
Total liabilities	Total liabilities	563,988		499,170		Total liabilities	703,277		656,443
Commitments and contingencies (Note P)	Commitments and contingencies (Note P)					Commitments and contingencies (Note P)
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,042 and 9,392 shares at redemption value as of July 2, 2022 and December 31, 2021		163,658		169,931
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,336 and 9,188 shares at redemption value as of April 1, 2023 and December 31, 2022						Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 9,336 and 9,188 shares at redemption value as of April 1, 2023 and December 31, 2022	172,725		169,978
Common shareholders' equity:	Common shareholders' equity:					Common shareholders' equity:
Common shares, $.50 par value, per share; 96,000 shares authorized; 76,786 and 76,436 shares issued and outstanding before deducting treasury shares and which excludes 9,042 and 9,392 shares subject to redemption as of July 2, 2022 and December 31, 2021		38,645		38,379
Common shares, $.50 par value, per share; 96,000 shares authorized; 76,491 and 76,640 shares issued and outstanding before deducting treasury shares and which excludes 9,336 and 9,188 shares subject to redemption as of April 1, 2023 and December 31, 2022						Common shares, $.50 par value, per share; 96,000 shares authorized; 76,491 and 76,640 shares issued and outstanding before deducting treasury shares and which excludes 9,336 and 9,188 shares subject to redemption as of April 1, 2023 and December 31, 2022	38,396		38,550
Additional paid-in capital	Additional paid-in capital	151,752		135,897		Additional paid-in capital	162,170		162,828
Common shares subscribed, unissued	Common shares subscribed, unissued	533		—		Common shares subscribed, unissued	23,864		23,864
Retained earnings	Retained earnings	266,745		239,979		Retained earnings	299,119		293,993
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,829)		(4,173)		Accumulated other comprehensive loss	(5,616)		(5,588)
		452,846		410,082			517,933		513,647
Less: Cost of common shares held in treasury; 42,096 shares at July 2, 2022 and 41,325 shares at December 31, 2021		333,611		306,242

Less: Cost of common shares held in treasury; 43,289 shares at April 1, 2023 and 43,110 shares at December 31, 2022						Less: Cost of common shares held in treasury; 43,289 shares at April 1, 2023 and 43,110 shares at December 31, 2022	369,721		363,502
Common shares subscription receivable						Common shares subscription receivable	19,974		20,345
Total common shareholders' equity	Total common shareholders' equity	119,235		103,840		Total common shareholders' equity	128,238		129,800
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	846,881	$	772,941	Total liabilities and shareholders' equity	$	1,004,240	$	956,221

See notes to condensed consolidated financial statements (unaudited).	See notes to condensed consolidated financial statements (unaudited).					See notes to condensed consolidated financial statements (unaudited).

- 2 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share dollar amounts)


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021				April 1, 2023		April 2, 2022
Revenues	Revenues	$	401,959	$	355,476	$	744,603	$	654,297	Revenues		$	371,334	$	342,644

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	251,554		219,275		485,761		418,310		Operating		249,069		234,207
Selling	Selling	68,155		58,836		128,951		111,523		Selling		68,223		60,796
General and administrative	General and administrative	30,055		23,622		59,050		48,973		General and administrative		31,437		28,995
Depreciation and amortization	Depreciation and amortization	13,515		13,702		27,302		27,160		Depreciation and amortization		13,994		13,787
Gain on sale of assets, net	Gain on sale of assets, net	(2,052)		(1,983)		(2,950)		(2,667)		Gain on sale of assets, net		(2,896)		(898)
Total costs and expenses	Total costs and expenses	361,227		313,452		698,114		603,299		Total costs and expenses		359,827		336,887

Income from operations	Income from operations	40,732		42,024		46,489		50,998		Income from operations		11,507		5,757

Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(1,703)		(1,370)		(3,148)		(2,644)		Interest expense		(3,871)		(1,445)
Interest income	Interest income	159		53		186		122		Interest income		399		27
Other, net	Other, net	(2,533)		(1,200)		(4,870)		(3,250)		Other, net		(651)		(2,337)

Income before income taxes	Income before income taxes	36,655		39,507		38,657		45,226		Income before income taxes		7,384		2,002

Income taxes	Income taxes	9,870		10,964		10,090		12,256		Income taxes		1,388		220

Net income	Net income	$	26,785	$	28,543	$	28,567	$	32,970	Net income		$	5,996	$	1,782

Net income per share:*
Net income per share:										Net income per share:

Basic	Basic	$	.61	$	.63	$	.64	$	.73	Basic		$	.14	$	.04
Diluted	Diluted	$	.58	$	.60	$	.61	$	.69	Diluted		$	.13	$	.04

Weighted-average shares outstanding:*
Weighted-average shares outstanding:										Weighted-average shares outstanding:

Basic	Basic	44,052		45,205		44,333		45,443		Basic		43,077		44,618
Diluted	Diluted	46,464		47,489		46,650		47,702		Diluted		45,122		46,838

* Prior period has been adjusted for the 2-for-one stock split effected in October 2021.

See notes to condensed consolidated financial statements (unaudited).	See notes to condensed consolidated financial statements (unaudited).									See notes to condensed consolidated financial statements (unaudited).

- 3 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021				April 1, 2023		April 2, 2022
Net income	Net income	$	26,785	$	28,543	$	28,567	$	32,970	Net income		$	5,996	$	1,782
Components of other comprehensive income (loss), net of tax:
Components of other comprehensive (loss) income, net of tax:										Components of other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(1,001)		443		(521)		893		Foreign currency translation adjustments		31		480
Unrealized loss on available-for-sale securities	Unrealized loss on available-for-sale securities	(181)		—		(181)		—		Unrealized loss on available-for-sale securities		(59)		—
Amortization of defined benefit pension items:	Amortization of defined benefit pension items:									Amortization of defined benefit pension items:
Net actuarial loss	Net actuarial loss	18		25		37		50		Net actuarial loss		—		19
Prior service cost	Prior service cost	4		12		9		24		Prior service cost		—		5
Defined benefit pension plan adjustments	Defined benefit pension plan adjustments	22		37		46		74		Defined benefit pension plan adjustments		—		24

Other comprehensive income (loss), net of tax		(1,160)		480		(656)		967
Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax		(28)		504

Comprehensive income	Comprehensive income	$	25,625	$	29,023	$	27,911	$	33,937	Comprehensive income		$	5,968	$	2,286

See notes to condensed consolidated financial statements (unaudited).	See notes to condensed consolidated financial statements (unaudited).									See notes to condensed consolidated financial statements (unaudited).

- 4 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(In thousands, except per share data)


		Common Shares		Additional Paid-in Capital		Common Shares Subscribed, Unissued		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity			Common Shares		Additional Paid-in Capital		Common Shares Subscribed, Unissued		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Common Shares Subscription Receivable		Total Common Shareholders' Equity
Balances at April 2, 2022		$	38,068	$	135,315	$	—	$	240,929	$	(3,669)	$	(310,519)	$	100,124

Balances at January 1, 2023																Balances at January 1, 2023	$	38,550	$	162,828	$	23,864	$	293,993	$	(5,588)	$	(363,502)	$	(20,345)	$	129,800
Net income	Net income	—		—		—		26,785		—		—		26,785		Net income	—		—		—		5,996		—		—		—		5,996
Change in 401KSOP and ESOP related shares	Change in 401KSOP and ESOP related shares	577		9,860		—		—		—		—		10,437		Change in 401KSOP and ESOP related shares	(154)		(2,593)		—		7		—		—		—		(2,740)
Shares sold to employees	Shares sold to employees	—		5,491		—		—		—		4,806		10,297		Shares sold to employees	—		1,616		—		—		—		1,412		—		3,028
Options exercised	Options exercised	—		(472)		—		—		—		2,072		1,600		Options exercised	—		(1,205)		—		—		—		788		—		(417)
Subscription shares	Subscription shares	—		—		533		—		—		—		533		Subscription shares	—		—		—		—		—		—		371		371
Stock-based compensation	Stock-based compensation	—		1,558		—		—		—		—		1,558		Stock-based compensation	—		1,524		—		—		—		—		—		1,524
Dividends, $.020 per share	Dividends, $.020 per share	—		—		—		(969)		—		—		(969)		Dividends, $.020 per share	—		—		—		(877)		—		—		—		(877)

Currency translation adjustments		—		—		—		—		(1,001)		—		(1,001)
Defined benefit pension plans		—		—		—		—		22		—		22
Available-for-sale securities		—		—				—		(181)		—		(181)
Other comprehensive loss																Other comprehensive loss	—		—		—		—		(28)		—		—		(28)

Shares purchased	Shares purchased	—		—		—		—		—		(29,970)		(29,970)		Shares purchased	—		—		—		—		—		(8,419)		—		(8,419)
Balances at July 2, 2022		$	38,645	$	151,752	$	533	$	266,745	$	(4,829)	$	(333,611)	$	119,235

Balances at January 1, 2022		$	38,379	$	135,897	$	—	$	239,979	$	(4,173)	$	(306,242)	$	103,840
Net income		—		—		—		28,567		—		—		28,567
Change in 401KSOP and ESOP related shares		266		6,055		—		(50)		—		—		6,271
Shares sold to employees		—		8,360		—		—		—		7,000		15,360
Options exercised		—		(1157)		—		—		—		2,605		1,448
Subscription shares		—		—		533		—		—		—		533
Stock-based compensation		—		2,597		—		—		—		—		2,597
Dividends, $.038 per share		—		—		—		(1,751)		—		—		(1,751)

Currency translation adjustments		—		—		—		—		(521)		—		(521)
Defined benefit pension plans		—		—		—		—		46		—		46
Available-for-sale securities		—		—				—		(181)		—		(181)
Shares purchased		—		—		—		—		—		(36,974)		(36,974)
Balances at July 2, 2022		$	38,645	$	151,752	$	533	$	266,745	$	(4,829)	$	(333,611)	$	119,235
Balances at April 1, 2023																Balances at April 1, 2023	$	38,396	$	162,170	$	23,864	$	299,119	$	(5,616)	$	(369,721)	$	(19,974)	$	128,238


	Common Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Common Shares Held in Treasury		Total Common Shareholders' Equity














Balances at January 1, 2022	$	38,379	$	135,897	$	239,979	$	(4,173)	$	(306,242)	$	103,840
Net income	—		—		1,782		—		—		1,782
Change in 401KSOP and ESOP related shares	(311)		(3,805)		(50)		—		—		(4,166)
Shares sold to employees	—		2,869		—		—		2,194		5,063
Options exercised	—		(685)		—		—		533		(152)

Stock-based compensation	—		1,039		—		—		—		1,039


Dividends, $.018 per share	—		—		(782)		—		—		(782)

Other comprehensive income	—		—		—		504		—		504


Shares purchased	—		—		—		—		(7,004)		(7,004)
Balances at April 2, 2022	$	38,068	$	135,315	$	240,929	$	(3,669)	$	(310,519)	$	100,124

See notes to condensed consolidated financial statements (unaudited).

- 5 -

~~Index~~

~~THE DAVEY TREE EXPERT COMPANY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY~~ ~~(Unaudited)~~

~~(In thousands, except per share data)~~

Common
Shares Additional
Paid-in
Capital Common
Shares
Subscribed,
Unissued Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax Common
Shares
Held in
Treasury Total
Common
Shareholders'
Equity
Balances at April 3, 2021 $ 37,737 $ 109,774 $ — $ 210,567 $ (4,060) $ (272,337) $ 81,681
Net income — — — 28,543 — — 28,543
Change in 401KSOP and ESOP related shares 312 9,063 — (13,628) — — (4,253)
Shares sold to employees — 4,104 — — — 4,231 8,335
Options exercised — (45) — — — 1,375 1,330
Stock-based compensation — 926 — — — — 926
Dividends, $.015 per share * — — — (775) — — (775)
Currency translation adjustments — — — — 443 — 443
Defined benefit pension plans — — — — 37 — 37
Shares purchased — — — — — (23,522) (23,522)
Balances at July 3, 2021 $ 38,049 $ 123,822 $ — $ 224,707 $ (3,580) $ (290,253) $ 92,745
Balances at January 1, 2021 $ 37,801 $ 110,069 $ — $ 206,711 $ (4,547) $ (270,360) $ 79,674
Net income — — — 32,970 — — 32,970
Change in 401KSOP and ESOP related shares 248 7,208 — (13,628) — — (6,172)
Shares sold to employees — 5,443 — — — 5,352 10,795
Options exercised — (408) — — — 2,021 1,613
Stock-based compensation — 1,510 — — — — 1,510
Dividends, $.028 per share * — — — (1,346) — — (1,346)
Currency translation adjustments — — — — 893 — 893
Defined benefit pension plans — — — — 74 — 74
Shares purchased — — — — — (27,266) (27,266)
Balances at July 3, 2021 $ 38,049 $ 123,822 $ — $ 224,707 $ (3,580) $ (290,253) $ 92,745
*Per share amount adjusted for the 2-for-one stock split effected in October 2021.
See notes to condensed consolidated financial statements (unaudited).

~~- 6~~ -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


		Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	28,567	$	32,970	Net income	$	5,996	$	1,782
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:						Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	27,302		27,160		Depreciation and amortization	13,994		13,787
Other	Other	363		(1,029)		Other	(1,523)		659
Changes in operating assets and liabilities, net of assets acquired:	Changes in operating assets and liabilities, net of assets acquired:					Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable	Accounts receivable	(41,882)		6,954		Accounts receivable	(25,756)		2,015
Accounts payable and accrued expenses	Accounts payable and accrued expenses	2,654		(13,492)		Accounts payable and accrued expenses	(18,418)		(2,041)
Self-insurance accruals	Self-insurance accruals	8,969		7,235		Self-insurance accruals	6,825		5,076
Prepaid expenses	Prepaid expenses	14,633		11,670		Prepaid expenses	(22)		5,660
Other, net	Other, net	1,681		432		Other, net	4,779		1,347
		13,720		38,930			(20,121)		26,503
Net cash provided by operating activities		42,287		71,900
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(14,125)		28,285
Investing activities	Investing activities					Investing activities
Capital expenditures:	Capital expenditures:					Capital expenditures:
Equipment	Equipment	(40,510)		(33,617)		Equipment	(23,415)		(21,411)
Land and buildings	Land and buildings	(9,336)		(6,257)		Land and buildings	(3,633)		(5,093)
Purchases of businesses, net of cash acquired and debt incurred	Purchases of businesses, net of cash acquired and debt incurred	(3,366)		(8,405)		Purchases of businesses, net of cash acquired and debt incurred	(1,045)		(1,098)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	3,378		4,231		Proceeds from sales of property and equipment	3,530		1,180
Purchases of marketable securities	Purchases of marketable securities	(22,894)		—		Purchases of marketable securities	(10,677)		(11,500)
Proceeds from sale of marketable securities	Proceeds from sale of marketable securities	1,274		—		Proceeds from sale of marketable securities	10,342		803
Net cash used in investing activities	Net cash used in investing activities	(71,454)		(44,048)		Net cash used in investing activities	(24,898)		(37,119)
Financing activities	Financing activities					Financing activities
Revolving credit facility borrowings	Revolving credit facility borrowings	331,941		142,306		Revolving credit facility borrowings	259,854		181,168
Revolving credit facility payments	Revolving credit facility payments	(273,096)		(118,655)		Revolving credit facility payments	(198,288)		(157,219)
Purchase of common shares for treasury	Purchase of common shares for treasury	(36,974)		(27,266)		Purchase of common shares for treasury	(8,419)		(7,004)
Sale of common shares from treasury	Sale of common shares from treasury	17,341		12,408		Sale of common shares from treasury	2,988		4,910
Dividends paid	Dividends paid	(1,751)		(1,346)		Dividends paid	(877)		(782)

Proceeds from notes payable	Proceeds from notes payable	24,803		160,914		Proceeds from notes payable	5,434		7,129
Payments of notes payable	Payments of notes payable	(40,442)		(176,794)		Payments of notes payable	(14,771)		(16,319)
Payments of finance leases	Payments of finance leases	(1,639)		(2,049)		Payments of finance leases	(759)		(767)
Net cash provided by (used in) financing activities		20,183		(10,482)
Net cash provided by financing activities						Net cash provided by financing activities	45,162		11,116
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(14)		95		Effect of exchange rate changes on cash	12		35
(Decrease)/increase in cash		(8,998)		17,465
Increase in cash						Increase in cash	6,151		2,317

Cash, beginning of period	Cash, beginning of period	19,460		16,201		Cash, beginning of period	18,526		19,460
Cash, end of period	Cash, end of period	$	10,462	$	33,666	Cash, end of period	$	24,677	$	21,777
Supplemental cash flow information follows:	Supplemental cash flow information follows:					Supplemental cash flow information follows:
Interest paid	Interest paid	$	3,074	$	2,579	Interest paid	$	4,430	$	2,160
Income taxes paid	Income taxes paid	5,419		14,093		Income taxes paid	64		1,071

See notes to condensed consolidated financial statements (unaudited).	See notes to condensed consolidated financial statements (unaudited).					See notes to condensed consolidated financial statements (unaudited).

- 76 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

A.Basis of Financial Statement Preparation

The ~~condensed~~ consolidated financial statements present the financial position, results of operations and cash flows of The Davey Tree Expert Company and its subsidiaries. When we refer to “we,” “us,” “our,” the ~~"Company,"~~“Company,” “Davey,” or “Davey Tree”, we mean The Davey Tree Expert Company and its subsidiaries, unless otherwise expressly stated or the context indicates otherwise.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The condensed consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. All intercompany accounts and transactions have been eliminated in consolidation.

Certain information and disclosures required by U.S. GAAP for complete financial statements have been omitted in accordance with the rules and regulations of the SEC. We suggest that these condensed consolidated financial statements be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Annual Report”).

~~Per Common Share Information--Prior year common share and per share data have been retroactively adjusted to recognize a 2-for-one stock split of our common shares effective October 1, 2021.~~

Use of Estimates in Financial Statement Preparation--The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts. Our condensed consolidated financial statements include amounts that are based on management’s best estimates and judgments. Estimates are used for, but not limited to, accounts receivable valuation, depreciable lives of fixed assets, long-lived asset and goodwill valuation, self-insurance accruals, income taxes, stock valuation and revenue recognition.

Our mitigation banking business creates and sells wetland, stream and other environmental credits and provides services to those engaged in permittee-responsible mitigation and environmental restoration. When we sell and create wetland credits, we record mitigation bank credit inventory which is recorded at its net realizable value. Actual results could differ from those estimates.

While the coronavirus ("COVID-19") pandemic did not have a material adverse effect on our reported results for the first six months of our 2022 fiscal year, the overall extent and duration of the impact of COVID-19 on businesses and economic activity generally remains unclear. The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain due to its continual evolution, such as resurgences in cases and the emergence of new strains of COVID-19, and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the pandemic or treat its impact, including reimposing previously-lifted measures and the possibility additional measures will be put in place, among other things.

Our business continues to be impacted by a number of ~~other~~ macro-economic factors, ~~in addition to~~including the trailing impact of the COVID-19 pandemic. Global supply chains and product availability remain highly challenged and ongoing global events in Eastern Europe have only exacerbated an already difficult operating environment. These factors, combined with higher fuel costs, rising interest rates and a highly competitive labor market, have created an inflationary environment and cost pressures.

~~- 8 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

The Company’s fiscal quarters each contain thirteen operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains fourteen operating weeks. The Company’s fiscal quarter that ended ~~July~~April 1, 2023 is referred to as the first quarter of 2023, and the fiscal quarter ended April 2, 2022 is referred to as the ~~second~~first quarter of ~~2022, and the fiscal quarter ended July 3, 2021 is referred~~2022.

- 7 -

Index

The Davey Tree Expert Company

Notes to ~~as the second quarter of 2021.~~Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

Recent Accounting Guidance

Accounting Standard ~~Not Yet~~ Adopted in 2023

Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848)--In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, "Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The guidance of this ASU is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. In January 2021, the FASB amended ASU 2020-04 by issuing Accounting Standards Update No. 2021-01, Reference Rate Reform Scope ("ASU 2021-01"). ASU 2021-01 clarifies the scope of optional expedients and exceptions to derivatives that are affected by the discounting transition. ~~The Company is currently reviewing its agreements impacted by~~In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date included within Topic 848 from December 31, 2022, to December 31, 2024. In January 2023, we adopted ASU 2020-04 and amended our amended and restated credit agreement to replace the reference rate ~~reform and does~~from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The amendment did not ~~expect these ASUs to~~ have a material impact to the Company’s financial statements.

Accounting Standards Update 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations--In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This guidance requires annual and interim disclosure of the key terms of outstanding supplier finance programs and a roll-forward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of the supplier finance program obligations. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We adopted this standard and have no material supplier finance program obligations.

B. Seasonality of Business

Due to the seasonality of our business, our operating results for the three ~~and six~~ months ended ~~July 2, 2022~~April 1, 2023 are not indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2022.~~2023. Our business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation expense, amortization, rent and interest expense, are not significantly impacted by business seasonality.

- 8 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

C. Accounts Receivable, Net and Supplemental Balance-Sheet Information

Accounts receivable, net, consisted of the following:


Accounts receivable, net	Accounts receivable, net	July 2, 2022		December 31, 2021		Accounts receivable, net	April 1, 2023		December 31, 2022
Accounts receivable	Accounts receivable	$	234,688	$	215,336	Accounts receivable	$	237,431	$	242,427
Unbilled receivables(1)	Unbilled receivables(1)	88,464		65,957		Unbilled receivables(1)	113,115		82,605
		323,152		281,293			350,546		325,032
Less allowances for credit losses	Less allowances for credit losses	3,307		3,013		Less allowances for credit losses	2,976		3,222
Accounts receivable, net	Accounts receivable, net	$	319,845	$	278,280	Accounts receivable, net	$	347,570	$	321,810

(1) Unbilled receivables consist of work-in-process in accordance with the terms of contracts, primarily with utility services customers.

The following items comprised the amounts included in the balance sheets:


Other current assets	April 1, 2023		December 31, 2022
Refundable income taxes	$	606	$	14
Prepaid expenses	25,756		32,080

Mitigation bank credit inventory	5,701		6,351
Assets invested for self-insurance	29,776		24,828
Payroll taxes refundable	18,283		18,283
Other	1,873		2,396
Total	$	81,995	$	83,952


Property and equipment, net	April 1, 2023		December 31, 2022
Land and land improvements	$	28,570	$	26,023
Buildings and leasehold improvements	81,863		80,768
Equipment	672,598		663,207
	783,031		769,998
Less accumulated depreciation	497,965		501,459
Total	$	285,066	$	268,539


Other assets, noncurrent	April 1, 2023		December 31, 2022
Investment--cost-method affiliate	$	1,258	$	1,258
Deferred income taxes	6,844		6,828
Cloud computing arrangements	1,898		2,652
Insurance receivable	7,500		7,500
Other	4,648		4,603
Total	$	22,148	$	22,841

- 9 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

~~The following items comprised the amounts included in the balance sheets:~~


Accrued expenses	April 1, 2023		December 31, 2022
Employee compensation	$	17,359	$	35,536
Accrued compensated absences	13,620		13,034
Self-insured medical claims	2,677		2,806
Income tax payable	8,474		6,573
Customer advances, deposits	4,918		7,736
Taxes, other than income	3,050		5,764

Other	4,120		6,005
Total	$	54,218	$	77,454


Other current liabilities	April 1, 2023		December 31, 2022

Current portion of:
Lease liability-operating leases	$	36,565	$	34,652
Self-insurance accruals	55,384		56,221
Total	$	91,949	$	90,873

Other current assets July 2,
2022 December 31,
2021
Refundable income taxes $ 716 $ 1,346
Prepaid expenses 16,250 30,911
Assets invested for self-insurance 9,257 4,250
Other 1,530 1,346
Total $ 27,753 $ 37,853

Property and equipment, net July 2,
2022 December 31,
2021
Land and land improvements $ 24,743 $ 22,129
Buildings and leasehold improvements 70,379 63,933
Equipment 665,841 646,552
760,963 732,614
Less accumulated depreciation 507,596 504,629
Total $ 253,367 $ 227,985

Other assets, noncurrent July 2,
2022 December 31,
2021
Investment--cost-method affiliate $ 1,258 $ 1,258
Deferred income taxes 5,158 4,937
Cloud computing arrangements 4,073 6,530
Other 4,596 4,539
Total $ 15,085 $ 17,264

Accrued expenses July 2,
2022 December 31,
2021
Employee compensation $ 27,490 $ 37,828
Accrued compensated absences 12,047 11,007
Self-insured medical claims 4,737 2,891
Income tax payable 4,075 145
Customer advances, deposits 4,331 4,009
Taxes, other than income 17,701 13,789
Other 5,604 5,469
Total $ 75,985 $ 75,138

Other current liabilities July 2,
2022 December 31,
2021
Current portion of:
Lease liability-operating leases $ 31,641 $ 28,682
Self-insurance accruals 46,453 48,867
Total $ 78,094 $ 77,549

~~- 10 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~


Other noncurrent liabilities	Other noncurrent liabilities	July 2, 2022		December 31, 2021		Other noncurrent liabilities	April 1, 2023		December 31, 2022
Non-qualified retirement plans	Non-qualified retirement plans	$	9,231	$	8,713	Non-qualified retirement plans	$	8,513	$	8,336

Litigation accrual						Litigation accrual	7,500		7,500
Other	Other	3,048		2,870		Other	6,730		8,184
Total	Total	$	12,279	$	11,583	Total	$	22,743	$	24,020

D. Business Combinations

Our cash investments in businesses during the first ~~six~~three months of ~~2022~~2023 were ~~$3,366~~$1,045 and we issued debt, in the form of notes payable to the sellers, of ~~$870~~$408 which have been included in our Residential and Commercial ~~and Utility segments. In the first six months of 2022, we also made a payment of $100 for a contingent liability incurred in an acquisition made during the fourth quarter of 2021.~~segment. Measurement-period adjustments are not complete. The measurement period for purchase price allocations ends as soon as information of the facts and circumstances becomes available, but does not exceed one year from the acquisition date. During the year ended December 31, ~~2021,~~2022, our cash investments in businesses was ~~$11,725~~$23,192 and debt issued, in the form of notes payable to the sellers, was ~~$2,961.~~$7,445.

- 10 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed:


		Six Months Ended July 2, 2022		Year Ended December 31, 2021			Three Months Ended April 1, 2023		Year Ended December 31, 2022
Detail of acquisitions:	Detail of acquisitions:					Detail of acquisitions:
Assets acquired:	Assets acquired:					Assets acquired:
Cash	Cash	$	—	$	292	Cash	$	—	$	1,365
Receivables	Receivables	—		509		Receivables	—		10,794
Mitigation bank credit inventory						Mitigation bank credit inventory	—		6,351
Operating supplies	Operating supplies	15		1,044		Operating supplies	4		48
Prepaid expense	Prepaid expense	—		203		Prepaid expense	—		126
Equipment	Equipment	825		4,049		Equipment	506		2,309
Deposits and other	Deposits and other	436		1,574		Deposits and other	668		412
Intangible assets	Intangible assets	1,572		3,005		Intangible assets	248		10,569
Goodwill	Goodwill	2,379		7,723		Goodwill	872		14,255
Deferred credit - gain on bargain purchase		(663)		—

Liabilities assumed	Liabilities assumed	(328)		(3,713)		Liabilities assumed	(845)		(15,592)
Debt issued for purchases of businesses	Debt issued for purchases of businesses	(870)		(2,961)		Debt issued for purchases of businesses	(408)		(7,445)
Cash paid	Cash paid	$	3,366	$	11,725	Cash paid	$	1,045	$	23,192

The results of operations of acquired businesses have been included in the condensed consolidated statements of operations beginning as of the effective dates of acquisition. The effect of these acquisitions on our consolidated revenues and results of operations for the three ~~and six~~ months ended ~~July 2, 2022~~April 1, 2023 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the ~~six~~three months ended ~~July 2, 2022,~~April 1, 2023, are not material and, accordingly, are not provided.

~~- 11 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

The acquired intangible assets consist of tradenames, non-competition agreements and customer relationships. The tradenames and customer relationships were assigned an average useful life of seven years and the non-competition agreements were assigned an average useful life of five years.

Subsequent to April 1, 2023 and through May 10, 2023, we acquired one business approximating $17,235 with $408 liabilities assumed and debt issued of $3,824. The acquired company is in our Residential and Commercial segment and is located in Minnesota. We do not expect the effect of this acquisition on our consolidated revenues and results of operations to be significant.

- 11 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

E. Marketable Securities

The following table summarizes available-for-sale debt securities held at ~~July 2,~~April 1, 2023 and December 31, 2022 by asset type:


		Available-For-Sale Debt Securities									Available-For-Sale Debt Securities
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Net Carrying Amount)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Net Carrying Amount)
July 2, 2022
April 1, 2023										April 1, 2023
Fixed maturity:	Fixed maturity:									Fixed maturity:
United States Government and agency securities	United States Government and agency securities	$	10,042	$	1	$	(191)	$	9,852	United States Government and agency securities	$	29,833	$	239	$	(386)	$	29,686
Corporate notes and bonds	Corporate notes and bonds	315		—		(39)		276		Corporate notes and bonds	317		—		(42)		275
Total available-for-sale debt securities	Total available-for-sale debt securities	$	10,357	$	1	$	(230)	$	10,128	Total available-for-sale debt securities	$	30,150	$	239	$	(428)	$	29,961

December 31, 2021
December 31, 2022										December 31, 2022
Fixed maturity:	Fixed maturity:									Fixed maturity:
United States Government and agency securities	United States Government and agency securities	$	3,244	$	11	$	(25)	$	3,230	United States Government and agency securities	$	25,485	$	84	$	(315)	$	25,254
Corporate notes and bonds	Corporate notes and bonds	174		2		—		176		Corporate notes and bonds	315		—		(51)		264
Total available-for-sale debt securities	Total available-for-sale debt securities	$	3,418	$	13	$	(25)	$	3,406	Total available-for-sale debt securities	$	25,800	$	84	$	(366)	$	25,518

Marketable securities are composed of available-for-sale debt securities and marketable equity securities and all marketable securities are held at fair value. We carry a portion of our marketable securities portfolio in long-term assets since they are generally held for the settlement of our insurance claims processed through our wholly owned captive insurance subsidiary.

Available-for-sale debt securities are included in other current assets and ~~long-term assets~~marketable securities and other investments totaling ~~$10,128~~$29,961 and ~~$3,406~~$25,518 at ~~July 2, 2022~~April 1, 2023 and December 31, ~~2021,~~2022, respectively. Realized gains and losses on sales of available-for-sale debt securities are recognized in net income on the specific identification basis. Changes in the fair values of available-for-sale debt securities that are determined to be holding gains or losses are recorded through accumulated other comprehensive income (loss) net of applicable taxes, within shareholders' equity. In assessing whether a credit loss exists, we evaluate our ability to hold the investment, the strength of the underlying collateral and the extent to which the investment's amortized cost or cost, as appropriate, exceeds its related fair value.

We held approximately ~~24,443~~$14,755 and ~~11,386~~$18,110 in marketable equity securities as of ~~July 2, 2022~~April 1, 2023 and December 31, ~~2021,~~2022, respectively. Realized and unrealized gains and losses on marketable equity securities are included in other income (expense) in the Consolidated Statements of Operations.

- 12 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

The net carrying values of available-for-sale debt securities at ~~July 2, 2022~~April 1, 2023 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due:	Due:					Due:
Less than one year	Less than one year	$	5,006	$	5,007	Less than one year	$	26,083	$	26,276
One year through five years	One year through five years	3,068		2,989		One year through five years	1,542		1,453
Six years through ten years	Six years through ten years	260		228		Six years through ten years	581		543
After ten years	After ten years	2,023		1,904		After ten years	1,944		1,689
Total	Total	$	10,357	$	10,128	Total	$	30,150	$	29,961

F. Identified Intangible Assets and Goodwill, Net

The carrying amounts of the identified intangible assets and goodwill acquired in connection with our acquisitions were as follows:


		July 2, 2022				December 31, 2021					April 1, 2023				December 31, 2022
		Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:	Amortized intangible assets:									Amortized intangible assets:
Customer lists/relationships	Customer lists/relationships	$	33,308	$	25,166	$	32,294	$	24,090	Customer lists/relationships	$	36,634	$	26,919	$	36,745	$	26,243
Employment-related	Employment-related	10,341		8,584		9,946		8,301		Employment-related	12,030		9,172		12,242		8,931
Tradenames	Tradenames	8,581		6,857		8,426		6,642		Tradenames	11,790		7,351		12,219		7,083

Amortized intangible assets	Amortized intangible assets	52,230		$	40,607	50,666		$	39,033	Amortized intangible assets	60,454		$	43,442	61,206		$	42,257

Less accumulated amortization	Less accumulated amortization	40,607				39,033				Less accumulated amortization	43,442				42,257

Identified intangible assets, net	Identified intangible assets, net	$	11,623			$	11,633			Identified intangible assets, net	$	17,012			$	18,949

Goodwill	Goodwill	$	58,326			$	55,980			Goodwill	$	69,854			$	70,107

~~The changes in~~

Adjustments related to the carrying ~~amounts of goodwill, by segment,~~values are related to measurement period adjustments for ~~the six months ended July 2,~~acquisitions made in 2022 ~~and the year ended December 31, 2021 were as follows:~~

Balance at
January 1, 2022
Acquisitions Translation
and Other
Adjustments
Balance at
July 2, 2022
Utility $ 4,911 $ — $ — $ 4,911
Residential and Commercial 51,069 2,379 (33) 53,415
Total $ 55,980 $ 2,379 $ (33) $ 58,326
Balance at
January 1, 2021
Acquisitions Translation
and Other
Adjustments
Balance at
December 31, 2021
Utility $ 4,911 $ — $ — $ 4,911
Residential and Commercial 43,345 7,723 1 51,069
Total $ 48,256 $ 7,723 $ 1 $ 55,980

for which purchase accounting is not finalized.

- 13 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

The changes in the carrying amounts of goodwill, by segment, for the three months ended April 1, 2023 and the year ended December 31, 2022 were as follows:


	Balance at January 1, 2023		Acquisitions		Translation and Other Adjustments		Balance at April 1, 2023
Utility	$	4,941	$	—	$	—	$	4,941
Residential and Commercial	65,166		872		(1,125)		64,913

Total	$	70,107	$	872	$	(1,125)	$	69,854


	Balance at January 1, 2022		Acquisitions		Translation and Other Adjustments		Balance at December 31, 2022
Utility	$	4,911	$	30	$	—	$	4,941
Residential and Commercial	51,069		14,225		(128)		65,166

Total	$	55,980	$	14,255	$	(128)	$	70,107

Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of ~~July 2, 2022,~~April 1, 2023, was as follows:


		Estimated Future Amortization Expense			Estimated Future Amortization Expense
Remaining six months of 2022		$	1,614
2023		3,105
Remaining nine months of 2023				Remaining nine months of 2023	$	3,197
2024	2024	2,784		2024	4,055
2025	2025	2,001		2025	3,272
2026	2026	1,162		2026	2,430
2027	2027	680		2027	1,923
2028				2028	1,163
Thereafter	Thereafter	277		Thereafter	972
		$	11,623		$	17,012

- 14 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

G. Short and Long-Term Debt and Commitments Related to Letters of Credit

We have short-term lines of credit with several banks totaling ~~$11,162.~~$11,109. At ~~July 2, 2022,~~April 1, 2023, we had ~~$9,034~~$8,986 available under the lines of credit and ~~$2,128~~$2,122 committed through issued letters of credit. Borrowings outstanding generally bear interest at the banks' prime rate or LIBOR plus a margin adjustment of .75% to 1.50%.

Our long-term debt consisted of the following:


		July 2, 2022		December 31, 2021			April 1, 2023		December 31, 2022
Revolving credit facility:	Revolving credit facility:					Revolving credit facility:
Swing-line borrowings	Swing-line borrowings	$	5,677	$	16,832	Swing-line borrowings	$	—	$	25,433

LIBOR borrowings		100,000		30,000
SOFR borrowings						SOFR borrowings	212,000		125,000
		105,677		46,832			212,000		150,433
Senior unsecured notes:	Senior unsecured notes:					Senior unsecured notes:

3.99% Senior unsecured notes	3.99% Senior unsecured notes	50,000		50,000		3.99% Senior unsecured notes	50,000		50,000
4.00% Senior unsecured notes	4.00% Senior unsecured notes	25,000		25,000		4.00% Senior unsecured notes	25,000		25,000
		75,000		75,000			75,000		75,000
Term loans	Term loans	10,406		25,182		Term loans	20,751		29,680
		191,083		147,014			307,751		255,113
Less debt issuance costs	Less debt issuance costs	597		674		Less debt issuance costs	481		519
Less current portion	Less current portion	8,403		22,809		Less current portion	15,331		23,826
		$	182,083	$	123,531		$	291,939	$	230,768

Revolving Credit Facility--In August 2021, the Company amended and restated its revolving credit facility with its existing bank group. The amended and restated credit agreement, which expires in August 2026, permits borrowings, as defined, of up to $325,000, including a letter of credit sublimit of $150,000 and a swing-line commitment of $30,000. Under certain circumstances, the amount available under the revolving credit facility may be increased to $425,000. The revolving credit facility contains certain affirmative and negative covenants customary for this type of facility and includes financial covenant ratios with respect to a maximum leverage ratio (not to exceed 3.00 to 1.00 with exceptions in case of material acquisitions) and a minimum interest coverage ratio (not less than 3.00 to 1.00), in each case

~~- 14 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

subject to certain further restrictions as described in the credit agreement. As of ~~July 2, 2022,~~April 1, 2023, we had unused commitments under the facility approximating $~~216,446,~~110,376, with ~~$108,554~~$214,624 committed, consisting of borrowings of $~~105,677~~212,000 and issued letters of credit of $~~2,877.~~2,624.

~~Borrowings~~In January 2023, we amended the amended and restated credit agreement to update the benchmark interest rate provisions to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”). Following the amendment, borrowings outstanding bear interest, at Davey Tree’s option, of either (a) the base rate or (b) ~~LIBOR~~SOFR plus a margin adjustment ranging from .875% to 1.50%--with the margin adjustments based on the Company's leverage ratio at the time of borrowing. The base rate is the greater of (i) the agent bank’s prime rate, (ii) ~~LIBOR~~Adjusted Term SOFR plus 1.50%, or (iii) the federal funds rate plus .50%. A commitment fee ranging from .10% to .225% is also required based on the average daily unborrowed commitment.

3.99% Senior Unsecured Notes--On September 21, 2018, we issued 3.99% Senior Notes, Series A (the ~~"3.99%~~“3.99% Senior ~~Notes"~~Notes”), in the aggregate principal amount of $50,000. The 3.99% Senior Notes are due September 21, 2028.

- 15 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

The 3.99% Senior Notes were issued pursuant to a Note Purchase and Private Shelf Agreement (the “Note Purchase and Shelf Agreement”) between the Company, PGIM, Inc. and the purchasers of the 3.99% Senior Notes, which was amended in September 2021. Among other things, the amendment increased the total facility limit to $150,000 and extended the issuance period for subsequent series of promissory notes to be issued and sold pursuant to the Note Purchase and Shelf Agreement to September 2024. The amendment also amended certain provisions and covenants to generally conform them to the corresponding provisions and covenants in the amended and restated revolving credit agreement. In addition, the amendment and restatement of the revolving credit agreement in August 2021 provided that the Company is permitted to incur indebtedness arising under the Note Purchase and Shelf Agreement in an aggregate principal amount not to exceed $150,000. As the Company has previously issued notes in an aggregate amount of $75,000 under the Note Purchase and Shelf Agreement, it now has capacity to issue subsequent series of promissory notes pursuant to the Note Purchase and Shelf Agreement (the ~~"Shelf Notes"~~“Shelf Notes”) in an aggregate amount of up to $75,000.

The 3.99% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and 5five equal, annual principal payments commence on September 21, 2024 (the ~~6th~~sixth anniversary of issuance). The Note Purchase and Shelf Agreement contains customary events of default and covenants related to limitations on indebtedness and transactions with affiliates and the maintenance of certain financial ratios. The Company may prepay at any time all, or from time to time any part of, the outstanding principal amount of the 3.99% Senior Notes, subject to the payment of a make-whole amount.

4.00% Senior Unsecured Notes--On February 5, 2019, we issued 4.00% Senior Notes, Series B (the ~~"4.00%~~“4.00% Senior ~~Notes"~~Notes”) pursuant to the Note Purchase and Shelf Agreement in the aggregate principal amount of $25,000. The 4.00% Senior Notes are due September 21, 2028. The 4.00% Senior Notes are equal in right of payment with our revolving credit facility and all other senior unsecured obligations of the Company. Interest is payable semiannually and 5five equal, annual principal payments commence on September 21, 2024.

The net proceeds of all senior notes were used to pay down borrowings under our revolving credit facility.

Term loans--Periodically, the Company will enter into term loans for the procurement of insurance or to finance acquisitions.

Aggregate Maturities of Long-Term Debt--Aggregate maturities of long-term debt based on the principal amounts outstanding at ~~July 2, 2022~~April 1, 2023 were as follows: ~~2022--$7,247;~~ 2023--$~~1,786;~~14,489; 2024--$~~16,083;~~18,508; 2025--$~~15,290;~~17,618; 2026--$~~120,677;~~227,136; 2027--$15,000; and ~~thereafter $15,000.~~2028--$15,000.

~~- 15 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

Accounts Receivable Securitization Facility--In June 2022, the Company amended its Accounts Receivable Securitization Facility (the ~~"AR~~“AR Securitization ~~program"~~program”) to extend the scheduled termination date for an additional one-year period, to June 29, 2023. In addition to extending the termination date for another year, the amendment replaced the ~~London Interbank Offered Rate (LIBOR)~~LIBOR interest rate provisions with customary provisions based on ~~the secured overnight financing rate ("SOFR").~~SOFR.

The AR Securitization program has a limit of $100,000, of which ~~$83,355~~$89,689 was issued for LCs as of ~~both July 2, 2022~~April 1, 2023 and December 31, ~~2021.~~2022.

Under the AR Securitization program, Davey Tree transfers by selling or contributing current and future trade receivables to a wholly-owned, bankruptcy-remote financing subsidiary which pledges a perfected first priority security interest in the trade receivables--equal to the issued LCs as of ~~July 2, 2022--to~~April 1, 2023--to the bank in exchange for the bank issuing LCs.

- 16 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

Fees payable to the bank include: (a) an LC issuance fee, payable on each settlement date, in the amount of .90% per annum on the aggregate amount of all LCs outstanding plus outstanding reimbursement obligations (e.g., arising from drawn LCs), if any, and (b) an unused LC fee, payable monthly, equal to (i) .35% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is greater than or equal to 50% of the facility limit and (ii) .45% per annum for each day on which the sum of the total LCs outstanding plus any outstanding reimbursement obligations is less than 50% of the facility limit. If an LC is drawn and the bank is not immediately reimbursed in full for the drawn amount, any outstanding reimbursement obligation will accrue interest at a per annum rate equal to the term SOFR, plus ~~.10%~~0.10% or, in certain circumstances, a base rate equal to the greatest of (i) the bank’s prime rate, (ii) the federal funds rate plus .50% and (iii) 1.00% above the Daily one month SOFR plus ~~.10%~~0.10% and, following any default, 2.00% plus the greater of (a) the term SOFR plus ~~.10%~~0.10% and (b) a base rate equal to the greatest of (i), (ii) and (iii) above.

The agreements underlying the AR Securitization program contain various customary representations and warranties, covenants, and default provisions which provide for the termination and acceleration of the commitments under the AR Securitization program in circumstances including, but not limited to, failure to make payments when due, breach of a representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.

Total Commitments Related to Issued Letters of Credit--As of ~~July 2, 2022,~~April 1, 2023, total commitments related to issued LCs were ~~$88,360,~~$94,435, of which ~~$2,877~~$2,624 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,128~~$2,122 were issued under short-term lines of credit. As of December 31, ~~2021,~~2022, total commitments related to issued LCs were ~~$88,362,~~$94,435, of which ~~$2,877~~$2,624 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,130~~$2,122 were issued under short-term lines of credit.

As of ~~July 2, 2022,~~April 1, 2023, we were in compliance with all debt covenants.

- 1617 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

H. Leases

We lease certain office and parking facilities, warehouse space, equipment, vehicles and information technology equipment under operating and finance leases. Lease expense for these leases is recognized within the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The following table summarizes the amounts recognized in our Condensed Consolidated Balance Sheet related to leases:


		Condensed Consolidated Balance Sheet Classification	July 2, 2022		December 31, 2021			Condensed Consolidated Balance Sheet Classification	April 1, 2023		December 31, 2022
Assets	Assets						Assets
Operating lease assets	Operating lease assets	Right-of-use assets - operating leases	$	95,162	$	86,423	Operating lease assets	Right-of-use assets - operating leases	$	109,709	$	104,612
Finance lease assets	Finance lease assets	Property and equipment, net	11,781		11,592		Finance lease assets	Property and equipment, net	14,218		12,948
Total lease assets	Total lease assets		$	106,943	$	98,015	Total lease assets		$	123,927	$	117,560
Liabilities	Liabilities						Liabilities
Current operating lease liabilities	Current operating lease liabilities	Other current liabilities	$	31,641	$	28,682	Current operating lease liabilities	Other current liabilities	$	36,565	$	34,652
Non-current operating lease liabilities	Non-current operating lease liabilities	Lease liabilities - operating leases	62,789		57,335		Non-current operating lease liabilities	Lease liabilities - operating leases	72,236		68,878
Total operating lease liabilities	Total operating lease liabilities		94,430		86,017		Total operating lease liabilities		108,801		103,530
Current portion of finance lease liabilities	Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	2,705		2,459		Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	3,536		3,046
Non-current finance lease liabilities	Non-current finance lease liabilities	Lease liabilities - finance leases	8,395		8,646		Non-current finance lease liabilities	Lease liabilities - finance leases	10,357		9,481
Total finance lease liabilities	Total finance lease liabilities		11,100		11,105		Total finance lease liabilities		13,893		12,527
Total lease liabilities	Total lease liabilities		$	105,530	$	97,122	Total lease liabilities		$	122,694	$	116,057

The components of lease cost recognized within our Condensed Consolidated Statements of Operations were as follows:


			Three Months Ended				Six Months Ended						Three Months Ended
		Condensed Consolidated Statements of Operations Classification	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			Condensed Consolidated Statements of Operations Classification		April 1, 2023		April 2, 2022

Operating lease cost	Operating lease cost	Operating expense	$	6,427	$	4,400	$	12,446	$	8,100	Operating lease cost	Operating expense		$	7,746	$	6,019
Operating lease cost	Operating lease cost	Selling expense	2,821		2,566		5,566		5,087		Operating lease cost	Selling expense		3,113		2,745
Operating lease cost	Operating lease cost	General and administrative expense	290		293		579		577		Operating lease cost	General and administrative expense		290		289
Finance lease cost:	Finance lease cost:										Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	Depreciation and amortization	715		645		1,445		1,233		Amortization of right-of-use assets	Depreciation and amortization		855		730
Interest expense on lease liabilities	Interest expense on lease liabilities	Interest expense	62		44		122		82		Interest expense on lease liabilities	Interest expense		90		60
Other lease cost (1)	Other lease cost (1)	Operating expense	1,153		965		2,342		1,840		Other lease cost (1)	Operating expense		1,448		1,189
Other lease cost (1)	Other lease cost (1)	Selling expense	407		337		824		653		Other lease cost (1)	Selling expense		487		417
Other lease cost (1)	Other lease cost (1)	General and administrative expense	23		7		32		20		Other lease cost (1)	General and administrative expense		26		9
Total lease cost	Total lease cost		$	11,898	$	9,257	$	23,356	$	17,592	Total lease cost			$	14,055	$	11,458

(1) Other lease cost includes short-term lease costs and variable lease costs.

We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on

- 1718 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

the basis of economic factors. The weighted average remaining lease terms as of ~~July 2, 2022~~April 1, 2023 was ~~3.8~~3.6 years for operating leases and ~~4.6~~4.3 years for finance leases.

The discount rate implicit within our leases is generally not determinable, and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The weighted average discount rates used to measure our lease liabilities as of ~~July 2, 2022~~April 1, 2023 was ~~2.72%~~3.67% for operating leases and ~~2.21%~~3.22% for finance leases.


Supplemental Cash Flow Information Related to Leases	Supplemental Cash Flow Information Related to Leases	Six Months Ended				Supplemental Cash Flow Information Related to Leases	Three Months Ended
		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	(18,957)	$	(13,919)	Operating cash flows from operating leases	$	(10,968)	$	(9,194)
Operating cash flows from finance leases	Operating cash flows from finance leases	(122)		(82)		Operating cash flows from finance leases	(90)		(60)
Financing cash flows from finance leases	Financing cash flows from finance leases	(1,639)		(2,049)		Financing cash flows from finance leases	(759)		(767)
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	27,537		35,437		Operating leases	15,410		13,610
Finance leases	Finance leases	1,634		2,931		Finance leases	2,125		1,167

Maturity Analysis of Lease Liabilities As of July 2, 2022
Operating
Leases Finance
Leases
Remaining six months of 2022 $ 17,867 $ 1,301
2023 29,487 2,813
2024 22,109 2,682
2025 15,077 2,070
2026 8,094 1,744
2027 2,632 786
Thereafter 4,116 270
Total lease payments 99,382 11,666
Less interest 4,952 566
Total $ 94,430 $ 11,100


Maturity Analysis of Lease Liabilities		As of April 1, 2023
		Operating Leases		Finance Leases
	Remaining nine months of 2023	$	30,464	$	3,039
	2024	33,757		3,804
	2025	25,042		3,167
	2026	14,188		2,499
	2027	7,821		1,371
	2028	2,277		677
	Thereafter	2,526		296
	Total lease payments	116,075		14,853
	Less interest	7,274		960
	Total	$	108,801	$	13,893

I. Stock-Based Compensation

Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and has a term of ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and other stock-based incentives. The 2014 Stock Plan provides for the grant of 5five percent of the number of the Company’s common shares outstanding as of the first day of each fiscal year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed 10ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award

- 1819 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.

Stock-based compensation expense under all share-based payment plans -- our Employee Stock Purchase Plan, stock option plans, stock-settled stock appreciation rights ~~("SSARs"~~(“SARs”) and restricted stock units ~~("RSUs"~~(“RSUs”) -- was included in the results of operations as follows:

Three Months Ended Six Months Ended
July 2,
2022 July 3,
2021 July 2,
2022 July 3,
2021
Compensation expense, all share-based payment plans $ 2,316 $ 1,374 $ 3,586 $ 2,265


	Three Months Ended
		April 1, 2023		April 2, 2022
Compensation expense, all share-based payment plans		$	1,690	$	1,270

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of ~~$914~~$445 being recognized for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 and ~~$770~~$452 for the ~~six~~three months ended ~~July 3, 2021.~~April 2, 2022.

Stock ~~Option Plans~~Options Plan--The stock options outstanding were awarded under a graded vesting schedule, measured at fair value, and have a term of ten years. Compensation costs for stock options are recognized over the requisite service period on the straight-line recognition method. Compensation cost recognized for stock options was ~~$219~~$65 for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 and ~~$256~~$99 for the ~~six~~three months ended ~~July 3, 2021.~~April 2, 2022. Beginning in 2021, management and the Compensation Committee replaced the issuance of stock options with performance-based restricted stock units ~~("PRSUs"~~(“PRSUs”) for certain employees.

Stock-Settled Stock Appreciation Rights--A SSAR is an award that allows the recipient to receive common shares equal to the appreciation in the fair market value of our common shares between the date the award was granted and the conversion date of the shares vested. Effective January 1, 2019, management and the Compensation Committee replaced the issuance of future SSARs with PRSUs for certain management employees.

~~- 19 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

~~The following table summarizes our SSARs as of July 2, 2022.~~

Stock-Settled
Stock Appreciation Rights Number
of
Rights Weighted-
Average
Award Date
Value Weighted-
Average
Remaining
Contractual
Life Unrecognized
Compensation
Cost Aggregate
Intrinsic
Value
Unvested, January 1, 2022 87,534 $ 1.92
Granted — —
Forfeited — —
Vested (43,752) 1.92
Unvested, July 2, 2022 43,782 $ 1.92 0.5 years $ 40 $ 792

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the grant date price of a SSAR. During 2022, all remaining SSARs awards vested. Compensation expense for SSARs was ~~$44~~$0 for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 and ~~$82~~$21 for the ~~six~~three months ended ~~July 3, 2021.~~April 2, 2022.

Restricted Stock Units--During the ~~six~~three months ended ~~July 2, 2022,~~April 1, 2023, the Compensation Committee awarded ~~336,664~~83,700 PRSUs to certain management ~~employees and 14,693 RSUs to nonemployee directors.~~employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of ~~July 2, 2022.~~April 1, 2023.

Restricted Stock Units Number
of
Stock
Units Weighted-
Average
Grant Date
Value Weighted-
Average
Remaining
Contractual
Life Unrecognized
Compensation
Cost Aggregate
Intrinsic
Value
Unvested, January 1, 2022 740,160 $ 12.49
Granted 351,357 17.89
Forfeited (500) 17.89
Vested (171,688) 10.86
Unvested, July 2, 2022 919,329 $ 14.86 2.2 years $ 9,424 $ 16,640
Employee PRSUs 861,628 $ 14.89 2.2 years $ 8,905 $ 15,596
Nonemployee Director RSUs 57,701 $ 14.42 2.6 years $ 519 $ 1,044

- 20 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)


Restricted Stock Units	Number of Stock Units	Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2023	766,267	$	14.95
Granted	83,700	18.29
Forfeited	—	—
Vested	(47,329)	12.26
Unvested, April 1, 2023	802,638	$	15.46	1.7 years	$	6,538	$	14,849
Employee PRSUs	744,937	$	15.54	1.7 years	$	6,222	$	13,781
Nonemployee Director RSUs	57,701	$	14.42	1.1 years	$	316	$	1,067

Compensation cost for PRSUs and RSUs is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. “Intrinsic value” is defined as the amount by which the fair market value of a common share exceeds the grant date price of a PRSU or an RSU. Compensation expense on PRSUs and RSUs totaled ~~$2,409~~$1,180 for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 and ~~$1,157~~$698 for the ~~six~~three months ended ~~July 3, 2021.~~April 2, 2022.

We estimated the fair value of each stock-based award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise and forfeiture assumptions based on an

~~- 20 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

The fair values of stock-based awards granted were estimated at the dates of grant with the following weighted-average assumptions.


		Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Volatility rate	Volatility rate	9.7	%	9.9	%	Volatility rate	9.6	%	9.7	%
Risk-free interest rate	Risk-free interest rate	1.7	%	.3	%	Risk-free interest rate	4.6	%	1.6	%
Expected dividend yield	Expected dividend yield	.4	%	.4	%	Expected dividend yield	.4	%	.4	%
Expected life of awards (years)	Expected life of awards (years)	3.0		3.0		Expected life of awards (years)	3.0		3.0

- 21 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

General Stock Option Information--The following table summarizes activity under the stock option plans for the ~~six~~three months ended ~~July 2, 2022.~~April 1, 2023.


Stock Options	Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value		Stock Options	Number of Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2022		2,350,934	$	8.56
Outstanding, January 1, 2023								Outstanding, January 1, 2023	2,072,949	$	8.59
Granted	Granted	—	—					Granted	—	—
Exercised	Exercised	(201,901)	8.28					Exercised	(14,886)	7.81
Forfeited	Forfeited	(11,910)	8.08					Forfeited	—	—
Outstanding, July 2, 2022		2,137,123	$	8.59	4.4 years	$	20,324
Outstanding, April 1, 2023								Outstanding, April 1, 2023	2,058,063	$	8.60	3.6 years	$	20,375

Exercisable, July 2, 2022		1,749,031	$	8.00	3.7 years	$	17,665
Exercisable, April 1, 2023								Exercisable, April 1, 2023	1,692,449	$	8.03	3.0 years	$	17,720

As of ~~July 2, 2022,~~April 1, 2023, there was approximately ~~$568~~$307 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~1.4~~1.2 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

Common shares are issued from treasury upon the exercise of stock options and SSARs, the vesting of RSUs and PRSUs or purchases under the Employee Stock Purchase Plan.

J. Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The estimated annual effective tax rate for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 was ~~27.3%~~28.4%. Our actual effective tax rate was ~~26.9%~~18.8% and ~~27.8%~~11.0% for the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021, respectively. Our actual effective tax rate was 26.1% and 27.1% for the six months ended July 2, 2022 and July 3, 2021,~~ respectively. The change in the effective tax rate from statutory tax rates was primarily due to the impact of favorable discrete items which are a set amount

~~- 21 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

and therefore have a larger impact on the rate based on our net income before tax in the first ~~six~~three months compared to the impact it will have on the rate for the full year.

As of ~~July 2, 2022,~~April 1, 2023, we had unrecognized tax benefits of ~~$739,~~$656, of which ~~$365~~$329 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$60.~~$55. At December 31, ~~2021,~~2022, we had unrecognized tax benefits of ~~$700,~~$638, of which ~~$327~~$311 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$56.~~$53. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return, and the benefit recognized for financial reporting purposes.

We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

- 22 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

The Company is routinely under audit by U.S. federal, state and local authorities and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. With the exception of U.S. state jurisdictions and Canada, the Company is no longer subject to examination by tax authorities for the years through ~~2017.~~2018. As of ~~July 2, 2022,~~April 1, 2023, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

K. Accumulated Other Comprehensive Income (Loss)

Comprehensive income (or loss) is comprised of net income (or net loss) and other components, including foreign currency translation adjustments and defined benefit pension plan adjustments.

The following summarizes the components of other comprehensive income (loss) accumulated in shareholders’ equity for the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, ~~2022 and July 3, 2021:~~
Three Months Ended July 2, 2022 Foreign
Currency Available for Sale Securities Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at April 2, 2022 $ (3,174) $ — $ (495) $ (3,669)
Other comprehensive income (loss) before reclassifications
Translation adjustment $ (1,001) $ — $ — $ (1,001)
Unrealized losses — (237) — (237)
Amounts reclassified from accumulated other comprehensive income (loss) — 8 31 39
Tax effect — 48 (9) 39
Net of tax amount (1,001) (181) 22 (1,160)
Balance at July 2, 2022 $ (4,175) $ (181) $ (473) $ (4,829)
2022:

~~- 22 -~~

~~Index~~
























Three Months Ended April 1, 2023	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2023	$	(5,511)	$	(199)	$	122	$	(5,588)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	31	$	—	$	—	$	31
Unrealized losses	—		(49)		—		(49)

Amounts reclassified from accumulated other comprehensive income (loss)	—		(26)		—		(26)
Tax effect	—		16		—		16
Net of tax amount	31		(59)		—		(28)
Balance at April 1, 2023	$	(5,480)	$	(258)	$	122	$	(5,616)

Three Months Ended April 2, 2022	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022	$	(3,654)	$	—	$	(519)	$	(4,173)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	480	$	—	$	—	$	480


Amounts reclassified from accumulated other comprehensive income (loss)	—		—		31		31
Tax effect	—		—		(7)		(7)
Net of tax amount	480		—		24		504
Balance at April 2, 2022	$	(3,174)	$	—	$	(495)	$	(3,669)

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

Three Months Ended July 3, 2021 Foreign
Currency Available-for-Sale Securities Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at April 3, 2021 $ (3,288) $ — $ (772) $ (4,060)
Other comprehensive income (loss) before reclassifications
Translation adjustment $ 443 $ — $ — $ 443
Amounts reclassified from accumulated other comprehensive income (loss) — — 50 50
Tax effect — — (13) (13)
Net of tax amount 443 — 37 480
Balance at July 3, 2021 $ (2,845) $ — $ (735) $ (3,580)
Six Months Ended July 2, 2022 Foreign
Currency Available-for-Sale Securities Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2022 $ (3,654) $ — $ (519) $ (4,173)
Other comprehensive income (loss) before reclassifications
Translation adjustment $ (521) $ — $ — $ (521)
Unrealized losses — (237) — (237)
Amounts reclassified from accumulated other comprehensive income (loss) — 8 62 70
Tax effect — 48 (16) 32
Net of tax amount (521) (181) 46 (656)
Balance at July 2, 2022 $ (4,175) $ (181) $ (473) $ (4,829)
Six Months Ended July 3, 2021 Foreign
Currency Available-for-Sale Securities Defined
Benefit
Pension
Plans Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2021 $ (3,738) $ — $ (809) $ (4,547)
Other comprehensive income (loss) before reclassifications
Translation adjustment $ 893 $ — $ — $ 893
Amounts reclassified from accumulated other comprehensive income (loss) — — 100 100
Tax effect — — (26) (26)
Net of tax amount 893 — 74 967
Balance at July 3, 2021 $ (2,845) $ — $ (735) $ (3,580)

~~The~~There was no change in defined benefit pension plans ~~of $31 and $62~~ for the three ~~and six~~ months ended ~~July 2, 2022, respectively,~~April 1, 2023 and ~~$50 and $100~~$31 for the three ~~and six~~ months ended ~~July 3, 2021, respectively,~~April 2, 2022, which was included in net periodic pension expense classified in the condensed consolidated statement of operations as general and administrative expense or other income (expense).

- 23 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

L. Per Share Amounts and Common and Redeemable Shares Outstanding

We calculate our basic earnings per share by dividing net income or net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of earnings per share. The per share amounts were computed as ~~follows (Adjusted for the 2-for-one stock split of our common shares effective October~~follows:


	Three Months Ended
		April 1, 2023		April 2, 2022
Income available to common shareholders:
Net income		$	5,996	$	1,782

Weighted-average shares (in thousands):
Basic:
Outstanding		42,747		44,618
Partially-paid share subscriptions		330		—
Basic weighted-average shares		43,077		44,618

Diluted:
Basic from above		43,077		44,618
Incremental shares from assumed:
Exercise of stock subscription purchase rights		5		—
Exercise of stock options and awards		2,040		2,220
Diluted weighted-average shares		45,122		46,838

Net income per share:

Basic		$	.14	$	.04

Diluted		$	.13	$	.04

- 24 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, ~~2021):~~2023

Three Months Ended Six Months Ended
July 2,
2022 July 3,
2021 July 2,
2022 July 3,
2021
Income available to common shareholders:
Net income $ 26,785 $ 28,543 $ 28,567 $ 32,970
Weighted-average shares (in thousands):
Basic:
Basic weighted-average shares 44,052 45,205 44,333 45,443
Diluted:
Basic from above 44,052 45,205 44,333 45,443
Incremental shares from assumed:
Exercise of stock options and awards 2,412 2,284 2,317 2,259
Diluted weighted-average shares 46,464 47,489 46,650 47,702
Net income per share:
Basic $ .61 $ .63 $ .64 $ .73
Diluted $ .58 $ .60 $ .61 $ .69
(Amounts in thousands, except share data)

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 was as follows:


		Common Shares Net of Treasury Shares	Redeemable Shares	Total		Common Shares Net of Treasury Shares	Redeemable Shares	Total
Shares outstanding at January 1, 2022		35,110,432	9,391,790	44,502,222
Shares outstanding at January 1, 2023					Shares outstanding at January 1, 2023	33,529,474	9,188,010	42,717,484
Shares purchased	Shares purchased	(1,220,807)	(815,712)	(2,036,519)	Shares purchased	(434,511)	(20,844)	(455,355)
Shares sold	Shares sold	448,791	465,802	914,593	Shares sold	1,391	169,319	170,710

Stock subscription offering -- cash purchases					Stock subscription offering -- cash purchases	(300)	—	(300)
Options and awards exercised	Options and awards exercised	351,160	—	351,160	Options and awards exercised	106,136	—	106,136
Shares outstanding at July 2, 2022		34,689,576	9,041,880	43,731,456
Shares outstanding at April 1, 2023					Shares outstanding at April 1, 2023	33,202,190	9,336,485	42,538,675

On ~~July 2, 2022,~~April 1, 2023, we had ~~43,731,456~~42,538,675 common and redeemable shares outstanding, ~~and~~ employee options exercisable to purchase ~~1,749,031 common shares.~~

~~- 24 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

~~Common Stock Split--~~On September 17, 2021, our board of directors approved and declared a 2-for-one stock split in the form of a stock dividend, pursuant to which each of our shareholders of record at the close of business on October 1, 2021 received one additional common share for each then-held common share, which was paid on October 15, 2021. On September 20, 2021, in connection with the stock split, the Company filed a Certificate of Amendment to its 2017 Amended Articles of Incorporation with the Secretary of State of the State of Ohio, which became effective upon filing and (1) proportionately increased the authorized number of1,692,449 common shares, ~~from 48,000,000 to 96,000,000 and (2) proportionately decreased the par value of our~~partially-paid subscriptions for 1,318,250 common shares ~~from $1.00 per share to $.50 per share.~~and purchase rights outstanding for 487,421 common shares.

2022 Subscription Offering

Beginning April 2022, the Company offered to eligible employees and nonemployee directors the right to subscribe to a maximum of 2,666,667 common shares of the Company (including shares that may be issued upon the exercise of stock rights) at $18.10 per share in accordance with the provisions of The Davey Tree Expert Company 2014 Omnibus Stock Plan and the rules of the Compensation Committee of the Company’s Board of Directors. The offering period ended on August 1, 2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share.

Participants in the subscription offering who purchased common shares for an aggregate purchase price of less than $5 were required to pay with cash. All participants (excluding Company directors and officers) purchasing common shares for an aggregate purchase price of $5 or more had an option to finance their purchase through a down-payment of at least 10% of the total purchase price and a seven-year promissory note for the balance due with interest at the greater of ~~3.15%~~2.00% or the applicable federal rate in effect as of August 1, 2022, which was 3.15%. Payments on the promissory note can be made either by payroll deductions or annual lump-sum payments of both principal and ~~interest.Common~~interest. Common shares purchased in the offering were pledged as security for the payment of the promissory note, and the common shares will not be issued until the promissory note is paid-in-full. Dividends will be paid on all subscribed shares, subject to forfeiture to the extent that payment is not ultimately made for the shares.

All participants in the offering who purchased in excess of $5 of common shares were granted a ~~"right"~~“right” to purchase one additional common share at a price of $18.10 per share for every 3three common shares purchased in the offering. As a result of the stock subscription, rights to purchase ~~490,968~~489,169 common shares were granted. Each right may be exercised at the rate of one-seventh per year and will expire seven years after the date that the right was granted. A purchaser may not exercise a right once he or she ceases to be the Company's employee or non-employee director, as applicable.

- 25 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

M. Operations by Business Segment

We provide a wide range of arboricultural, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada. We have 2two reportable operating segments organized by type or class of customer: Residential and Commercial, and Utility.

Residential and Commercial--Residential and Commercial provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal and planting of trees, shrubs and other plant life; the practice of landscaping, grounds maintenance, tree surgery, tree feeding and tree spraying; the application of fertilizer, herbicides and insecticides; and natural resource management and consulting, forestry research and development, and environmental planning.

~~- 25 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

Utility--Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush control, natural resource management and consulting, forestry research and development, and environmental planning.

All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in “All Other.”

Measurement of Segment Profit and Loss and Segment Assets--We evaluate performance and allocate resources based primarily on operating income and also actively manage business unit operating assets. Segment information, including reconciling adjustments, is presented consistent with the basis described in our ~~2021~~2022 Annual Report.

~~- 26 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

Segment information reconciled to the condensed consolidated financial statements was as follows:


		Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated			Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated
Three Months Ended July 2, 2022

Three Months Ended April 1, 2023													Three Months Ended April 1, 2023
Revenues	Revenues	$	215,428	$	186,427	$	104	$	—		$	401,959	Revenues	$	224,576	$	146,208	$	550	$	—		$	371,334
Income (loss) from operations	Income (loss) from operations	19,747		28,467		(5,109)		(2,373)		(a)	40,732		Income (loss) from operations	16,034		(257)		(4,024)		(246)		(a)	11,507
Interest expense	Interest expense							(1,703)			(1,703)		Interest expense							(3,871)			(3,871)
Interest income	Interest income							159			159		Interest income							399			399
Other income (expense), net	Other income (expense), net							(2,533)			(2,533)		Other income (expense), net							(651)			(651)
Income before income taxes	Income before income taxes										$	36,655	Income before income taxes										$	7,384
Segment assets, total	Segment assets, total	$	320,714	$	297,648	$	—	$	228,519	(b)	$	846,881	Segment assets, total	$	399,853	$	299,896	$	—	$	304,491	(b)	$	1,004,240

Three Months Ended July 3, 2021
Three Months Ended April 2, 2022													Three Months Ended April 2, 2022
Revenues	Revenues	$	178,536	$	176,280	$	660	$	—		$	355,476	Revenues	$	205,167	$	136,931	$	546	$	—		$	342,644
Income (loss) from operations	Income (loss) from operations	14,433		30,616		(2,564)		(461)		(a)	42,024		Income (loss) from operations	12,723		1,088		(5,710)		(2,344)		(a)	5,757
Interest expense	Interest expense							(1,370)			(1,370)		Interest expense							(1,445)			(1,445)
Interest income	Interest income							53			53		Interest income							27			27
Other income (expense), net	Other income (expense), net							(1,200)			(1,200)		Other income (expense), net							(2,337)			(2,337)
Income before income taxes	Income before income taxes										$	39,507	Income before income taxes										$	2,002
Segment assets, total	Segment assets, total	$	254,651	$	281,192	$	—	$	169,678	(b)	$	705,521	Segment assets, total	$	301,489	$	269,971	$	—	$	227,305	(b)	$	798,765

Six Months Ended July 2, 2022
Revenues		$	420,595	$	323,358	$	650	$	—		$	744,603
Income (loss) from operations		32,470		29,555		(10,819)		(4,717)		(a)	46,489
Interest expense								(3,148)			(3,148)
Interest income								186			186
Other income (expense), net								(4,870)			(4,870)
Income before income taxes											$	38,657
Segment assets, total		$	320,714	$	297,648	$	—	$	228,519	(b)	$	846,881

Six Months Ended July 3, 2021
Revenues		$	352,389	$	300,787	$	1,121	$	—		$	654,297
Income (loss) from operations		26,891		34,298		(8,666)		(1,525)		(a)	50,998
Interest expense								(2,644)			(2,644)
Interest income								122			122
Other income (expense), net								(3,250)			(3,250)
Income before income taxes											$	45,226
Segment assets, total		$	254,651	$	281,192	$	—	$	169,678	(b)	$	705,521

Reconciling adjustments from segment reporting to the condensed consolidated financial statements include unallocated corporate items:

- 26 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

(a)Reclassification of depreciation expense and allocation of corporate expenses.

(b)Corporate assets include cash, prepaid expenses, corporate facilities, enterprise-wide information systems and other nonoperating assets.

~~- 27 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

N. Revenue Recognition

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Nature of Performance Obligations and Significant Judgments

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service (or bundle of goods and services) that is distinct. To identify the performance obligations, the Company considers each of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

Our contracts with our customers generally originate upon the completion of a quote for services for residential and commercial customers or the receipt of a purchase order (or similar work order) for utility customers. In some cases, our contracts are governed by master services agreements, in which case our contract under ASC 606 consists of the combination of the master services agreement and the quote/purchase order. Many of our contracts have a stated duration of one year or less or contain termination clauses that allow the customer to cancel the contract after a specified notice period, which is typically less than 90 days. Due to the fact that many of our arrangements allow the customer to terminate for convenience, the duration of the contract for revenue recognition purposes generally does not extend beyond the services that we have actually transferred. As a result, many of our contracts are, in effect, day-to-day or month-to-month contracts.

Disaggregation of Revenue

The following tables disaggregate our revenue for the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, 2022 ~~and July 3, 2021~~ by major sources:


Three Months Ended July 2, 2022		Utility		Residential and Commercial		All Other		Consolidated

Three Months Ended April 1, 2023										Three Months Ended April 1, 2023	Utility		Residential and Commercial		All Other		Consolidated
Type of service:	Type of service:									Type of service:
Tree and plant care	Tree and plant care	$	145,720	$	107,463	$	(85)	$	253,098	Tree and plant care	$	142,589	$	81,824	$	(137)	$	224,276
Grounds maintenance	Grounds maintenance	—		50,463		—		50,463		Grounds maintenance	—		28,023		—		28,023
Storm damage services	Storm damage services	1,498		2,049		—		3,547		Storm damage services	3,973		5,022		—		8,995
Consulting and other	Consulting and other	68,210		26,452		189		94,851		Consulting and other	78,014		31,339		687		110,040
Total revenues	Total revenues	$	215,428	$	186,427	$	104	$	401,959	Total revenues	$	224,576	$	146,208	$	550	$	371,334

Geography:	Geography:									Geography:
United States	United States	$	204,964	$	172,398	$	104	$	377,466	United States	$	213,819	$	137,740	$	550	$	352,109
Canada	Canada	10,464		14,029		—		24,493		Canada	10,757		8,468		—		19,225
Total revenues	Total revenues	$	215,428	$	186,427	$	104	$	401,959	Total revenues	$	224,576	$	146,208	$	550	$	371,334

- 2827 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

Three Months Ended July 3, 2021 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 129,736 $ 102,756 $ (33) $ 232,459
Grounds maintenance — 46,559 — 46,559
Storm damage services (168) 1,615 — 1,447
Consulting and other 48,968 25,350 693 75,011
Total revenues $ 178,536 $ 176,280 $ 660 $ 355,476
Geography:
United States $ 167,994 $ 163,267 $ 660 $ 331,921
Canada 10,542 13,013 — 23,555
Total revenues $ 178,536 $ 176,280 $ 660 $ 355,476
Six Months Ended July 2, 2022 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 282,679 $ 189,098 $ (127) $ 471,650
Grounds maintenance — 82,059 — 82,059
Storm damage services 3,132 3,598 — 6,730
Consulting and other 134,784 48,603 777 184,164
Total revenues $ 420,595 $ 323,358 $ 650 $ 744,603
Geography:
United States $ 401,407 $ 300,637 $ 650 $ 702,694
Canada 19,188 22,721 — 41,909
Total revenues $ 420,595 $ 323,358 $ 650 $ 744,603
Six Months Ended July 3, 2021 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 253,703 $ 174,721 $ (196) $ 428,228
Grounds maintenance — 76,358 — 76,358
Storm damage services 3,945 2,798 — 6,743
Consulting and other 94,741 46,910 1,317 142,968
Total revenues $ 352,389 $ 300,787 $ 1,121 $ 654,297
Geography:
United States $ 331,678 $ 279,149 $ 1,121 $ 611,948
Canada 20,711 21,638 — 42,349
Total revenues $ 352,389 $ 300,787 $ 1,121 $ 654,297

~~- 29 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~


Three Months Ended April 2, 2022	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	136,959	$	81,634	$	(42)	$	218,551
Grounds maintenance	—		31,596		—		31,596
Storm damage services	1,634		1,550		—		3,184
Consulting and other	66,574		22,151		588		89,313
Total revenues	$	205,167	$	136,931	$	546	$	342,644

Geography:
United States	$	196,443	$	128,239	$	546	$	325,228
Canada	8,724		8,692		—		17,416
Total revenues	$	205,167	$	136,931	$	546	$	342,644

Contract Balances

Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue. The Company recognized ~~$310 and $1,059~~$1,280 of revenue for the three ~~and six~~ months ended ~~July~~April 1, 2023, that was included in the contract liability balance at December 31, 2022 and $749 of revenue for the three months ended April 2, 2022, that was included in the contract liability balance at December 31, ~~2021 and $351 and $1,055 of revenue for the three and six months ended July 3, 2021, that was included in the contract liability balance at December 31, 2020.~~2021. Net contract liabilities consisted of the following:


		July 2, 2022		December 31, 2021			April 1, 2023		December 31, 2022
Contract liabilities - current	Contract liabilities - current	$	5,923	$	3,888	Contract liabilities - current	$	3,698	$	3,723
Contract liabilities - noncurrent	Contract liabilities - noncurrent	1,938		1,845		Contract liabilities - noncurrent	3,706		4,145
Net contract liabilities	Net contract liabilities	$	7,861	$	5,733	Net contract liabilities	$	7,404	$	7,868

O. Fair Value Measurements and Financial Instruments

FASB ASC 820, “Fair Value Measurements and ~~Disclosures"~~Disclosures” (“Topic 820”) defines fair value based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers or sellers in the principal or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable and able and willing to transact for the asset or liability.

Valuation Hierarchy--Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The hierarchy prioritizes the inputs into three broad levels:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2 inputs are observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

- 28 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

April 1, 2023

(Amounts in thousands, except share data)

Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Our assets and liabilities measured at fair value on a recurring basis at April 1, 2023 were as follows:


			Fair Value Measurements at April 1, 2023 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at April 1, 2023		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance
Certificates of deposits, current	$	3,500	$	3,500	$	—	$	—
Certificates of deposits, noncurrent	6,359		6,359		—		—


Available-for-sale debt securities:
United States Government and agency securities	29,686		29,686		—		—
Corporate notes and bonds	275		275		—		—
Total available-for-sale debt securities	29,961		29,961		—		—

Marketable equity securities:
Mutual funds	10,200		10,200		—		—
Corporate stocks	3,242		3,242		—		—

Exchange traded funds	1,313		1,313		—		—

Total marketable equity securities	14,755		14,755		—		—

Liabilities:
Deferred compensation	$	4,686	$	—	$	4,686	$	—

- 3029 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~

~~(Amounts in thousands, except share data)~~

~~Our assets and liabilities measured at fair value on a recurring basis at July 2, 2022 were as follows:~~

Fair Value Measurements at
July 2, 2022 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
July 2, 2022
Quoted
Prices in
Active
Markets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Assets invested for self-insurance
Certificates of deposits, current $ 4,250 $ 4,250 $ — $ —
Certificates of deposits, noncurrent 9,609 9,609 — —
Available-for-sale debt securities:
United States Government and agency securities 9,852 9,852 — —
Corporate notes and bonds 276 276 — —
Total available-for-sale debt securities 10,128 10,128 — —
Marketable equity securities:
Mutual funds 15,658 15,658 — —
Corporate stocks 2,184 2,184 — —
Exchange traded funds 6,601 6,601 — —
Total marketable equity securities 24,443 24,443 — —
Liabilities:
Deferred compensation $ 4,726 $ — $ 4,726 $ —

~~- 31 -~~

~~Index~~

~~The Davey Tree Expert Company~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at December 31, ~~2021~~2022 were as follows:


				Fair Value Measurements at December 31, 2021 Using:									Fair Value Measurements at December 31, 2022 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at December 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Assets invested for self-insurance	Assets invested for self-insurance									Assets invested for self-insurance
Certificates of deposits, current	Certificates of deposits, current	$	4,250	$	4,250	$	—	$	—	Certificates of deposits, current	$	3,750	$	3,750	$	—	$	—
Certificates of deposits, noncurrent	Certificates of deposits, noncurrent	10,609		10,609		—		—		Certificates of deposits, noncurrent	6,359		6,359		—		—

Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
United States Government and agency securities	United States Government and agency securities	3,230		3,230		—		—		United States Government and agency securities	25,254		25,254		—		—
Corporate notes and bonds	Corporate notes and bonds	176		176		—		—		Corporate notes and bonds	264		264		—		—
Total available-for-sale debt securities	Total available-for-sale debt securities	3,406		3,406		—		—		Total available-for-sale debt securities	25,518		25,518		—		—

Marketable equity securities:	Marketable equity securities:									Marketable equity securities:
Mutual funds	Mutual funds	7,476		7,476		—		—		Mutual funds	13,873		13,873		—		—
Corporate stocks	Corporate stocks	1,934		1,934		—		—		Corporate stocks	3,007		3,007		—		—

Exchange traded funds	Exchange traded funds	1,976		1,976		—		—		Exchange traded funds	1,230		1,230		—		—

Total marketable equity securities	Total marketable equity securities	11,386		11,386		—		—		Total marketable equity securities	18,110		18,110		—		—

Liabilities:	Liabilities:									Liabilities:
Deferred compensation	Deferred compensation	$	4,333	$	—	$	4,333	$	—	Deferred compensation	$	4,597	$	—	$	4,597	$	—

The assets invested for self-insurance are certificates of deposit, stocks, bonds, mutual funds and exchange traded funds--classified as Level 1--based on quoted market prices of the identical underlying securities in active markets. The estimated fair value of the deferred compensation--classified as Level 2--is based on the value of the Company's common shares, determined by independent valuation.

- 3230 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

Fair Value of Financial Instruments--The fair values of our current financial assets and current liabilities, including cash, accounts receivable, accounts payable, and accrued expenses, among others, approximate their reported carrying values because of their short-term nature. Financial instruments classified as noncurrent assets and liabilities and their carrying values and fair values were as follows:


		July 2, 2022				December 31, 2021					April 1, 2023				December 31, 2022
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:	Assets:									Assets:
Available-for-sale debt securities	Available-for-sale debt securities	$	10,128	$	10,128	$	3,406	$	3,406	Available-for-sale debt securities	$	29,961	$	29,961	$	25,518	$	25,518
Marketable equity securities	Marketable equity securities	24,443		24,443		11,386		11,386		Marketable equity securities	14,755		14,755		18,110		18,110

Liabilities:	Liabilities:									Liabilities:
Revolving credit facility, noncurrent	Revolving credit facility, noncurrent	$	105,677	$	105,677	$	46,832	$	46,832	Revolving credit facility, noncurrent	$	212,000	$	212,000	$	150,433	$	150,433
Senior unsecured notes, noncurrent	Senior unsecured notes, noncurrent	75,000		75,462		75,000		78,432		Senior unsecured notes, noncurrent	75,000		75,481		75,000		74,968
Term loans, noncurrent	Term loans, noncurrent	2,003		2,011		2,373		2,431		Term loans, noncurrent	5,420		5,346		5,854		5,610
Total	Total	$	182,680	$	183,150	$	124,205	$	127,695	Total	$	292,420	$	292,827	$	231,287	$	231,011

The carrying value of our revolving credit facility approximates fair value--classified as Level 2--as the interest rates on the amounts outstanding are variable. The fair value of our senior unsecured notes and term loans--classified as Level 2--is determined based on expected future weighted-average interest rates with the same remaining maturities.

Market Risk--In the normal course of business, we are exposed to market risk related to changes in foreign currency exchange rates, changes in interest rates and changes in fuel prices. We do not hold or issue derivative financial instruments for trading or speculative purposes. In prior years, we have used derivative financial instruments to manage risk, in part, associated with changes in interest rates and changes in fuel prices. Presently, we are not engaged in any hedging or derivative activities.

P. Commitments and Contingencies

We are party to a number of lawsuits, threatened lawsuits and other claims arising out of the normal course of business. On a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record a legal accrual, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings, there can be no assurance that the ultimate resolution of a matter will not exceed established accruals. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

- 3331 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

employees. That complaint, as subsequently amended, alleges various acts of negligence and ~~seeking~~seeks compensatory ~~and punitive~~ damages for the wrongful death ~~and assault and battery~~ of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017.

In July 2018, a related survival action was filed in Savannah, Georgia by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, and 4four current and former employees, ~~in Savannah, Georgia,~~ which arises out of the same allegations, seeks compensatory and punitive damages and also includes 3three Racketeer Influenced and Corrupt Organizations Act ~~("RICO"~~(“RICO”) claims under Georgia law seeking ~~compensatory damages,~~ treble ~~damages, and punitive~~ damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division ("(“Federal ~~Court"~~Court”), on August 2, 2018. ~~The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed.~~

The cases were mediated unsuccessfully in December 2018 and the State Court case was originally set for trial on January 22, 2019. However, as discussed below, ~~all of~~ the two civil cases were ~~later~~ultimately stayed ~~on December 28, 2018 and currently remain stayed.~~for more than four years.

On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States ~~federal prosecutors~~Department of Justice (“DOJ”) filed a motion to stay both actions on the grounds that on December ~~13,~~7, 2018, an indictment was issued charging 2two former Wolf Tree employees and another individual with various crimes, including conspiracy to murder the deceased. ~~NaN of the 3 individually charged defendants have pled guilty to charges~~The State Court case was stayed on ~~March 28, 2022 and April 11, 2022 but have not yet been sentenced. A third individual criminally charged defendant is scheduled to go to trial in October 2022.~~

Previously, on December 17, 2018, the United States Attorney’s Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential violations of immigration and other laws relating to the subject matter of the ongoing criminal investigation referenced above. The Company and Wolf Tree are cooperating with the investigation and have met with both the civil and criminal divisions of the Department of Justice ("DOJ") to resolve the matter. To date, the matter currently remains unresolved.

On December 28, 2018 ~~the State Court granted the United States’ motion to stay but indicated that it would nonetheless consider certain pending matters, including: (1) Plaintiff~~ and a co-defendant’s motions that Davey Tree be forced to produce privileged documents and testimony, which had been submitted to a Special Master for recommendation; and (2) the Defendants’ motions for summary judgment. On January 11, 2019, the Special Master issued his recommendation that both Plaintiff and the co-defendant’s motions to force Davey to disclose privileged information be denied. The State Court judge has not yet moved on the recommendation. On January 29, 2019, the State Court heard oral argument on Defendants’ motions for summary judgment, and the motions remain pending during the stay of the cases.

~~On January 28, 2019,~~ the Federal Court ~~also granted the United States’ motion to stay.~~case was stayed on January 8, 2019. On January 29, 2019, the State Court ordered the parties to return to mediation, which occurred on April 17, 2019, but was unsuccessful in resolving the matters.

By November 2022, all three of the individually charged defendants had either been convicted at trial or pled guilty to Federal criminal charges in the Federal Court related to their involvement with the murder and other illegal activities. All ~~civil cases continue~~three criminal defendants have now been sentenced.

Since the individual defendants' criminal matters are now resolved, the State Court held a status conference with the parties on January 20, 2023. After that status conference, the State Court lifted the stay and entered a scheduling order on February 8, 2023 that, among other items, reopened discovery, which is followed by amended briefing on the parties' pending motions for summary judgment. The State Court has not yet set a trial date.

The stay in the Federal Court case was lifted on April 4, 2023. The case will now proceed to ~~remain stayed.~~the early stages of litigation such as matters related to discovery and motions to dismiss.

In both civil cases, the Company ~~has~~and Wolf Tree have denied all liability and isare vigorously defending against the ~~action. It~~actions. The Company also has retained separate counsel for some of the individual defendants, each of whom has denied all liability and also isare vigorously defending the ~~action.~~actions.

Previously, on December 17, 2018, the United States Attorney's Office for the Southern District of Georgia informed the Company and Wolf Tree that they are also under investigation for potential civil or other violations of immigration and other laws relating to the subject matters of the criminal investigation referenced above. The Company and Wolf Tree are fully cooperating with the investigation and have met with both the civil and criminal divisions of the DOJ. To date, the matter currently remains unresolved.

- 3432 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

Northern California Wildfires

~~NaN~~Five lawsuits ~~have been~~were filed that name contractors for PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (together, ~~"PG&E"~~“PG&E”), including Davey Tree, with respect to claims arising from wildfires that occurred in Pacific Gas and Electric Company’s service territory in northern California beginning on October 8, 2017. An action was brought on August 8, 2019 in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company, et al., Case No. 19CV001194. An action was brought on October 8, 2019 in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861. An action was brought on October 7, 2019 in San Francisco Superior Court, entitled Adams, et al. v. Davey Resource Group, Inc., et al., Case No. CGC-19-579828. An action was brought on October 8, 2019 in Sacramento Superior Court, entitled Antone, et al. v. ACRT, Inc. et al., Case No. 34-2019-00266662. An action was brought on October 7, 2019 in Sacramento Superior Court, entitled Bennett, et al. v. ACRT, Inc. et al., Case No. 2019-00266501.

~~NaN~~Three additional actions were brought on January 28, 2021 in San Francisco County Superior Court, by fire victims represented by a trust (“Plaintiffs’ Trust”), which was assigned contractual rights in the PG&E bankruptcy proceedings. These cases are entitled John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589438; John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589439; and John K. Trotter, Trustee of the PG&E Fire Victim Trust v. ACRT Pacific, LLC, et al., Case No. CGC-21-589441. On September 22, 2021, the court granted Davey Tree's petition to coordinate all cases ~~including~~ ~~Walker,~~as a California Judicial Council Coordination Proceeding, In Re North Bay Fire Cases, JCCP No. 4955. As a result of the coordination order, all 5 of the ~~individual~~ actions are stayed in their home jurisdictions. ~~The next~~At a case management conference in JCCP No. 4955 ~~was held~~ on February 24, ~~2022. At that case management conference,~~2022, the Court ordered ~~a mediation between the Plaintiffs and~~that Davey Tree and the plaintiffs participate in a mediation. An initial mediation took place on October 17, 2022. The matter did not resolve at this initial mediation.

In November 2022, Davey Tree filed a cross-complaint against the Plaintiffs’ Trust and PG&E related to the contractual obligations of limitation of liability and hold harmless. Since that time, Davey ~~Tree's~~Tree has dismissed the cross-complaint against PG&E without prejudice. The Plaintiff’s Trust filed a demurrer which challenged Davey Tree’s claim that the hold harmless provisions in its contracts with PG~~&E. This mediation shall be scheduled by May 27, 2022, with~~&E are an obligation of the ~~mediation~~Plaintiffs’ Trust. In response to ~~occur thereafter. This mediation would include~~the demurrer, Davey Tree filed an amended cross-complaint against the ~~Fire Victim~~Plaintiff’s Trust ~~and all other plaintiff groups.~~on April 13, 2023. The court set a trial date for October 2, 2023 that will involve the claim of the Plaintiffs’ Trust as to the Atlas fire. Separately, the court ~~ordered that all~~referred the Walker case to Napa County Superior Court for a trial setting. The Napa Court set a trial in the Walker case for March 4, 2024.

In addition, the parties ~~shall participate~~are in ~~a global mediation, including selecting a mediator, shall begin~~ the process of ~~securing~~scheduling a ~~mediation date by May 27, 2022, and shall complete a first~~second session of the mediation. The court had ordered that it be conducted by April 28, 2023, but has since moved that deadline to May 31, 2023. The Plaintiffs’ Trust filed a ~~mediation by October 28, 2022. An initial mediation date~~motion for summary adjudication which challenged the ~~parties has been~~limitation of liability as set forth in the assigned contracts. The Court denied the motion for ~~October 2022.~~summary adjudication in an order entered April 12, 2023.

The Defendants have ~~also~~ received evidence from the ~~Plaintiff's~~Plaintiffs' Trust and PG&E collected by those parties prior to and during the PG&E bankruptcy proceedings and Davey Tree's experts have ~~begun their initial inspection~~performed inspections of the evidence. Davey Tree will be seeking further discovery as well. Davey Tree has responded to all claims asserted by the ~~Plaintiffs~~plaintiffs in these actions, denying all liability, ~~in these cases~~ and is vigorously defending against ~~Plaintiffs'~~plaintiffs' alleged claims.

~~In all cases, the Company denies all liability and will vigorously defend the actions.~~

- 3533 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~July 2, 2022~~April 1, 2023

(Amounts in thousands, except share data)

Q. The Davey 401KSOP and Employee Stock Ownership Plan

On March 15, 1979, the Company consummated a plan, which transferred control of the Company to its employees. As a part of this plan, the Company initially sold 120,000 common shares (presently, 46,080,000 common shares adjusted for stock splits) to its Employee Stock Ownership Trust (“ESOT”) for $2,700. The Employee Stock Ownership Plan (“ESOP”), in conjunction with the related ESOT, provided for the grant to certain employees of certain ownership rights in, but not possession of, the common shares held by the trustee of the ESOT. Annual allocations of shares have been made to individual accounts established for the benefit of the participants.

Defined Contribution and Savings Plans--Most employees are eligible to participate in The Davey 401KSOP and ESOP Plan. Effective January 1, 1997, the plan commenced operations and retained the existing ESOP participant accounts and incorporated a deferred savings plan (a “401(k) plan”) feature. Participants in the 401(k) plan are allowed to make before-tax contributions, within Internal Revenue Service established limits, through payroll deductions. Effective January 1, 2020, we match, in either cash or our common shares, 100% of the first 3three percent and 50% of the next 2two percent of each participant's before-tax contribution, limited to the first 5five percent of the employee’s compensation deferred each year. All ~~nonbargaining~~non-bargaining domestic employees who attained age 21 and completed one year of service are eligible to participate. In May 2004, we adopted the 401K Match Restoration Plan, a defined contribution plan that supplements the retirement benefits of certain employees that participate in the savings plan feature of The Davey 401KSOP and ESOP Plan, but are limited in contributions because of tax rules and regulations.

Our common shares are not listed or traded on an established public trading market, and market prices are, therefore, not available. Semiannually, an independent stock valuation firm assists with the appraisal of the fair market value of our common shares based upon our performance and financial condition. The Davey 401KSOP and ESOP Plan includes a put option for shares of the Company’s common stock distributed from the plan. Shares are distributed from the Davey 401KSOP and ESOP Plan to former participants of the plan, their beneficiaries, donees or heirs (each, a “participant”). Since our common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for 2two 60-day periods after distribution of the shares from the Davey 401KSOP and ESOP. The fair value of distributed shares subject to the put option totaled ~~$1,837~~$1,634 and ~~$1,279~~$1,833 as of ~~July 2, 2022~~April 1, 2023 and December 31, ~~2021,~~2022, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$161,821~~$171,091 and ~~$168,652~~$168,145 as of ~~July 2, 2022~~April 1, 2023 and December 31, ~~2021,~~2022, respectively. Due to the Company’s obligation under the put option, the distributed shares subject to the put option and the shares held in the Davey 401KSOP and ESOP (collectively referred to as 401KSOP and ESOP related shares) are recorded at fair value, classified as temporary equity in the mezzanine section of the consolidated balance sheets and totaled ~~$163,658~~$172,725 and ~~$169,931~~$169,978 as of ~~July 2, 2022~~April 1, 2023 and December 31, ~~2021,~~2022, respectively. Changes in the fair value of the 401KSOP and ESOP Plan related shares are reflected in retained earnings while net share activity associated with the 401KSOP and ESOP Plan related shares are first reflected in additional paid-in capital and then retained earnings if additional paid-in capital is insufficient.

- 3634 -

Index

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Amounts in thousands, except share data)

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying condensed consolidated financial statements and notes to help provide an understanding of our financial condition, cash flows and results of operations.

We provide a wide range of arboricultural, horticultural, environmental and consulting services to residential, utility, commercial and government entities throughout the United States and Canada.

Our Business--Our operating results are reported in two segments organized by type or class of customer: Residential and Commercial, and Utility. Residential and Commercial provides services to our residential and commercial customers including: the treatment, preservation, maintenance, removal and planting of trees, shrubs and other plant life; the practice of landscaping, grounds maintenance, tree surgery, tree feeding and tree spraying; the application of fertilizer, herbicides and insecticides; and natural resource management and consulting, forestry research and development, and environmental planning. Utility is principally engaged in providing services to our utility customers--investor-owned, municipal utilities, and rural electric cooperatives--including: the practice of line-clearing and vegetation management around power lines and rights-of-way and chemical brush control, natural resource management and consulting, forestry research and development, and environmental planning. All other operating activities, including research, technical support and laboratory diagnostic facilities, are included in ~~"All~~“All Other."”

Impact of COVID-19 and Recent Trends

While the coronavirus ~~("COVID-19"~~(“COVID-19”) pandemic did not have a material adverse effect on our reported results for the first ~~six~~three months of ~~2022,~~2023, the overall extent and duration of the impact of COVID-19 on businesses and economic activity generally remains unclear due to the inherent uncertainty surrounding COVID-19, given its continual evolution.

We have taken steps to support our employees and protect their health and safety, while also ensuring that our business can continue to operate and provide services to our customers. We continue to provide additional administrative leave for employees affected by COVID-19 directly or indirectly. During the second and third quarters of 2021, we began to bring employees back to our corporate headquarters on a limited basis with increased safety protocols and in compliance with public health and government guidance and also began to lift travel restrictions in situations where necessary. ~~In the first six months of 2022, we incurred expenses of $913 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment.~~

The extent to which our operations may be impacted by COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, any additional resurgences of cases in the United States and breakthrough infections among the fully vaccinated population, the emergence of new COVID-19 variants, the timing, acceptance, availability and effectiveness of COVID-19 vaccines (including booster vaccines), testing, and other treatments and actions by government authorities to contain the pandemic or treat its impact, including reimposing previously-lifted measures and the possibility additional restrictions will be put in place, among other things. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on our business increases the longer the COVID-19 pandemic impacts the level of economic activity in the U.S. and globally. Even after the COVID-19 pandemic has subsided, we may experience an impact to our business as a result of any economic downturn or recession that has occurred or may occur in the future.

~~- 37 -~~

~~Index~~

Our business continues to be impacted by a number of other macro-economic factors, in addition to the trailing impact of the COVID-19 pandemic. Global supply chains and product availability remain highly challenged and ongoing global events in Eastern Europe have only exacerbated an already difficult operating environment. These factors, combined with higher fuel costs, increasing interest rates and a highly competitive labor market, have created an inflationary environment and cost pressures.

In regard to consumer demand, since the onset of the COVID-19 pandemic, our business has experienced an increase in demand and sales. It remains unclear, however, if these demand trends will remain intact or if they will revert to more historical levels over time, particularly as inflation begins to impact discretionary spending.

Inflation rates in the markets in which we operate have increased and may continue to rise. ~~Inflation over the last several months~~Recent inflation has led us to experience higher costs, including higher labor costs and costs for materials from suppliers and transportation costs, and, in the competitive markets in which we operate, we may not be able to increase our prices correspondingly to preserve our gross margins and profitability. If inflation rates

- 35 -

Index

continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity. We have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our prices to pass through some of these higher costs to our customers; however, our ability to raise our prices depends on market conditions and competitive dynamics. Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.

2022 Subscription Offering

~~Beginning April 2022, the~~The Company ~~is offering~~offered to eligible employees and nonemployee directors the right to subscribe to a maximum of 2,666,667 common shares of the Company at $18.10 per share in accordance with the provisions of The Davey Tree Expert Company 2014 Omnibus Stock Plan and the rules of the Compensation Committee of the Company’s Board of Directors. The offering period ended on August 1, 2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share. .For additional information regarding the offering, see “Part I - Item 1 Note L - Per Share Amounts and Common and Redeemable Shares Outstanding.”

~~- 38 -~~

~~Index~~

RESULTS OF OPERATIONS

The following table sets forth our consolidated results of operations as a percentage of revenues and the change in such percentages for the periods presented.

Three Months Ended Six Months Ended
July 2,
2022 July 3,
2021
Change July 2,
2022 July 3,
2021
Change
Revenues 100.0 % 100.0 % — % 100.0 % 100.0 % — %
Costs and expenses:
Operating 62.5 61.8 .7 65.2 63.9 1.3
Selling 17.0 16.6 .4 17.3 17.0 .3
General and administrative 7.5 6.6 .9 7.9 7.5 .4
Depreciation and amortization 3.4 3.9 (.5) 3.7 4.2 (.5)
Gain on sale of assets, net (.5) (.6) .1 (.4) (.4) —
Income from operations 10.1 11.8 (1.7) 6.2 7.8 (1.6)
Other income (expense):
Interest expense (.4) (.4) — (.4) (.4) —
Interest income — — — — — —
Other, net (.6) (.3) (.3) (.7) (.5) (.2)
Income before income taxes 9.1 11.1 (2.0) 5.2 6.9 (1.7)
Income taxes 2.4 3.1 (.7) 1.4 1.9 (.5)
Net income 6.7 % 8.0 % (1.3) % 3.8 % 5.0 % (1.2) %


	Three Months Ended
		April 1, 2023		April 2, 2022		Change
Revenues		100.0	%	100.0	%	—	%

Costs and expenses:
Operating		67.1		68.4		(1.3)
Selling		18.4		17.7		.7
General and administrative		8.5		8.5		—
Depreciation and amortization		3.8		4.0		(.2)
Gain on sale of assets, net		(.8)		(.3)		(.5)

Income from operations		3.1		1.7		1.4

Other income (expense):
Interest expense		(1.0)		(.4)		(.6)
Interest income		.1		—		.1
Other, net		(.2)		(.7)		.5

Income before income taxes		2.0		.6		1.4

Income taxes		.4		.1		.3

Net income		1.6	%	.5	%	1.1	%

- 3936 -

Index

~~Second Quarter—~~First Three Months—Three Months Ended ~~July 2, 2022~~April 1, 2023 Compared to Three Months Ended ~~July 3, 2021~~April 2, 2022

Our results of operations for the three months ended ~~July 2, 2022~~April 1, 2023 compared to the three months ended ~~July 3, 2021~~April 2, 2022 were as follows:


		Three Months Ended									Three Months Ended
		July 2, 2022		July 3, 2021		Change		Percentage Change			April 1, 2023		April 2, 2022		Change		Percentage Change
Revenues	Revenues	$	401,959	$	355,476	$	46,483	13.1	%	Revenues	$	371,334	$	342,644	$	28,690	8.4	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	251,554		219,275		32,279		14.7		Operating	249,069		234,207		14,862		6.3
Selling	Selling	68,155		58,836		9,319		15.8		Selling	68,223		60,796		7,427		12.2
General and administrative	General and administrative	30,055		23,622		6,433		27.2		General and administrative	31,437		28,995		2,442		8.4
Depreciation and amortization	Depreciation and amortization	13,515		13,702		(187)		(1.4)		Depreciation and amortization	13,994		13,787		207		1.5
Gain on sale of assets, net	Gain on sale of assets, net	(2,052)		(1,983)		(69)		3.5		Gain on sale of assets, net	(2,896)		(898)		(1,998)		222.5
		361,227		313,452		47,775		15.2			359,827		336,887		22,940		6.8

Income from operations	Income from operations	40,732		42,024		(1,292)		(3.1)		Income from operations	11,507		5,757		5,750		99.9
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(1,703)		(1,370)		(333)		24.3		Interest expense	(3,871)		(1,445)		(2,426)		167.9
Interest income	Interest income	159		53		106		200.0		Interest income	399		27		372		1,377.8
Other, net	Other, net	(2,533)		(1,200)		(1,333)		111.1		Other, net	(651)		(2,337)		1,686		(72.1)
Income before income taxes	Income before income taxes	36,655		39,507		(2,852)		(7.2)		Income before income taxes	7,384		2,002		5,382		268.8

Income taxes	Income taxes	9,870		10,964		(1,094)		(10.0)		Income taxes	1,388		220		1,168		530.9

Net income	Net income	$	26,785	$	28,543	$	(1,758)	(6.2)	%	Net income	$	5,996	$	1,782	$	4,214	236.5	%

Revenues--Revenues of ~~$401,959~~$371,334 increased ~~$46,483~~$28,690 compared with ~~$355,476~~$342,644 in the ~~second quarter~~first three months of ~~2021.~~2022. Utility Services increased ~~$36,892~~$19,409 or ~~20.7%~~9.5% compared with the ~~second quarter~~first three months of 2021. The increase was attributable to new accounts as well as increased work year-over-year and price increases on existing accounts. Residential and Commercial Services increased $10,147 or 5.8% from the second quarter of 2021. Increases were primarily in tree and plant care revenues, grounds maintenance revenue and consulting and other revenue.

~~Operating Expenses~~--Operating expenses of $251,554 increased $32,279 compared with the second quarter of 2021. Utility Services increased $25,089 or 19.1% compared with the second quarter of 2021 but, as a percentage of revenue, decreased to 72.4%. from 73.4%.2022. The increase was primarily attributable to additional ~~expenses for labor and benefits expenses, fuel expense, crew meals and lodging expenses, subcontractor expense, tools and parts expense and materials expense.~~Residential and Commercial Services increased $7,191 or 8.2% compared with the second quarter of 2021 and, as a percentage of revenue, increased to 50.7% from 49.5%. The increase was primarily attributable to increases in labor and benefits expenses, fuel expense, subcontractor expense, tools and parts expenses and materials expense.

Operating expenses for the second quarter of 2022 also included $57 of expenses related directly to COVID-19, including $51 for additional administrative leave offered to employees who have been unable tostorm work ~~due to COVID-19 imposed restrictions, whether~~arising from the ~~virus itself or government imposed restrictions or closures. For the second quarter of 2021, the Company had $394 of expenses directly related to COVID-19.~~

~~- 40 -~~

~~Index~~

~~Fuel costs of $16,942 increased $6,646, or 64.5%, from the $10,296 incurred in the second quarter of 2021~~rain and ~~impacted operating expenses within all segments. The $6,646 increase included usage increases approximating $504 and price increases approximating $6,142.~~

~~Selling Expenses~~--Selling expenses of $68,155 increased $9,319 compared with the second quarter of 2021 and, as a percentage of revenues, increased to 17.0% from 16.6%. Utility Services increased $5,240 or 26.8% compared to the second quarter of 2021 and, as a percentage of revenue, increased to 11.5% from 10.9%. The increase was primarily attributable to increases in field management wages and incentive expense and travel expenses. Residential and Commercial Services increased $3,945 or 9.7% from the second quarter of 2021 and, as a percentage of revenue, increased to 23.9% from 23.0%. The increase was primarily attributable to increases in field management and sales wage expenses, travel expense and office rent.

~~General and Administrative Expenses~~--General and administrative expenses of $30,055 increased $6,433 from $23,622 in the second quarter of 2021. The increase was primarily attributable to increases in professional services, travel expenses and salary expense.

~~Depreciation and Amortization Expense--Depreciation and amortization expense of $13,515 decreased $187 from $13,702 incurred in the second quarter of 2021.~~

~~Gain~~wind experienced on the ~~Sale~~west coast of ~~Assets, Net--Gain on~~ the sale of assets of $2,052 for the second quarter of 2022 increased $69 from the $1,983 gain in the second quarter of 2021. We sold a comparable number of units of equipment at a comparable gain per unit in the second quarter of 2022 as compared with the second quarter of 2021.

~~Interest Expense--Interest expense of $1,703 increased $333 from the $1,370 incurred in the second quarter of 2021.The increase was attributable to higher average borrowing and higher interest rates during the second quarter of 2022, as compared with the second quarter of 2021.~~

~~Other, Net~~--Other expense, net, of $2,533 increased $1,333 from the $1,200 of other expense incurred in the second quarter of 2021 and consisted of nonoperating income and expense, including pension expense and foreign currency transaction gains/losses on the intercompany account balances of our Canadian operations.

~~Income Taxes~~--Income taxes for the second quarter of 2022 were $9,870, as compared to $10,964 for the second quarter of 2021. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate for the second quarter of 2022 was 26.9% as compared with the second quarter of 2021 effective tax rate of 27.8%.

~~Net Income~~--~~Net income of $26,785 for the second quarter of 2022 was $1,758 less than the $28,543 net income for the second quarter of 2021.~~

~~- 41 -~~

~~Index~~

~~First Six Months—Six Months Ended July 2, 2022 Compared to Six Months Ended July 3, 2021~~

~~Our results of operations for the six months ended July 2, 2022 compared to the six months ended July 3, 2021 were as follows:~~

Six Months Ended
July 2,
2022 July 3,
2021 Change Percentage
Change
Revenues $ 744,603 $ 654,297 $ 90,306 13.8 %
Costs and expenses:
Operating 485,761 418,310 67,451 16.1
Selling 128,951 111,523 17,428 15.6
General and administrative 59,050 48,973 10,077 20.6
Depreciation and amortization 27,302 27,160 142 .5
Gain on sale of assets, net (2,950) (2,667) (283) 10.6
698,114 603,299 94,815 15.7
Income from operations 46,489 50,998 (4,509) (8.8)
Other income (expense):
Interest expense (3,148) (2,644) (504) 19.1
Interest income 186 122 64 52.5
Other, net (4,870) (3,250) (1,620) 49.8
Income before income taxes 38,657 45,226 (6,569) (14.5)
Income taxes 10,090 12,256 (2,166) (17.7)
Net income $ 28,567 $ 32,970 $ (4,403) (13.4) %

~~Revenues~~--Revenues of $744,603 increased $90,306 compared with $654,297 in the first six months of 2021. Utility Services increased $68,206 or 19.4% compared with the first six months of 2021. The increase was primarily attributable toU.S., new accounts obtained, as well as increased work year-over-year on other accounts and price increases on existing accounts within both our U.S. and Canadian operations. Residential and Commercial Services increased ~~$22,571~~$9,277 or ~~7.5%~~6.8% compared with the first ~~six~~three months of ~~2021.~~2022. Increases were primarily in ~~tree and plant care revenue,~~ consulting and other revenue and storm damage revenue and were partially offset by a decrease in grounds ~~maintenance.~~maintenance revenue.

Operating Expenses--Operating expenses of ~~$485,761~~$249,069 increased ~~$67,451~~$14,862 compared with the first ~~six~~three months of ~~2021 and, as a percentage of revenues, increased to 65.2% from 63.9%. Utility Services increased $51,048 or 19.7% compared with the first six months of 2021 and,~~2022 but, as a percentage of revenue, decreased to 67.1% from 68.4%. Utility Services increased $11,562 or 7.5% compared with the first three months of 2022 but, as a percentage of revenue, decreased to ~~73.8%~~73.6% from ~~73.5%~~74.9%. The increase was attributable to increases in labor and benefits expense, fuel expense, equipment expense, materials expense, crew meals and lodging expenses which were partially offset by decreases in tools and parts expense and subcontractor expense. Residential and Commercial Services increased ~~$16,113~~$4,834 or ~~10.2%~~6.1% compared with the first ~~six~~three months of ~~2021 and,~~2022 but, as a percentage of revenue, ~~increased~~decreased to ~~53.9%~~57.8% from ~~52.5%~~58.1%. The increase was primarily attributable to increases in labor and benefits expense, ~~fuel expense,~~ equipment expense ~~tool~~and subcontractor expense ~~and~~which were partially offset by a decrease in materials expense.

Operating expenses for the first six months of 2022 also included $913 of expenses related directly to COVID-19, including $714 for additional administrative leave offered to employees who were unable to work due to COVID-19-related restrictions. For the first six months of 2021, the Company had $854 of expenses directly related to COVID-19.

~~- 42 -~~

~~Index~~

Fuel costs of ~~$29,136~~$12,661 increased ~~$10,602,~~$467, or ~~57.2%~~3.8%, from the ~~$18,534~~$12,194 incurred in the first ~~six~~three months of ~~2021~~2022 and impacted operating expenses within all segments. The ~~$10,602~~$467 increase included usage increases approximating ~~$1,019~~$20 and price increases approximating ~~$9,583.~~$447.

- 37 -

Index

Selling Expenses--Selling expenses of ~~$128,951~~$68,223 increased ~~$17,428~~$7,427 compared with the first ~~six~~three months of ~~2021~~2022 and, as a percentage of revenue, increased to ~~17.3%~~18.4% from ~~17.0%~~17.7%. Utility Services increased ~~$9,280~~$3,275 or ~~23.4%~~13.5% compared to the first ~~six~~three months of ~~2021~~2022 and, as a percentage of revenue, increased to ~~11.6%~~12.2% from ~~11.3%~~11.8%. The increase was primarily attributable to increases in field management wages and field management travel expense. Residential and Commercial Services experienced an increase of ~~$7,791~~$4,694 or ~~10.5%~~12.6% compared to the first ~~six~~three months of ~~2021~~2022 and, as a percentage of revenue, increased to ~~25.3%~~28.7% from ~~24.6%~~27.2%. The increase was primarily attributable to increases in field management wages ~~travel~~and incentive expense, ~~and incentive~~employee development expense and rent expense.

General and Administrative Expenses--General and administrative expenses of ~~$59,050~~$31,437 increased ~~$10,077~~$2,442 from ~~$48,973~~$28,995 in the first ~~six~~three months of ~~2021.~~2022. The increase was primarily attributable to increases in salary and incentive expense, professional services expense and travel expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$27,302~~$13,994 increased ~~$142~~$207 from ~~$27,160~~$13,787 incurred in the first ~~six~~three months of ~~2021.~~2022.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$2,950~~$2,896 for the first ~~six~~three months of ~~2022~~2023 increased ~~$283~~$1,998 from the ~~$2,667~~$898 gain in the first ~~six~~three months of ~~2021.~~2022. We sold more units of equipment at a higher average gain per unit during the first ~~six~~three months of ~~2022~~2023 as compared with the first ~~six~~three months of ~~2021.~~2022.

Interest Expense--Interest expense of ~~$3,148~~$3,871 increased ~~$504~~$2,426 from the ~~$2,644~~$1,445 incurred in the first ~~six~~three months of ~~2021.~~2022. The increase was attributable to higher average borrowing and increased interest rates during the first ~~six~~three months of ~~2022,~~2023, as compared with the first ~~six~~three months of ~~2021.~~2022.

Other, Net--Other expense, net, of ~~$4,870 increased $1,620~~$651 decreased $1,686 from the ~~$3,250~~$2,337 expense incurred in the first ~~six~~three months of ~~2021~~2022 and consisted of nonoperating income and expense, including losses on marketable securities, pension expense and foreign currency ~~gains/losses on the intercompany account balances of our Canadian operations.~~translation adjustments.

Income Taxes--Income taxes for the first ~~six~~three months of ~~2022~~2023 were ~~$10,090,~~$1,388, as compared to ~~$12,256~~$220 for the first ~~six~~three months of ~~2021.~~2022. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The effective tax rate for the first ~~six~~three months of ~~2022~~2023 was ~~26.1%~~18.8%. Our effective tax rate for the first ~~six~~three months of ~~2021~~2022 was ~~27.1%~~11.0%. The change in the effective tax rate from statutory tax rates was primarily due to the impact of favorable discrete items and state and local ~~taxes, which was partially offset by favorable discrete items.~~taxes.

Net Income--Net income of ~~$28,567~~$5,996 for the first ~~six~~three months of ~~2022~~2023 was ~~$4,403 less~~$4,214 more than the net income of ~~$32,970~~$1,782 for the first ~~six~~three months of ~~2021.~~2022.

LIQUIDITY AND CAPITAL RESOURCES

Our principal financial requirements are for capital spending, working capital and business acquisitions. Cash generated from operations, our revolving credit facility and note issuances are our primary sources of capital.

During 2022, we also engaged in a subscription offering of our common shares to eligible employees and nonemployee directors, which closed in the third quarter of 2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share.

- 4338 -

Index

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the ~~six~~three months ended ~~July~~April 1, 2023 and April 2, 2022 ~~and July 3, 2021~~ were as follows:


		Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	42,287	$	71,900	Operating activities	$	(14,125)	$	28,285
Investing activities	Investing activities	(71,454)		(44,048)		Investing activities	(24,898)		(37,119)
Financing activities	Financing activities	20,183		(10,482)		Financing activities	45,162		11,116
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(14)		95		Effect of exchange rate changes on cash	12		35
(Decrease)/Increase in cash		$	(8,998)	$	17,465
Increase in cash						Increase in cash	$	6,151	$	2,317

Cash (Used In) Provided By Operating Activities--Cash ~~provided by~~used in operating activities was ~~$42,287~~$14,125 for the first ~~six~~three months of ~~2022,~~2023, a ~~$29,613~~$42,410 decrease when compared to the first ~~six~~three months of ~~2021.~~2022. The ~~$29,613~~$42,410 decrease in operating cash flow was primarily attributable to the change of ~~$48,836~~$27,771 related to accounts receivable ~~partially offset by a~~and the change of ~~$16,146~~$16,377 related to accounts payable and accrued expenses, ~~and the~~partially offset by a change of ~~$1,249~~$3,432 related to other operating assets and liabilities.

Overall, accounts receivable increased ~~$41,882~~$25,756 during the first ~~six~~three months of ~~2022,~~2023, as compared to a decrease of ~~$6,954~~$2,015 during the first ~~six~~three months of ~~2021.~~2022. With respect to the change in accounts receivable arising from business levels, the “days-sales-outstanding” in accounts receivable (sometimes referred to as “DSO”) at the end of the first ~~six~~three months of ~~2022~~2023 increased by ~~nine~~thirteen days to 7286 days, compared to 6373 days at the end of the first ~~six~~three months of ~~2021.~~2022. As we continue to grow and expand our service offerings, our DSO will be influenced by various factors such as individual contract terms, the nature of the work performed and special situations such as storm work. As such, we do not view an increase in DSO as a indicator of uncollectability.

Accounts payable and accrued expenses ~~increased $2,654~~decreased $18,418 in the first ~~six~~three months of ~~2022,~~2023, a change of ~~$16,146~~$16,377 compared to the ~~$13,492~~$2,041 decrease in the first ~~six~~three months of ~~2021.~~2022. The change was primarily related to the timing of estimated income tax payments and employer payroll taxes payable as well as compensated absence accruals. Self-insurance accruals increased ~~$8,969~~$6,825 in the first ~~six~~three months of ~~2022,~~2023, which was ~~$1,734~~$1,749 more than the increase of ~~$7,235~~$5,076 experienced in the first ~~six~~three months of ~~2021.~~2022. The increase was attributable to increased exposures within our workers compensation, general liability and vehicle liability lines of coverage.

Other operating assets and liabilities ~~increased $1,681~~decreased $4,779 in the first ~~six~~three months of ~~2022,~~2023, a change of ~~$1,249~~$3,432 compared to the ~~$432~~$1,347 decrease in the first ~~six~~three months of ~~2021.~~2022. The change was primarily attributable to ~~operating supplies.~~cloud computing arrangements.

Cash Used In Investing Activities--Cash used in investing activities for the first ~~six~~three months of ~~2022~~2023 was ~~$71,454,~~$24,898, a ~~$27,406 increase~~$12,221 decrease when compared to the first ~~six~~three months of ~~2021.~~2022. The ~~increase~~decrease was primarily the result of increases in ~~purchases~~proceeds from the sale of ~~equipment~~marketable securities and ~~land~~property and ~~buildings and self-insurance investments, partially offset by a decrease in purchases of businesses.~~equipment.

Cash Provided By Financing Activities--Cash provided by financing activities was ~~$20,183~~$45,162 during the first ~~six~~three months of ~~2022, a change~~2023, an increase of ~~$30,665~~$34,046 as compared with the ~~$10,482 used~~$11,116 provided during the first ~~six~~three months of ~~2021.~~2022. During the first ~~six~~three months of ~~2022,~~2023, our revolving credit facility, net provided ~~$58,845~~$61,566 in cash as compared with ~~$23,651~~$23,949 provided during the first ~~six~~three months of ~~2021.~~2022. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. Notes payable decreased ~~$15,639~~$9,337 during the first ~~six~~three months of ~~2022, an~~2023, a decrease of ~~$241~~$147 when compared to the ~~$15,880~~$9,190 decrease in the first ~~six~~three months of ~~2021.~~2022. Treasury share transactions (purchases and sales) used ~~$19,633~~$5,431 for the first ~~six~~three months of ~~2022, $4,775~~2023, $3,337 more than the $14,858 used in the first six months of 2021. Dividends paid of $1,751 during the first six months of 2022 increased $405 as compared with $1,346 paid in the first six months of 2021, in part due to the increase in dividend paid per share implemented during the fourth quarter of 2021 and the second quarter of 2022.

- 4439 -

Index

$2,094 used in the first three months of 2022. Dividends paid of $877 during the first three months of 2023 increased $95 as compared with $782 paid in the first three months of 2022.

The Company currently repurchases common shares at shareholders’ requests in accordance with the terms of the Davey 401KSOP and ESOP Plan and also repurchases common shares from time to time at the Company’s discretion. The amount of common shares offered to the Company for repurchase by the holders of shares distributed from the Davey 401KSOP and ESOP Plan is not within the control of the Company, but is at the discretion of the shareholders. The Company expects to continue to repurchase its common shares, as offered by its shareholders from time to time, at their then current fair value. However, other than for repurchases pursuant to the put option under the Davey 401KSOP and ESOP Plan, as described in Note Q, such purchases are not required, and the Company retains the right to discontinue them at any time. Repurchases of redeemable common shares at shareholders' request approximated ~~$12,641~~$19 and ~~$6,754~~$467 during the ~~six~~three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ respectively. Share repurchases, other than redeemable common shares, approximated ~~$24,333~~$8,400 and ~~$20,512~~$6,537 during the ~~six~~three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ respectively.

Contractual Obligations Summary and Commercial Commitments

As of ~~July 2, 2022,~~April 1, 2023, total commitments related to issued letters of credit were ~~$88,360,~~$94,435, of which ~~$2,877~~$2,624 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,128~~$2,122 were issued under short-term lines of credit. As of December 31, ~~2021,~~2022, total commitments related to issued letters of credit were ~~$88,362,~~$94,435, of which ~~$2,877~~$2,624 were issued under the revolving credit facility, ~~$83,355~~$89,689 were issued under the AR Securitization program, and ~~$2,130~~$2,122 were issued under short-term lines of credit.

Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during ~~2022~~2023 through ~~2026.~~2027. We intend to renew the surety bonds where appropriate and as necessary.

Capital Resources

Cash generated from operations, our revolving credit facility and note issuances are our primary sources of capital.

Business seasonality traditionally results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while our methods of accounting for fixed costs, such as depreciation and amortization expense, rent and interest expense, are not significantly impacted by business seasonality. Capital resources during these periods are equally affected. We satisfy seasonal working capital needs and other financing requirements with the revolving credit facility and other short-term lines of credit. We continually review our existing sources of financing and evaluate alternatives. At ~~July 2, 2022,~~April 1, 2023, we had working capital of ~~$164,183,~~$255,238, short-term lines of credit approximating ~~$9,034~~$8,986 and ~~$216,446~~$110,376 available under our revolving credit facility.

For more information regarding our outstanding debt, see “Part I - Item 1 - Note G, Short and Long-Term Debt and Commitments Related to Letters of Credit.”

We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions for at least the next twelve months and for the reasonably foreseeable future.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

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As discussed in our ~~annual report on Form 10-K for the year ended December 31, 2021,~~2022 Annual Report, we believe that our policies related to revenue recognition, the allowance for credit losses, stock valuation and self-insurance accruals are our “critical accounting policies and estimates”--those most important to the financial presentations and those that require the most difficult, subjective or complex judgments.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable, specifically those receivables under contractual arrangements primarily with Utility customers; allowance for credit losses; and self-insurance accruals. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Our critical accounting policies have not changed materially from those discussed in our 2022 Annual Report.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements ~~within~~(within the meaning of the Private Securities Litigation Reform Act of ~~1995, as amended.~~1995). These statements relate to future events or our future financial performance. In some cases, forward-looking statements may be identified by terminology such as ~~"may," "will," "should," "could," "might," "expects," "plans," "anticipates," "believes," "estimates," "seeks," "predicts," "potential," "would," "continue"~~“may,” “will,” “should,” “could,” “might,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “seeks,” “predicts,” “potential,” “would,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are difficult to predict and are outside of our control, that may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from what is expressed or implied in these forward-looking ~~statements, some of which have been, and may further be, exacerbated by the COVID-19 pandemic.~~statements. Some important factors that could cause actual results to differ materially from those in the forward-looking statements or materially adversely affect our business, results of operations or financial condition include: an overall decline in the ~~continued impact~~health of the economy or our industry, including as a result of rising inflation or interest rates, instability in the global banking system, the possibility of an economic recession, or the COVID-19 pandemic ~~and the responses thereto;~~or other public health crises; our inability to attract and retain a sufficient number of qualified employees for our field operations or qualified management personnel and increased wage rates ~~that~~ may result from our need to attract and retain employees; increases in the cost of obtaining adequate insurance, or the inadequacy of our self-insurance accruals or insurance coverages; inability to obtain, or cancellation of, third-party insurance coverage; the impact of wildfires in California and other areas, as well as other severe weather events and natural disasters, which events may worsen or increase due to the effects of climate change; payment delays or delinquencies resulting from financial difficulties of our significant customers, particularly utilities; the outcome of litigation and third-party and governmental regulatory claims against us; an increase in our operating expenses due to significant increases in fuel prices for extended periods of time, such as the recent increases and volatility arising from the ~~effects~~effect of the Russia-Ukraine conflict; disruptions, delays or price increases within our supply chain; our ability to withstand intense competition; the potential impact of acquisitions or other strategic transactions; the effect of various economic factors, including inflationary pressures, that may adversely impact our customers’ spending and pricing for our services, ~~including the impact of inflationary pressures,~~ and impede our collection of accounts receivable; the impact of global climate change and related regulations; fluctuations in our quarterly results due to the seasonal nature of our business or changes in general and local economic conditions, among other factors; being contractually bound to an unprofitable contract; a disruption in our information technology systems, including a disruption related to cybersecurity, or the impact of costs incurred to comply with cybersecurity or data privacy regulations; damage to our reputation of quality, integrity and performance; limitations on our shareholders’ ability to sell their common shares due to the lack of public market for such shares; our ability to continue to declare cash dividends; our failure to comply with environmental laws resulting in significant liabilities, fines and/or penalties; difficulties obtaining surety bonds or letters of credit necessary to support our operations; uncertainties in the credit and financial markets, including the negative impacts of COVID-19, ~~and~~ the Russia-Ukraine conflict, supply chain shortages and disruptions, rising interest rates,

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labor shortages and inflationary cost pressures, among other factors, potentially limiting our access to capital; fluctuations in foreign currency exchange rates; significant increases in health care costs; the impact of corporate citizenship and environmental, social and governance matters and/or our reporting of such matters; our ability to

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~~Index~~

successfully implement our new enterprise resource planning system in a cost-effective and timely manner; the impact of events such as natural disasters, public health epidemics or pandemics, such as COVID-19, terrorist attacks or other external events; the impact of tax increases and changes in tax rules; and our inability to properly verify the employment eligibility of our employees.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual future results, except as required by applicable securities laws.

The factors described above, as well as other factors that may adversely impact our actual results, are discussed in ~~"Part~~“Part I - Item 1A. Risk Factors."” of our ~~annual report on Form 10-K for the year ended December 31, 2021.~~2022 Annual Report.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

~~There~~While we have experienced inflation and higher interest rates during 2023, there have been no material changes in our reported market risks or risk management policies since the filing of our ~~2021~~2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March ~~11, 2022.~~16, 2023.

Item 4.Controls and Procedures.

(a) Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~July 2, 2022~~April 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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. Because of

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the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Part II. Other Information

Items 3, 4 and 5 are not applicable.

Item 1. Legal Proceedings.

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~~Index~~

our established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution of a matter will not exceed established accruals. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

In November 2017, a ~~suit~~wrongful death lawsuit was filed in Savannah, Georgia ~~state court ("~~in the State ~~Court"~~Court of Chatham County (“State Court”) against Davey Tree, its subsidiary, Wolf Tree, Inc. ("(“Wolf ~~Tree"~~Tree”), a former Davey employee, ~~two~~a Wolf Tree ~~employees,~~employee, and atwo former Wolf Tree ~~employee alleging~~employees. That complaint, as subsequently amended, alleges various acts of negligence and ~~seeking~~seeks compensatory ~~and punitive~~ damages for the wrongful death ~~and assault and battery~~ of the plaintiff’s husband, a Wolf Tree employee, who was shot and killed in August 2017.

In July 2018, a related survival action was filed in Savannah, Georgia by the deceased’s estate against Davey Tree, its subsidiary, Wolf Tree, and four current and former employees, ~~in Savannah, Georgia,~~ which arises out of the same allegations, seeks compensatory and punitive damages and also includes three Racketeer Influenced and Corrupt Organizations Act ~~("RICO"~~(“RICO”) claims under Georgia law seeking ~~compensatory damages,~~ treble ~~damages, and punitive~~ damages. The 2018 case was removed to the United States District Court for the Southern District of Georgia, Savannah Division ("(“Federal ~~Court"~~Court”), on August 2, 2018. ~~The Company filed a motion to dismiss the RICO claims. Plaintiffs filed a motion to remand the case to state court, which the Company has opposed.~~

On December 6, 2018, a former Wolf Tree employee pled guilty to conspiracy to conceal, harbor, and shield illegal aliens. On December 21, 2018, the United States ~~federal prosecutors~~Department of Justice (“DOJ”) filed a motion to stay both actions on the grounds that on December ~~13,~~7, 2018, an indictment was issued charging two former Wolf Tree employees and another individual with various crimes, including conspiracy to murder the deceased. ~~Two of the three individually charged defendants have pled guilty to charges~~The State Court case was stayed on ~~March 28, 2022 and April 11, 2022 but have not yet been sentenced. A third individual criminally charged defendant is scheduled to go to trial in October 2022.~~

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The stay in the Federal Court case was lifted on April 4, 2023. The case will now proceed to the early stages of litigation such as matters related to discovery and motions to dismiss.

Northern California Wildfires

Five lawsuits ~~have been~~were filed that name contractors for PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (together, ~~"PG&E"~~“PG&E”), including Davey Tree, with respect to claims arising from wildfires that occurred in Pacific Gas and Electric Company’s service territory in northern California beginning on October 8, 2017. An action was brought on August 8, 2019 in Napa County Superior Court, entitled Donna Walker, et al. v. Davey Tree Surgery Company, et al., Case No. 19CV001194. An action was brought on October 8, 2019 in San Francisco County Superior Court, entitled Quinisha Kyree Abram, et al. v. ACRT, Inc., et. al, Case No. CGC-19-579861. An action was brought on October 7, 2019 in San Francisco Superior Court, entitled Adams, et al. v. Davey Resource Group, Inc., et al., Case No. CGC-19-579828. An action was brought on October 8, 2019 in Sacramento Superior Court, entitled Antone, et al. v. ACRT, Inc. et al., Case No. 34-2019-00266662. An action was brought on October 7, 2019 in Sacramento Superior Court, entitled Bennett, et al. v. ACRT, Inc. et al., Case No. 2019-00266501.

Three additional actions were brought on January 28, 2021 in San Francisco County Superior Court, by fire victims represented by a trust (“Plaintiffs’ Trust”), which was assigned contractual rights in the PG&E bankruptcy proceedings. These cases are entitled John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589438; John K. Trotter, Trustee of the PG&E Fire Victim Trust v. Davey Resource Group, Inc., et al., Case No. CGC-21-589439; and John K. Trotter, Trustee of the PG&E Fire Victim Trust v. ACRT Pacific, LLC, et al., Case No. CGC-21-589441. On September 22, 2021, the court granted Davey Tree's petition to coordinate all cases ~~including~~ ~~Walker,~~as a California Judicial Council Coordination Proceeding, In Re North Bay Fire Cases, JCCP No. 4955. As a result of the coordination order, all ~~five~~ of the ~~individual~~ actions are stayed in their home jurisdictions. ~~The next~~At a case management conference in JCCP No. 4955 ~~was held~~ on February 24, ~~2022. At that case management conference,~~2022, the Court ordered ~~a mediation between the Plaintiffs and~~that Davey Tree and the plaintiffs participate in a mediation. An initial mediation took place on October 17, 2022. The matter did not resolve at this initial mediation.

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~~In all cases, the Company denies all liability and will vigorously defend the actions.~~

Item 1A.Risk Factors.

Our 2022 Annual Report ~~on Form 10-K for the year ended December 31, 2021,~~ includes a detailed discussion of our risk factors. Disclosure of risks should not be interpreted to imply that the risks have not already materialized. There have been no material changes to the risk factors described in the ~~2021 Form 10-K~~2022 Annual Report during the ~~six~~three months ended ~~July 2, 2022.~~

~~- 49 -~~

April 1, 2023.

~~Index~~

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

The following table provides information on purchases of our common shares outstanding made by us during the first ~~six~~three months of ~~2022.~~2023.

Period Total
Number of
Shares
Purchased Average
Price
Paid per
Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Maximum Number of
Shares that
May Yet Be Purchased
Under the Plans or
Programs
Fiscal 2022
January 1 to January 29 1,285 $ 18.10 — 3,845,851
January 30 to February 26 5,620 18.10 — 3,845,851
February 27 to April 2 382,610 18.10 — 3,845,851
Total First Quarter 389,515 18.10 —
April 3 to April 30 321,122 18.10 — 3,845,851
May 1 to May 28 927,994 18.10 — 3,845,851
May 29 to July 2 397,888 18.10 — 3,845,851
Total Second Quarter 1,647,004 18.10 —
Total Year-to-Date 2,036,519 $ 18.10 —
(1) During the six months ended July 2, 2022, the Company purchased 2,036,519 shares from shareholders excluding those purchased through publicly announced plans. The Company provides a ready market for all shareholders through our direct purchase of their common shares although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan).


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2023
January 1 to January 28	35	$	18.10	—	3,323,819
January 29 to February 25	10,122	18.10		—	3,323,819
February 26 to April 1	445,198	18.50		—	3,323,819
Total First Quarter	455,355	18.49		—











Total Year-to-Date	455,355	$	18.49	—

(1) During the three months ended April 1, 2023, the Company purchased 455,355 shares from shareholders excluding those purchased through publicly announced plans. The Company provides a ready market for all shareholders through our direct purchase of their common shares although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan).

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Our common shares are not listed or traded on an established public trading market and market prices are, therefore, not available. Semiannually, for purposes of the Davey 401KSOP and ESOP, an independent stock valuation firm assists with the appraisal of the fair market value of the common shares, based upon our performance and financial condition, using a peer group of comparable companies selected by that firm. The peer group currently consists of: ABM Industries Incorporated; Comfort Systems USA, Inc.; Dycom Industries, Inc.; FirstService Corporation; MYR Group, Inc.; Quanta Services, Inc.; Rollins, Inc.; and Scotts Miracle-Gro Company. The semiannual valuations are effective for a period of six months and the per-share price established by those valuations is the price at which our Board of Directors has determined our common shares will be bought and sold during that six-month period in transactions involving Davey Tree or one of its employee benefit or stock purchase plans. Since 1979, we have provided a ready market for all shareholders through our direct purchase of their common shares, although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan, as described in “Part I - Item 1 - Note Q, The Davey 401KSOP and Employee Stock Ownership ~~Plan)~~Plan”). The purchases described above were added to our treasury stock.

At the Annual Meeting of Shareholders of the Company held on May 16, 2017, the shareholders of the Company approved proposals to amend the Company's Articles of Incorporation to (i) expand the Company's right of first refusal with respect to proposed transfers of shares of the Company's common shares, (ii) clarify provisions regarding when the Company may provide notice of its decision to exercise its right of first refusal with respect to proposed transfers of common shares by the estate or personal representative of a deceased shareholder, and (iii) grant the Company a right to repurchase common shares held by certain shareholders of the Company.

On May 10, 2017, the Board of Directors of the Company adopted a policy regarding the Company's exercise of the repurchase rights granted to the Company through amendments to the Company's Articles of Incorporation, as approved by shareholders on May 16, 2017.

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~~Index~~

Until further action by the Board, it is the policy of the Company not to exercise its repurchase rights under the amended Articles with respect to shares of the Company's common shares held by current and retired employees and current and former directors of the Company (subject to exceptions set forth in the policy) (collectively, ~~"Active Shareholders"~~“Active Shareholders”), their spouses, their first-generation descendants and trusts established exclusively for their benefit.

Until further action by the Board, it is also the policy of the Company not to exercise its rights under the amended Articles to repurchase shares of the Company's common shares proposed to be transferred by an Active Shareholder to his or her spouse, a first-generation descendant, or a trust established exclusively for the benefit of one or more of an Active Shareholder, his or her spouse and first-generation descendants of an Active Shareholder, or upon the death of an Active Shareholder, such transfers from the estate or personal representative of a deceased Active Shareholder. The Board may suspend, change or discontinue the policy at any time without prior notice.

In accordance with the amendments to the Articles approved by the Company's shareholders at the 2017 Annual Meeting, on May 17, 2017, the Company's Board of Directors authorized the Company to repurchase up to 400,000 common shares, which authorization was increased by an additional 2,000,000 common shares in May 2018 and increased further by an additional 3,000,000 common shares in September 2021. Of the 5,400,000 total shares authorized, ~~3,845,851~~3,323,819 remained available under the program, as of ~~July 2, 2022.~~April 1, 2023. Share repurchases may be made from time to time and the timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company is not obligated to purchase any shares, and repurchases may be commenced, suspended or discontinued from time to time without prior notice. The repurchase program does not have an expiration date.

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Item 6.Exhibits.

See the Exhibit Index below.

~~- 51 -~~

~~Index~~

Exhibits

Exhibit No.

Description

10.1

~~Receivables Financing~~First Amendment to Fourth Amended and Restated Credit Agreement, ~~Amendment No. 10~~ dated ~~June 30, 2022,~~as of January 13, 2023, by and among The Davey Tree Expert Company, ~~Davey Receivables LLC~~as borrower, various lending institutions party thereto, as banks, KeyBank National Association, as lead arranger, syndication agent and administrative agent, and PNC Bank, National Association ~~(incorporated~~and Wells Fargo Bank, N.A., as co-documentation agents (Incorporated by reference to Exhibit 10.1 to the ~~Company's~~Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~July 7, 2022)~~January 20, 2023).**

~~10.2~~*

~~The Davey 401KSOP and ESOP (January 1, 2022 Restatement.~~

~~Filed Herewith~~

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed Herewith

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed Herewith

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

Furnished Herewith

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

Furnished Herewith

101

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~July 2, 2022,~~April 1, 2023, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) the Condensed Consolidated Statements of Shareholders' Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Filed Herewith

104

Cover Page Interactive Data File (embedded within the inline XBRL document)

Filed Herewith

* Management contracts or compensatory plans or arrangements.

** Certain of the schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request.

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Signatures

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

THE DAVEY TREE EXPERT COMPANY

Date:

~~August 12, 2022~~May 10, 2023

By:

/s/ Joseph R. Paul

Joseph R. Paul

Executive Vice President, Chief Financial Officer and Assistant Secretary

(Principal Financial Officer)

Date:

~~August 12, 2022~~May 10, 2023

By:

/s/ Thea R. Sears

Thea R. Sears

Vice President and Controller

(Principal Accounting Officer)

- 5348 -


Maturity Analysis of Lease Liabilities		As of July 2, 2022
		Operating Leases		Finance Leases
	Remaining six months of 2022	$	17,867	$	1,301
	2023	29,487		2,813
	2024	22,109		2,682
	2025	15,077		2,070
	2026	8,094		1,744
	2027	2,632		786
	Thereafter	4,116		270
	Total lease payments	99,382		11,666
	Less interest	4,952		566
	Total	$	94,430	$	11,100


Stock-Settled Stock Appreciation Rights	Number of Rights	Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2022	87,534	$	1.92
Granted	—	—
Forfeited	—	—
Vested	(43,752)	1.92
Unvested, July 2, 2022	43,782	$	1.92	0.5 years	$	40	$	792


Three Months Ended July 2, 2022	Foreign Currency		Available for Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at April 2, 2022	$	(3,174)	$	—	$	(495)	$	(3,669)
Other comprehensive income (loss) before reclassifications
Translation adjustment	$	(1,001)	$	—	$	—	$	(1,001)
Unrealized losses	—		(237)		—		(237)

Amounts reclassified from accumulated other comprehensive income (loss)	—		8		31		39
Tax effect	—		48		(9)		39
Net of tax amount	(1,001)		(181)		22		(1,160)
Balance at July 2, 2022	$	(4,175)	$	(181)	$	(473)	$	(4,829)


			Fair Value Measurements at July 2, 2022 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at July 2, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets invested for self-insurance
Certificates of deposits, current	$	4,250	$	4,250	$	—	$	—
Certificates of deposits, noncurrent	9,609		9,609		—		—


Available-for-sale debt securities:
United States Government and agency securities	9,852		9,852		—		—
Corporate notes and bonds	276		276		—		—
Total available-for-sale debt securities	10,128		10,128		—		—

Marketable equity securities:
Mutual funds	15,658		15,658		—		—
Corporate stocks	2,184		2,184		—		—

Exchange traded funds	6,601		6,601		—		—

Total marketable equity securities	24,443		24,443		—		—

Liabilities:
Deferred compensation	$	4,726	$	—	$	4,726	$	—


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal 2022
January 1 to January 29	1,285	$	18.10	—	3,845,851
January 30 to February 26	5,620	18.10		—	3,845,851
February 27 to April 2	382,610	18.10		—	3,845,851
Total First Quarter	389,515	18.10		—

April 3 to April 30	321,122	18.10		—	3,845,851
May 1 to May 28	927,994	18.10		—	3,845,851
May 29 to July 2	397,888	18.10		—	3,845,851
Total Second Quarter	1,647,004	18.10		—






Total Year-to-Date	2,036,519	$	18.10	—

(1) During the six months ended July 2, 2022, the Company purchased 2,036,519 shares from shareholders excluding those purchased through publicly announced plans. The Company provides a ready market for all shareholders through our direct purchase of their common shares although we are under no obligation to do so (other than for repurchases pursuant to the put option under The Davey 401KSOP and ESOP Plan).