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 ~~October 01, 2022~~September 30, 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 ~~42,921,611~~41,178,710 Common Shares, $.50 par value, outstanding as of November ~~4, 2022.~~10, 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

~~October 1, 2022~~September 30, 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				7
		Notes to Condensed Consolidated Financial Statements
			A	—	Basis of Financial Statement Preparation	8
			B	—	Seasonality of Business	9
			C	—	Accounts Receivable, Net and Supplemental Balance-Sheet Information	9
			D	—	Business Combinations	1011
			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	14
			H	—	Leases	17
			I	—	Stock-Based Compensation	18
			J	—	Income Taxes	21
			K	—	Accumulated Other Comprehensive Income (Loss)	22
			L	—	Per Share Amounts and Common and Redeemable Shares Outstanding	24
			M	—	Operations by Business Segment	25
			N	—	Revenue Recognition	2827
			O	—	Fair Value Measurements and Financial Instruments	3029
			P	—	Commitments and Contingencies	3332
			Q	—	The Davey 401KSOP and Employee Stock Ownership Plan	35

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations					37
		Results of Operations				38
		Liquidity and Capital Resources				4342
			Cash Flow Summary			4443
			Contractual Obligations Summary and Commercial Commitments			4544
			Capital Resources			4544
		Critical Accounting Policies and Estimates				45
		Note Regarding Forward-Looking Statements				4645

Item 3.	Quantitative and Qualitative Disclosures about Market Risk					4746

Item 4.	Controls and Procedures					4746

Part II.	Other Information					47

Item 1.	Legal Proceedings					47

Item 1A.	Risk Factors					4950

Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities					50

Item 5.	Other Information					51

Item 6.	Exhibits					5152

Exhibit Index						52

Signatures						53

"“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)


		October 1, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	22,844	$	19,460	Cash	$	13,791	$	18,526
Accounts receivable, net	Accounts receivable, net	326,291		278,280		Accounts receivable, net	366,989		321,810
Operating supplies	Operating supplies	15,491		12,662		Operating supplies	17,779		17,976
Other current assets	Other current assets	46,881		37,853		Other current assets	114,692		83,952
Total current assets	Total current assets	411,507		348,255		Total current assets	513,251		442,264

Property and equipment, net	Property and equipment, net	262,701		227,985		Property and equipment, net	295,543		268,539
Right-of-use assets - operating leases	Right-of-use assets - operating leases	95,350		86,423		Right-of-use assets - operating leases	108,149		104,612
Marketable securities and other investments	Marketable securities and other investments	46,473		25,401		Marketable securities and other investments	37,337		28,909
Other assets	Other assets	14,304		17,264		Other assets	210,909		22,841
Intangible assets, net	Intangible assets, net	10,637		11,633		Intangible assets, net	20,440		18,949
Goodwill	Goodwill	58,999		55,980		Goodwill	80,924		70,107
Total assets	Total assets	$	899,971	$	772,941	Total assets	$	1,266,553	$	956,221
Liabilities and shareholders' equity	Liabilities and shareholders' equity					Liabilities and shareholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	45,942	$	43,021	Accounts payable	$	50,226	$	50,171
Accrued expenses	Accrued expenses	85,047		75,138		Accrued expenses	71,775		77,454
Current portion of long-term debt and finance lease liabilities	Current portion of long-term debt and finance lease liabilities	34,088		25,268		Current portion of long-term debt and finance lease liabilities	52,971		26,872
Other current liabilities	Other current liabilities	74,500		77,549		Other current liabilities	98,564		90,873
Total current liabilities	Total current liabilities	239,577		220,976		Total current liabilities	273,536		245,370
Long-term debt	Long-term debt	174,579		123,531		Long-term debt	274,267		230,768
Lease liabilities - finance leases	Lease liabilities - finance leases	9,704		8,646		Lease liabilities - finance leases	10,538		9,481
Lease liabilities - operating leases	Lease liabilities - operating leases	62,586		57,335		Lease liabilities - operating leases	69,748		68,878
Self-insurance accruals	Self-insurance accruals	96,487		77,099		Self-insurance accruals	85,421		77,926
Other noncurrent liabilities	Other noncurrent liabilities	12,181		11,583		Other noncurrent liabilities	213,018		24,020
Total liabilities	Total liabilities	595,114		499,170		Total liabilities	926,528		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) 9,288 and 9,392 shares at redemption value as of October 1, 2022 and December 31, 2021		168,120		169,931
Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 8,728 and 9,188 shares at redemption value as of September 30, 2023 and December 31, 2022						Redeemable common shares related to 401KSOP and Employee Stock Ownership Plan (ESOP) 8,728 and 9,188 shares at redemption value as of September 30, 2023 and December 31, 2022	181,543		169,978
Common shareholders' equity:	Common shareholders' equity:					Common shareholders' equity:
Common shares, $.50 par value, per share; 96,000 shares authorized; 76,539 and 76,436 shares issued and outstanding before deducting treasury shares and which excludes 9,288 and 9,392 shares subject to redemption as of October 1, 2022 and December 31, 2021		38,398		38,379
Common shares, $.50 par value, per share; 96,000 shares authorized; 77,100 and 76,640 shares issued and outstanding before deducting treasury shares and which excludes 8,728 and 9,188 shares subject to redemption as of September 30, 2023 and December 31, 2022						Common shares, $.50 par value, per share; 96,000 shares authorized; 77,100 and 76,640 shares issued and outstanding before deducting treasury shares and which excludes 8,728 and 9,188 shares subject to redemption as of September 30, 2023 and December 31, 2022	38,993		38,550
Additional paid-in capital	Additional paid-in capital	154,111		135,897		Additional paid-in capital	184,813		162,828
Common shares subscribed, unissued	Common shares subscribed, unissued	23,954		—		Common shares subscribed, unissued	22,742		23,864
Retained earnings	Retained earnings	286,279		239,979		Retained earnings	329,971		293,993
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(6,839)		(4,173)		Accumulated other comprehensive loss	(5,646)		(5,588)
		495,903		410,082			570,873		513,647
Less: Cost of common shares held in treasury; 42,082 shares at October 1, 2022 and 41,325 shares at December 31, 2021		338,532		306,242
Less: Cost of common shares held in treasury; 43,896 shares at September 30, 2023 and 43,110 shares at December 31, 2022						Less: Cost of common shares held in treasury; 43,896 shares at September 30, 2023 and 43,110 shares at December 31, 2022	395,497		363,502
Common shares subscription receivable	Common shares subscription receivable	20,634		—		Common shares subscription receivable	16,894		20,345
Total common shareholders' equity	Total common shareholders' equity	136,737		103,840		Total common shareholders' equity	158,482		129,800
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	899,971	$	772,941	Total liabilities and shareholders' equity	$	1,266,553	$	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				Nine Months Ended					Three Months Ended				Nine Months Ended
		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Revenues	Revenues	$	398,945	$	370,244	$	1,143,548	$	1,024,541	Revenues	$	450,634	$	398,945	$	1,267,174	$	1,143,548

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	254,661		232,599		740,422		650,909		Operating	285,019		254,661		808,509		740,422
Selling	Selling	72,364		67,353		201,315		178,876		Selling	84,982		72,364		229,480		201,315
General and administrative	General and administrative	27,964		20,739		87,014		69,712		General and administrative	31,155		27,964		95,041		87,014
Depreciation and amortization	Depreciation and amortization	13,780		14,127		41,082		41,287		Depreciation and amortization	14,935		13,780		43,479		41,082
Gain on sale of assets, net	Gain on sale of assets, net	(2,837)		(1,507)		(5,787)		(4,174)		Gain on sale of assets, net	(1,694)		(2,837)		(6,530)		(5,787)
Total costs and expenses	Total costs and expenses	365,932		333,311		1,064,046		936,610		Total costs and expenses	414,397		365,932		1,169,979		1,064,046

Income from operations	Income from operations	33,013		36,933		79,502		87,931		Income from operations	36,237		33,013		97,195		79,502

Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(2,164)		(1,449)		(5,312)		(4,093)		Interest expense	(4,751)		(2,164)		(13,588)		(5,312)
Interest income	Interest income	303		39		489		161		Interest income	502		303		1,329		489
Other, net	Other, net	(3,371)		(2,298)		(8,241)		(5,548)		Other, net	(2,890)		(3,371)		(4,365)		(8,241)

Income before income taxes	Income before income taxes	27,781		33,225		66,438		78,451		Income before income taxes	29,098		27,781		80,571		66,438

Income taxes	Income taxes	7,317		8,298		17,407		20,554		Income taxes	8,401		7,317		21,835		17,407

Net income	Net income	$	20,464	$	24,927	$	49,031	$	57,897	Net income	$	20,697	$	20,464	$	58,736	$	49,031

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

Basic	Basic	$	.46	$	.56	$	1.10	$	1.28	Basic	$	.48	$	.46	$	1.35	$	1.10
Diluted	Diluted	$	.44	$	.52	$	1.05	$	1.21	Diluted	$	.46	$	.44	$	1.29	$	1.05

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

Basic	Basic	44,148		44,885		44,422		45,257		Basic	43,123		44,148		43,394		44,422
Diluted	Diluted	46,405		47,951		46,719		47,785		Diluted	45,186		46,405		45,501		46,719

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				Nine Months Ended					Three Months Ended				Nine Months Ended
		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net income	Net income	$	20,464	$	24,927	$	49,031	$	57,897	Net income	$	20,697	$	20,464	$	58,736	$	49,031
Components of other comprehensive income (loss), net of tax:	Components of other comprehensive income (loss), net of tax:									Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(1,934)		(788)		(2,455)		105		Foreign currency translation adjustments	(515)		(1,934)		81		(2,455)
Unrealized loss on available-for-sale securities		(98)		—		(279)		—
Unrealized gain (loss) on available-for-sale securities										Unrealized gain (loss) on available-for-sale securities	2		(98)		(139)		(279)
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		27		55		77		Net actuarial loss	—		18		—		55
Prior service cost	Prior service cost	4		11		13		35		Prior service cost	—		4		—		13
Defined benefit pension plan adjustments	Defined benefit pension plan adjustments	22		38		68		112		Defined benefit pension plan adjustments	—		22		—		68

Other comprehensive income (loss), net of tax		(2,010)		(750)		(2,666)		217
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax	(513)		(2,010)		(58)		(2,666)

Comprehensive income	Comprehensive income	$	18,454	$	24,177	$	46,365	$	58,114	Comprehensive income	$	20,184	$	18,454	$	58,678	$	46,365

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		Common Shares Subscription Receivable		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 July 2, 2022		$	38,645	$	151,752	$	—	$	266,745	$	(4,829)	$	(333,611)	$	533	$	119,235
Balances at July 1, 2023																		Balances at July 1, 2023	$	39,083	$	182,039	$	23,493	$	310,348	$	(5,133)	$	(385,081)	$	(19,342)	$	145,407
Net income	Net income	—		—		—		20,464		—		—		—		20,464		Net income	—		—		—		20,697		—		—		—		20,697
Change in 401KSOP and ESOP related shares	Change in 401KSOP and ESOP related shares	(247)		(4,215)		—		1		—		—		—		(4,461)		Change in 401KSOP and ESOP related shares	(90)		(960)		—		1		—		—		—		(1,049)
Shares sold to employees	Shares sold to employees	—		3,354		—		—		—		2,623		—		5,977		Shares sold to employees	—		1,831		—		—		—		2,558		—		4,389
Options exercised	Options exercised	—		35		—		—		—		137		—		172		Options exercised	—		11		—		—		—		58		—		69
Subscription shares	Subscription shares	—		1,554		23,954		—		—		1,212		(21,167)		5,553		Subscription shares	—		198		(751)		—		—		176		2,448		2,071
Stock-based compensation	Stock-based compensation	—		1,631		—		—		—		—		—		1,631		Stock-based compensation	—		1,694		—		—		—		—		—		1,694
Dividends, $.020 per share	Dividends, $.020 per share	—		—		—		(931)		—		—		—		(931)		Dividends, $.020 per share	—		—		—		(1,075)		—		—		—		(1,075)

Currency translation adjustments		—		—		—		—		(1,934)		—		—		(1,934)
Defined benefit pension plans		—		—		—		—		22		—		—		22
Available-for-sale securities		—		—		—		—		(98)		—		—		(98)
Other comprehensive income																		Other comprehensive income	—		—		—		—		(513)		—		—		(513)

Shares purchased	Shares purchased	—		—		—		—		—		(8,893)		—		(8,893)		Shares purchased	—		—		—		—		—		(13,208)		—		(13,208)
Balances at October 1, 2022		$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737
Balances at September 30, 2023																		Balances at September 30, 2023	$	38,993	$	184,813	$	22,742	$	329,971	$	(5,646)	$	(395,497)	$	(16,894)	$	158,482

Balances at January 1, 2022		$	38,379	$	135,897	$	—	$	239,979	$	(4,173)	$	(306,242)	$	—	$	103,840
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	—		—		—		49,031		—		—		—		49,031		Net income	—		—		—		58,736		—		—		—		58,736
Change in 401KSOP and ESOP related shares	Change in 401KSOP and ESOP related shares	19		1,840		—		(49)		—		—		—		1,810		Change in 401KSOP and ESOP related shares	443		7,951		—		(19,951)		—		—		—		(11,557)
Shares sold to employees	Shares sold to employees	—		11,714		—		—		—		9,623		—		21,337		Shares sold to employees	—		11,036		—		—		—		13,914		—		24,950
Options exercised	Options exercised	—		(1,122)		—		—		—		2,742		—		1,620		Options exercised	—		(1,639)		—		—		—		3,368		—		1,729
Subscription shares	Subscription shares	—		1,554		23,954		—		—		1,212		(20,634)		6,086		Subscription shares	—		640		(1,122)		—		—		559		3,451		3,528
Stock-based compensation	Stock-based compensation	—		4,228		—		—		—		—		—		4,228		Stock-based compensation	—		3,997		—		—		—		—		—		3,997
Dividends, $.058 per share		—		—		—		(2,682)		—		—		—		(2,682)
Dividends, $.060 per share																		Dividends, $.060 per share	—		—		—		(2,807)		—		—		—		(2,807)

Currency translation adjustments		—		—		—		—		(2,455)		—		—		(2,455)
Defined benefit pension plans		—		—		—		—		68		—		—		68
Available-for-sale securities		—		—				—		(279)		—		—		(279)
Other comprehensive income																		Other comprehensive income	—		—		—		—		(58)		—		—		(58)

Shares purchased	Shares purchased	—		—		—		—		—		(45,867)		—		(45,867)		Shares purchased	—		—		—		—		—		(49,836)		—		(49,836)
Balances at October 1, 2022		$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737
Balances at September 30, 2023																		Balances at September 30, 2023	$	38,993	$	184,813	$	22,742	$	329,971	$	(5,646)	$	(395,497)	$	(16,894)	$	158,482

- 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 Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax Common
Shares
Held in
Treasury Total
Common
Shareholders'
Equity
Balances at July 3, 2021 $ 38,049 $ 123,822 $ 224,707 $ (3,580) $ (290,253) $ 92,745
Net income — — 24,927 — — 24,927
Change in 401KSOP and ESOP related shares (16) (529) — — — (545)
Shares sold to employees — 1,655 — — 1,293 2,948
Options exercised — (228) — — 1,828 1,600
Stock-based compensation — 458 — — — 458
Dividends, $.015 per share — — (781) — — (781)
Currency translation adjustments — — — (788) — (788)
Defined benefit pension plans — — — 38 — 38
Shares purchased — — — — (9,242) (9,242)
Balances at October 2, 2021 $ 38,033 $ 125,178 $ 248,853 $ (4,330) $ (296,374) $ 111,360
Balances at January 1, 2021 $ 37,801 $ 110,069 $ 206,711 $ (4,547) $ (270,360) $ 79,674
Net income — — 57,897 — — 57,897
Change in 401KSOP and ESOP related shares 232 6,679 (13,628) — — (6,717)
Shares sold to employees — 7,098 — — 6,645 13,743
Options exercised — (636) — — 3,849 3,213
Stock-based compensation — 1,968 — — — 1,968
Dividends, $.043 per share — — (2,127) — — (2,127)
Currency translation adjustments — — — 105 — 105
Defined benefit pension plans — — — 112 — 112
Shares purchased — — — — (36,508) (36,508)
Balances at October 2, 2021 $ 38,033 $ 125,178 $ 248,853 $ (4,330) $ (296,374) $ 111,360
See notes to condensed consolidated financial statements (unaudited).


	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 July 2, 2022	$	38,645	$	151,752	$	—	$	266,745	$	(4,829)	$	(333,611)	$	533	$	119,235
Net income	—		—		—		20,464		—		—		—		20,464
Change in 401KSOP and ESOP related shares	(247)		(4,215)		—		1		—		—		—		(4,461)
Shares sold to employees	—		3,354		—		—		—		2,623		—		5,977
Options exercised	—		35		—		—		—		137		—		172
Subscription shares	—		1,554		23,954		—		—		1,212		(21,167)		5,553
Stock-based compensation	—		1,631		—		—		—		—		—		1,631
Dividends, $.020 per share	—		—		—		(931)		—		—		—		(931)
Other comprehensive loss	—		—		—		—		(2,010)		—		—		(2,010)



Shares purchased	—		—		—		—		—		(8,893)		—		(8,893)
Balances at October 1, 2022	$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737

Balances at January 1, 2022	$	38,379	$	135,897	$	—	$	239,979	$	(4,173)	$	(306,242)	$	—	$	103,840
Net income	—		—		—		49,031		—		—		—		49,031
Change in 401KSOP and ESOP related shares	19		1,840		—		(49)		—		—		—		1,810
Shares sold to employees	—		11,714		—		—		—		9,623		—		21,337
Options exercised	—		(1,122)		—		—		—		2,742		—		1,620
Subscription shares	—		1,554		23,954		—		—		1,212		(20,634)		6,086
Stock-based compensation	—		4,228		—		—		—		—		—		4,228


Dividends, $.058 per share	—		—		—		(2,682)		—		—		—		(2,682)

Other comprehensive income	—		—		—		—		(2,666)		—		—		(2,666)


Shares purchased	—		—		—		—		—		(45,867)		—		(45,867)
Balances at October 1, 2022	$	38,398	$	154,111	$	23,954	$	286,279	$	(6,839)	$	(338,532)	$	(20,634)	$	136,737

See notes to condensed consolidated financial statements (unaudited).

- 6 -

Index

THE DAVEY TREE EXPERT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


		Nine Months Ended					Nine Months Ended
		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	49,031	$	57,897	Net income	$	58,736	$	49,031
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	41,082		41,287		Depreciation and amortization	43,479		41,082
Other	Other	(683)		(1,242)		Other	(1,331)		(683)
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	(49,451)		(30,268)		Accounts receivable	(44,944)		(49,451)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	12,709		(9,471)		Accounts payable and accrued expenses	(10,213)		12,709
Self-insurance accruals	Self-insurance accruals	13,306		13,041		Self-insurance accruals	5,760		13,306
Prepaid expenses	Prepaid expenses	(10,724)		(13,442)		Prepaid expenses	(14,069)		(10,724)
Mitigation bank credit inventory						Mitigation bank credit inventory	(14,520)		—
Other, net	Other, net	7,710		(401)		Other, net	13,440		7,710
		13,949		(496)			(22,398)		13,949
Net cash provided by operating activities	Net cash provided by operating activities	62,980		57,401		Net cash provided by operating activities	36,338		62,980
Investing activities	Investing activities					Investing activities
Capital expenditures:	Capital expenditures:					Capital expenditures:
Equipment	Equipment	(54,829)		(47,907)		Equipment	(48,872)		(54,829)
Land and buildings	Land and buildings	(15,916)		(8,728)		Land and buildings	(15,408)		(15,916)
Purchases of businesses, net of cash acquired and debt incurred	Purchases of businesses, net of cash acquired and debt incurred	(4,453)		(10,227)		Purchases of businesses, net of cash acquired and debt incurred	(18,002)		(4,453)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	6,781		7,085		Proceeds from sales of property and equipment	10,116		6,781
Purchases of marketable securities	Purchases of marketable securities	(41,305)		—		Purchases of marketable securities	(36,331)		(41,305)
Proceeds from sale of marketable securities	Proceeds from sale of marketable securities	14,114		—		Proceeds from sale of marketable securities	30,086		14,114
Net cash used in investing activities	Net cash used in investing activities	(95,608)		(59,777)		Net cash used in investing activities	(78,411)		(95,608)
Financing activities	Financing activities					Financing activities
Revolving credit facility borrowings	Revolving credit facility borrowings	453,885		279,163		Revolving credit facility borrowings	549,226		453,885
Revolving credit facility payments	Revolving credit facility payments	(402,618)		(245,685)		Revolving credit facility payments	(493,398)		(402,618)
Purchase of common shares for treasury	Purchase of common shares for treasury	(45,867)		(36,508)		Purchase of common shares for treasury	(49,836)		(45,867)
Sale of common shares from treasury	Sale of common shares from treasury	29,043		16,956		Sale of common shares from treasury	30,212		29,043
Dividends paid	Dividends paid	(2,682)		(2,127)		Dividends paid	(2,807)		(2,682)

Proceeds from notes payable	Proceeds from notes payable	69,337		217,867		Proceeds from notes payable	58,317		69,337
Payments of notes payable	Payments of notes payable	(62,602)		(207,786)		Payments of notes payable	(51,444)		(62,602)
Payments of finance leases	Payments of finance leases	(2,313)		(2,688)		Payments of finance leases	(2,943)		(2,313)
Net cash provided by financing activities	Net cash provided by financing activities	36,183		19,192		Net cash provided by financing activities	37,327		36,183
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(171)		40		Effect of exchange rate changes on cash	11		(171)
Increase in cash		3,384		16,856
(Decrease) increase in cash						(Decrease) increase in cash	(4,735)		3,384

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	$	22,844	$	33,057	Cash, end of period	$	13,791	$	22,844
Supplemental cash flow information follows:	Supplemental cash flow information follows:					Supplemental cash flow information follows:
Interest paid	Interest paid	$	3,764	$	4,715	Interest paid	$	13,914	$	3,764
Income taxes paid	Income taxes paid	9,869		21,204		Income taxes paid	20,633		9,869

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

- 7 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

A.Basis of Financial Statement Preparation

The 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"~~(“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”).

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. ~~Actual results~~

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. We record mitigation bank credit inventory at the lower of cost or net realizable value. Inventory costs are based on estimated total costs for each mitigation bank, which could ~~differ from those estimates.~~change as we perform mitigation banking activities.

Our business continues to be impacted by a number of macro-economic factors, 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, which have created an inflationary environment and cost pressures.

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 September 30, 2023 is referred to as the third quarter of 2023, and the fiscal quarter ended October 1, 2022 is referred to as the third quarter of ~~2022, and the fiscal quarter ended October 2, 2021 is referred to as the third quarter of 2021.~~2022.

Recent Accounting Guidance

Accounting ~~Standard Not Yet~~Standards 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

- 8 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

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

~~- 8 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~

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

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 nine months ended ~~October 1, 2022~~September 30, 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.

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

Accounts receivable, net, consisted of the following:


Accounts receivable, net	Accounts receivable, net	October 1, 2022		December 31, 2021		Accounts receivable, net	September 30, 2023		December 31, 2022
Accounts receivable	Accounts receivable	$	236,903	$	215,336	Accounts receivable	$	258,569	$	242,427
Unbilled receivables(1)	Unbilled receivables(1)	92,732		65,957		Unbilled receivables(1)	110,576		82,605
		329,635		281,293			369,145		325,032
Less allowances for credit losses	Less allowances for credit losses	3,344		3,013		Less allowances for credit losses	2,156		3,222
Accounts receivable, net	Accounts receivable, net	$	326,291	$	278,280	Accounts receivable, net	$	366,989	$	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 October 1,
2022 December 31,
2021
Refundable income taxes $ 364 $ 1,346
Prepaid expenses 41,619 30,911
Assets invested for self-insurance 4,000 4,250
Other 898 1,346
Total $ 46,881 $ 37,853

- 9 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

Property and equipment, net October 1,
2022 December 31,
2021
Land and land improvements $ 26,075 $ 22,129
Buildings and leasehold improvements 75,097 63,933
Equipment 664,518 646,552
765,690 732,614
Less accumulated depreciation 502,989 504,629
Total $ 262,701 $ 227,985
Other assets, noncurrent October 1,
2022 December 31,
2021
Investment--cost-method affiliate $ 1,258 $ 1,258
Deferred income taxes 5,032 4,937
Cloud computing arrangements 3,353 6,530
Other 4,661 4,539
Total $ 14,304 $ 17,264
Accrued expenses October 1,
2022 December 31,
2021
Employee compensation $ 34,727 $ 37,828
Accrued compensated absences 11,943 11,007
Self-insured medical claims 3,088 2,891
Income tax payable 6,685 145
Customer advances, deposits 6,957 4,009
Taxes, other than income 17,876 13,789
Other 3,771 5,469
Total $ 85,047 $ 75,138
Other current liabilities October 1,
2022 December 31,
2021
Current portion of:
Lease liability-operating leases $ 31,726 $ 28,682
Self-insurance accruals 42,774 48,867
Total $ 74,500 $ 77,549

Other noncurrent liabilities October 1,
2022 December 31,
2021
Non-qualified retirement plans $ 9,200 $ 8,713
Other 2,981 2,870
Total $ 12,181 $ 11,583

~~D. Business Combinations~~

~~Our cash investments in businesses during~~The following items comprised the ~~first nine months of 2022 were $4,453 and we issued debt,~~amounts included in the form of notes payable to the sellers, of $1,233 which have been included in our Residential and Commercial and Utility segments. In the first nine 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. Measurement-balance sheets:


Other current assets	September 30, 2023		December 31, 2022
Refundable income taxes	$	381	$	14
Prepaid expenses	46,298		32,080

Mitigation bank credit inventory	27,573		6,351
Assets invested for self-insurance	20,658		24,828
Payroll taxes refundable	14,264		18,283
Other	5,518		2,396
Total	$	114,692	$	83,952


Property and equipment, net	September 30, 2023		December 31, 2022
Land and land improvements	$	25,798	$	26,023
Buildings and leasehold improvements	92,861		80,768
Equipment	674,020		663,207
	792,679		769,998
Less accumulated depreciation	497,136		501,459
Total	$	295,543	$	268,539


Other assets, noncurrent	September 30, 2023		December 31, 2022
Investment--cost-method affiliate	$	933	$	1,258
Deferred income taxes	4,602		6,828
Cloud computing arrangements	474		2,652
Insurance receivable	200,000		7,500
Other	4,900		4,603
Total	$	210,909	$	22,841


Accrued expenses	September 30, 2023		December 31, 2022
Employee compensation	$	36,118	$	35,536
Accrued compensated absences	14,827		13,034
Self-insured medical claims	2,573		2,806
Income tax payable	8,174		6,573
Customer advances, deposits	2,148		7,736
Taxes, other than income	2,386		5,764

Other	5,549		6,005
Total	$	71,775	$	77,454


Other current liabilities	September 30, 2023		December 31, 2022

Mitigation bank liabilities	$	6,106	$	—
Current portion of:
Lease liability-operating leases	37,972		34,652
Self-insurance accruals	54,486		56,221
Total	$	98,564	$	90,873

- 10 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

~~period~~


Other noncurrent liabilities	September 30, 2023		December 31, 2022
Non-qualified retirement plans	$	5,465	$	8,336

Litigation accrual	200,000		7,500
Other	7,553		8,184
Total	$	213,018	$	24,020

D. Business Combinations

Our cash investments in businesses during the first nine months of 2023 were $18,250 and we issued debt, in the form of notes payable to the sellers, of $5,572 which have been included in our Residential and Commercial 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.

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


		Nine Months Ended October 1, 2022		Year Ended December 31, 2021			Nine Months Ended September 30, 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	$	249	$	1,365
Receivables	Receivables	—		509		Receivables	211		10,794
Mitigation bank credit inventory						Mitigation bank credit inventory	—		6,351
Operating supplies	Operating supplies	39		1,044		Operating supplies	1,538		48
Prepaid expense	Prepaid expense	—		203		Prepaid expense	149		126
Equipment	Equipment	1,186		4,049		Equipment	5,208		2,309
Deposits and other	Deposits and other	265		1,574		Deposits and other	2,649		412
Intangible assets	Intangible assets	1,350		3,005		Intangible assets	6,233		10,569
Goodwill	Goodwill	3,175		7,723		Goodwill	13,441		14,255

Liabilities assumed	Liabilities assumed	(329)		(3,713)		Liabilities assumed	(5,856)		(15,592)
Debt issued for purchases of businesses	Debt issued for purchases of businesses	(1,233)		(2,961)		Debt issued for purchases of businesses	(5,572)		(7,445)
Cash paid	Cash paid	$	4,453	$	11,725	Cash paid	$	18,250	$	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 nine months ended ~~October 1, 2022~~September 30, 2023 was not significant. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the nine months ended ~~October 1, 2022,~~September 30, 2023, are not material and, accordingly, are not provided.

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 October 1, 2022 and through November 8, 2022, we acquired one business approximating $1,450 with no liabilities assumed and debt issued of $470. The acquired company is in our Residential and Commercial segment and is located in North Carolina. 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)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

E. Marketable Securities

The following table summarizes available-for-sale debt securities held at ~~October 1,~~September 30, 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)
October 1, 2022
September 30, 2023										September 30, 2023
Fixed maturity:	Fixed maturity:									Fixed maturity:
United States Government and agency securities	United States Government and agency securities	$	20,556	$	6	$	(301)	$	20,261	United States Government and agency securities	$	40,123	$	262	$	(295)	$	40,090
Corporate notes and bonds	Corporate notes and bonds	315		—		(58)		257		Corporate notes and bonds	577		—		(57)		520
Total available-for-sale debt securities	Total available-for-sale debt securities	$	20,871	$	6	$	(359)	$	20,518	Total available-for-sale debt securities	$	40,700	$	262	$	(352)	$	40,610

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 marketable securities and other investments totaling ~~$20,518~~$40,610 and ~~$3,406~~$25,518 at ~~October 1, 2022~~September 30, 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 ~~$18,846~~$10,276 and ~~$11,386~~$18,110 in marketable equity securities as of ~~October 1, 2022~~September 30, 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)~~

~~October 1, 2022~~

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

The net carrying values of available-for-sale debt securities at ~~October 1, 2022~~September 30, 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	$	12,999	$	12,997	Less than one year	$	21,037	$	21,267
One year through five years	One year through five years	5,729		5,568		One year through five years	17,335		17,210
Five years through ten years		234		191
Six years through ten years						Six years through ten years	534		492
After ten years	After ten years	1,909		1,762		After ten years	1,794		1,641
Total	Total	$	20,871	$	20,518	Total	$	40,700	$	40,610

- 12 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

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:


		October 1, 2022				December 31, 2021					September 30, 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	$	33,498	$	26,222	$	32,294	$	24,090	Customer lists/relationships	$	40,927	$	28,437	$	36,745	$	26,243
Employment-related	Employment-related	10,451		8,754		9,946		8,301		Employment-related	12,850		9,714		12,242		8,931
Tradenames	Tradenames	8,641		6,977		8,426		6,642		Tradenames	12,684		7,870		12,219		7,083

Amortized intangible assets	Amortized intangible assets	52,590		$	41,953	50,666		$	39,033	Amortized intangible assets	66,461		$	46,021	61,206		$	42,257

Less accumulated amortization	Less accumulated amortization	41,953				39,033				Less accumulated amortization	46,021				42,257

Identified intangible assets, net	Identified intangible assets, net	$	10,637			$	11,633			Identified intangible assets, net	$	20,440			$	18,949

Goodwill	Goodwill	$	58,999			$	55,980			Goodwill	$	80,924			$	70,107

Adjustments related to the carrying values are related to measurement period adjustments for acquisitions made in 2022 for which purchase accounting is not finalized.

The changes in the carrying amounts of goodwill, by segment, for the nine months ended ~~October 1, 2022~~September 30, 2023 and the year ended December 31, ~~2021~~2022 were as follows:


		Balance at January 1, 2022		Acquisitions		Translation and Other Adjustments		Balance at October 1, 2022			Balance at January 1, 2023		Acquisitions		Translation and Other Adjustments		Balance at September 30, 2023
Utility	Utility	$	4,911	$	30	$	—	$	4,941	Utility	$	4,941	$	—	$	—	$	4,941
Residential and Commercial	Residential and Commercial	51,069		3,145		(156)		54,058		Residential and Commercial	65,166		13,441		(2,624)		75,983

Total	Total	$	55,980	$	3,175	$	(156)	$	58,999	Total	$	70,107	$	13,441	$	(2,624)	$	80,924

		Balance at January 1, 2021		Acquisitions		Translation and Other Adjustments		Balance at December 31, 2021			Balance at January 1, 2022		Acquisitions		Translation and Other Adjustments		Balance at December 31, 2022
Utility	Utility	$	4,911	$	—	$	—	$	4,911	Utility	$	4,911	$	30	$	—	$	4,941
Residential and Commercial	Residential and Commercial	43,345		7,723		1		51,069		Residential and Commercial	51,069		14,225		(128)		65,166

Total	Total	$	48,256	$	7,723	$	1	$	55,980	Total	$	55,980	$	14,255	$	(128)	$	70,107

- 13 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

Estimated future aggregate amortization expense of intangible assets--The estimated future aggregate amortization expense of intangible assets, as of ~~October 1, 2022,~~September 30, 2023, was as follows:


		Estimated Future Amortization Expense			Estimated Future Amortization Expense
Remaining three months of 2022		$	820
2023		3,073
Remaining three months of 2023				Remaining three months of 2023	$	1,231
2024	2024	2,752		2024	4,960
2025	2025	1,970		2025	4,174
2026	2026	1,132		2026	3,335
2027	2027	648		2027	2,809
2028				2028	1,965
Thereafter	Thereafter	242		Thereafter	1,966
		$	10,637		$	20,440

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

We have short-term lines of credit with several banks totaling ~~$11,091.~~$11,111. At ~~October 1, 2022,~~September 30, 2023, we had ~~$8,971~~$8,729 available under the lines of credit with no borrowings outstanding and ~~$2,120~~$2,382 committed through issued letters of credit. Borrowings outstanding generally bear interest at the banks' prime rate or ~~LIBOR~~SOFR plus a margin adjustment of ~~.75% to 1.50%~~1.86%.

Our long-term debt consisted of the following:


		October 1, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Revolving credit facility:	Revolving credit facility:					Revolving credit facility:
Swing-line borrowings	Swing-line borrowings	$	23,099	$	16,832	Swing-line borrowings	$	26,262	$	25,433

LIBOR borrowings		75,000		30,000
SOFR borrowings						SOFR borrowings	180,000		125,000
		98,099		46,832			206,262		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	33,128		25,182		Term loans	42,284		29,680
		206,227		147,014			323,546		255,113
Less debt issuance costs	Less debt issuance costs	558		674		Less debt issuance costs	404		519
Less current portion	Less current portion	31,090		22,809		Less current portion	48,875		23,826
		$	174,579	$	123,531		$	274,267	$	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)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

subject to certain further restrictions as described in the credit agreement. As of ~~October 1, 2022,~~September 30, 2023, we had unused commitments under the facility approximating $~~224,201,~~116,114, with ~~$100,799~~$208,886 committed, consisting of borrowings of $~~98,099~~206,262 and issued letters of credit of $~~2,700.~~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.

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 five equal, annual principal payments commence on September 21, 2024 (the 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 five 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 ~~October 1, 2022~~September 30, 2023 were as follows: ~~2022--$9,885;~~ 2023--$~~21,635;~~11,244; 2024--$~~16,196;~~39,921; 2025--$~~15,411;~~19,404; 2026--$~~113,100;~~222,977; 2027--$15,000; and ~~thereafter $15,000.~~2028--$15,000.

- 15 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

Accounts Receivable Securitization Facility--In June ~~2022,~~2023, 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.~~July 21, 2024. In addition to extending the termination date for another year, the amendment ~~replaced~~allows the ~~London Interbank Offered Rate (LIBOR) interest rate provisions with customary provisions based on~~borrower, a wholly-owned subsidiary of the ~~secured overnight financing rate ("SOFR").~~Company, under certain circumstances, to increase the limit of its AR Securitization facility to $150,000.

The AR Securitization program has a limit of $100,000, of which $89,689 ~~and $83,355~~ was issued for LCs as of ~~October 1, 2022~~September 30, 2023 and December 31, ~~2021, respectively.~~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 ~~October 1, 2022--to~~September 30, 2023--to the bank in exchange for the bank issuing LCs.

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 ~~0.10%~~.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 ~~0.10%~~.10% and, following any default, 2.00% plus the greater of (a) the term SOFR plus ~~0.10%~~.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 ~~October 1, 2022,~~September 30, 2023, total commitments related to issued LCs were ~~$94,509,~~$94,695, of which ~~$2,700~~$2,624 were issued under the revolving credit facility, $89,689 were issued under the AR Securitization program, and ~~$2,120~~$2,382 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 ~~October 1, 2022,~~September 30, 2023, we were in compliance with all debt covenants.

- 16 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 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	October 1, 2022		December 31, 2021			Condensed Consolidated Balance Sheet Classification	September 30, 2023		December 31, 2022
Assets	Assets						Assets
Operating lease assets	Operating lease assets	Right-of-use assets - operating leases	$	95,350	$	86,423	Operating lease assets	Right-of-use assets - operating leases	$	108,149	$	104,612
Finance lease assets	Finance lease assets	Property and equipment, net	13,268		11,592		Finance lease assets	Property and equipment, net	15,102		12,948
Total lease assets	Total lease assets		$	108,618	$	98,015	Total lease assets		$	123,251	$	117,560
Liabilities	Liabilities						Liabilities
Current operating lease liabilities	Current operating lease liabilities	Other current liabilities	$	31,726	$	28,682	Current operating lease liabilities	Other current liabilities	$	37,972	$	34,652
Non-current operating lease liabilities	Non-current operating lease liabilities	Lease liabilities - operating leases	62,586		57,335		Non-current operating lease liabilities	Lease liabilities - operating leases	69,748		68,878
Total operating lease liabilities	Total operating lease liabilities		94,312		86,017		Total operating lease liabilities		107,720		103,530
Current portion of finance lease liabilities	Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	2,998		2,459		Current portion of finance lease liabilities	Current portion of long-term debt and finance lease liabilities	4,096		3,046
Non-current finance lease liabilities	Non-current finance lease liabilities	Lease liabilities - finance leases	9,704		8,646		Non-current finance lease liabilities	Lease liabilities - finance leases	10,538		9,481
Total finance lease liabilities	Total finance lease liabilities		12,702		11,105		Total finance lease liabilities		14,634		12,527
Total lease liabilities	Total lease liabilities		$	107,014	$	97,122	Total lease liabilities		$	122,354	$	116,057

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


			Three Months Ended				Nine Months Ended						Three Months Ended				Nine Months Ended
		Condensed Consolidated Statements of Operations Classification	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021			Condensed Consolidated Statements of Operations Classification	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022

Operating lease cost	Operating lease cost	Operating expense	$	6,649	$	4,965	$	19,095	$	13,065	Operating lease cost	Operating expense	$	8,028	$	6,649	$	23,642	$	19,095
Operating lease cost	Operating lease cost	Selling expense	2,926		2,631		8,492		7,718		Operating lease cost	Selling expense	3,258		2,926		9,665		8,492
Operating lease cost	Operating lease cost	General and administrative expense	304		290		883		867		Operating lease cost	General and administrative expense	260		304		925		883
Finance lease cost:	Finance lease cost:										Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	Depreciation and amortization	889		752		2,334		1,985		Amortization of right-of-use assets	Depreciation and amortization	1,123		889		2,965		2,334
Interest expense on lease liabilities	Interest expense on lease liabilities	Interest expense	74		52		196		134		Interest expense on lease liabilities	Interest expense	123		74		324		196
Other lease cost (1)	Other lease cost (1)	Operating expense	1,271		999		3,613		2,839		Other lease cost (1)	Operating expense	2,619		1,271		5,443		3,613
Other lease cost (1)	Other lease cost (1)	Selling expense	235		360		1,059		1,013		Other lease cost (1)	Selling expense	485		235		1,467		1,059
Other lease cost (1)	Other lease cost (1)	General and administrative expense	27		8		59		28		Other lease cost (1)	General and administrative expense	4		27		78		59
Total lease cost	Total lease cost		$	12,375	$	10,057	$	35,731	$	27,649	Total lease cost		$	15,900	$	12,375	$	44,509	$	35,731

(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

- 17 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

the basis of economic factors. The weighted average remaining lease terms as of ~~October 1, 2022~~September 30, 2023 was ~~3.7~~3.4 years for operating leases and ~~4.7~~4.2 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 ~~October 1, 2022 was 2.90%~~September 30, 2023 were 4.10% for operating leases and ~~2.72%~~3.72% for finance leases.


Supplemental Cash Flow Information Related to Leases	Supplemental Cash Flow Information Related to Leases	Nine Months Ended				Supplemental Cash Flow Information Related to Leases	Nine Months Ended
		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 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	$	(29,194)	$	(21,822)	Operating cash flows from operating leases	$	(33,546)	$	(29,194)
Operating cash flows from finance leases	Operating cash flows from finance leases	(196)		(134)		Operating cash flows from finance leases	(325)		(196)
Financing cash flows from finance leases	Financing cash flows from finance leases	(2,313)		(2,688)		Financing cash flows from finance leases	(2,943)		(2,313)
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	38,403		47,069		Operating leases	35,666		38,403
Finance leases	Finance leases	3,910		4,174		Finance leases	5,231		3,910

Maturity Analysis of Lease Liabilities As of October 1, 2022
Operating
Leases Finance
Leases
Remaining three months of 2022 $ 9,301 $ 747
2023 31,878 3,237
2024 24,610 3,106
2025 16,964 2,472
2026 9,277 2,101
2027 3,343 1,123
Thereafter 4,061 732
Total lease payments 99,434 13,518
Less interest 5,122 816
Total $ 94,312 $ 12,702


Maturity Analysis of Lease Liabilities		As of September 30, 2023
		Operating Leases		Finance Leases
	Remaining three months of 2023	$	11,126	$	1,043
	2024	39,410		4,516
	2025	30,295		3,879
	2026	18,295		3,034
	2027	10,633		1,765
	2028	3,599		608
	Thereafter	2,552		1,074
	Total lease payments	115,910		15,919
	Less interest	8,190		1,285
	Total	$	107,720	$	14,634

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 five 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 ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award

- 18 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 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"~~(“SSARs”) and restricted stock units ~~("RSUs"~~(“RSUs”) -- was included in the results of operations as follows:

Three Months Ended Nine Months Ended
October 1,
2022 October 2,
2021 October 1,
2022 October 2,
2021
Compensation expense, all share-based payment plans $ 1,658 $ 1,167 $ 5,244 $ 3,432


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Compensation expense, all share-based payment plans	$	1,700	$	1,658	$	5,105	$	5,244

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 ~~$1,380~~$1,338 being recognized for the nine months ended ~~October 1, 2022~~September 30, 2023 and ~~$1,187~~$1,380 for the nine months ended October ~~2, 2021.~~1, 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 $173 for the nine months ended September 30, 2023 and $289 for the nine months ended October 1, ~~2022 and $343 for the nine months ended October 2, 2021.~~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)~~

~~October 1, 2022~~

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

~~The following table summarizes our SSARs as of October 1, 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, October 1, 2022 43,782 $ 1.92 0.3 years $ 19 $ 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. ~~Compensation~~During 2022, all remaining SSARs awards vested. There was no compensation expense for SSARs ~~was~~for the nine months ended September 30, 2023 and $65 for the nine months ended October 1, ~~2022 and $120 for the nine months ended October 2, 2021.~~2022.

- 19 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

Restricted Stock Units--During the nine months ended ~~October 1, 2022,~~September 30, 2023, the Compensation Committee awarded ~~336,664~~224,540 PRSUs to certain management employees and ~~14,693~~14,378 RSUs to nonemployee directors. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes PRSUs and RSUs as of ~~October 1, 2022.~~September 30, 2023.


Restricted Stock Units	Restricted Stock Units	Number of Stock Units	Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value		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
Unvested, January 1, 2023										Unvested, January 1, 2023	766,267	$	14.95
Granted	Granted	351,357	17.89							Granted	238,918	18.29
Forfeited	Forfeited	(1,000)	17.89							Forfeited	—	—
Vested	Vested	(181,176)	11.04							Vested	(71,342)	12.18
Unvested, October 1, 2022		909,341	$	14.86	2.0 years	$	8,315	$	13,517
Unvested, September 30, 2023										Unvested, September 30, 2023	933,843	$	16.02	1.5 years	$	6,963	$	19,424
Employee PRSUs	Employee PRSUs	851,640	$	14.89	2.0 years	$	7,863	$	12,685	Employee PRSUs	885,572	$	15.97	1.5 years	$	6,523	$	18,420
Nonemployee Director RSUs	Nonemployee Director RSUs	57,701	$	14.42	2.2 years	$	452	$	832	Nonemployee Director RSUs	48,271	$	16.79	1.6 years	$	440	$	1,004

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 $3,594 for the nine months ended September 30, 2023 and $3,510 for the nine months ended October 1, ~~2022 and $1,782 for the nine months ended October 2, 2021.~~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)~~

~~October 1, 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.


		Nine Months Ended					Nine Months Ended
		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 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	4.1	%	1.7	%
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

- 20 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

General Stock Option Information--The following table summarizes activity under the stock option plans for the nine months ended ~~October 1, 2022.~~September 30, 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	(219,143)	8.29					Exercised	(206,253)	6.72
Forfeited	Forfeited	(17,820)	8.01					Forfeited	(120,800)	5.80
Outstanding, October 1, 2022		2,113,971	$	8.59	4.2 years	$	20,104
Outstanding, September 30, 2023								Outstanding, September 30, 2023	1,745,896	$	9.01	3.6 years	$	20,584

Exercisable, October 1, 2022		1,725,879	$	7.99	3.5 years	$	17,449
Exercisable, September 30, 2023								Exercisable, September 30, 2023	1,545,520	$	8.67	3.3 years	$	18,747

As of ~~October 1, 2022,~~September 30, 2023, there was approximately ~~$489~~$198 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of ~~0.8~~1.1 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 nine months ended ~~October 1, 2022~~September 30, 2023 was ~~26.6%~~27.4%. Our actual effective tax rate was ~~26.3%~~28.9% and ~~25.0%~~26.3% for the three months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ respectively. Our actual effective tax rate was ~~26.2%~~27.1% and 26.2% for the nine months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ respectively. The change in the effective tax rate from statutory tax rates was primarily due to the impact of favorable discrete items which

~~- 21 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~

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

are a set amount and therefore have a larger impact on the rate based on our net income before tax in the first nine months compared to the impact itthey will have on the rate for the full year.

As of ~~October 1, 2022,~~September 30, 2023, we had unrecognized tax benefits of ~~$666,~~$699, of which ~~$293~~$371 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of ~~$45.~~$56. 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.

- 21 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 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 2018. As of ~~October 1, 2022,~~September 30, 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 nine months ended September 30, 2023 and October 1, ~~2022 and October 2, 2021:~~2022:


Three Months Ended September 30, 2023										Three Months Ended September 30, 2023	Foreign Currency		Available for Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 1, 2023										Balance at July 1, 2023	$	(4,915)	$	(340)	$	122	$	(5,133)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications
Translation adjustment										Translation adjustment	$	(515)	$	—	$	—	$	(515)
Unrealized gains										Unrealized gains	—		3		—		3

Amounts reclassified from accumulated other comprehensive income (loss)										Amounts reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Tax effect										Tax effect	—		(1)		—		(1)
Net of tax amount										Net of tax amount	(515)		2		—		(513)
Balance at September 30, 2023										Balance at September 30, 2023	$	(5,430)	$	(338)	$	122	$	(5,646)

Three Months Ended October 1, 2022	Three Months Ended October 1, 2022	Foreign Currency		Available for Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)		Three Months Ended October 1, 2022	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 2, 2022	Balance at July 2, 2022	$	(4,175)	$	(181)	$	(473)	$	(4,829)	Balance at July 2, 2022	$	(4,175)	$	(181)	$	(473)	$	(4,829)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications									Other comprehensive income (loss) before reclassifications
Translation adjustment	Translation adjustment	$	(1,934)	$	—	$	—	$	(1,934)	Translation adjustment	$	(1,934)	$	—	$	—	$	(1,934)
Unrealized losses	Unrealized losses	—		(113)		—		(113)		Unrealized losses	—		(113)		—		(113)

Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	—		(11)		30		19		Amounts reclassified from accumulated other comprehensive income (loss)	—		(11)		30		19
Tax effect	Tax effect	—		26		(8)		18		Tax effect	—		26		(8)		18
Net of tax amount	Net of tax amount	(1,934)		(98)		22		(2,010)		Net of tax amount	(1,934)		(98)		22		(2,010)
Balance at October 1, 2022	Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)	Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)

- 22 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)


Three Months Ended October 2, 2021		Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at July 3, 2021		$	(2,845)	$	—	$	(735)	$	(3,580)
Nine Months Ended September 30, 2023										Nine Months Ended September 30, 2023	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2023										Balance at January 1, 2023	$	(5,511)	$	(199)	$	122	$	(5,588)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications									Other comprehensive income (loss) before reclassifications
Translation adjustment	Translation adjustment	$	(788)	$	—	$	—	$	(788)	Translation adjustment	$	81	$	—	$	—	$	81

Unrealized losses										Unrealized losses	—		(156)		—		(156)

Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	—		—		51		51		Amounts reclassified from accumulated other comprehensive income (loss)	—		(19)		—		(19)
Tax effect	Tax effect	—		—		(13)		(13)		Tax effect	—		36		—		36
Net of tax amount	Net of tax amount	(788)		—		38		(750)		Net of tax amount	81		(139)		—		(58)
Balance at October 2, 2021		$	(3,633)	$	—	$	(697)	$	(4,330)
Balance at September 30, 2023										Balance at September 30, 2023	$	(5,430)	$	(338)	$	122	$	(5,646)

Nine Months Ended October 1, 2022	Nine Months Ended October 1, 2022	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)		Nine Months Ended October 1, 2022	Foreign Currency		Available-for-Sale Securities		Defined Benefit Pension Plans		Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2022	Balance at January 1, 2022	$	(3,654)	$	—	$	(519)	$	(4,173)	Balance at January 1, 2022	$	(3,654)	$	—	$	(519)	$	(4,173)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications									Other comprehensive income (loss) before reclassifications
Translation adjustment	Translation adjustment	$	(2,455)	$	—	$	—	$	(2,455)	Translation adjustment	$	(2,455)	$	—	$	—	$	(2,455)
Unrealized losses	Unrealized losses	—		(350)		—		(350)		Unrealized losses	—		(350)		—		(350)

Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	—		(3)		92		89		Amounts reclassified from accumulated other comprehensive income (loss)	—		(3)		92		89
Tax effect	Tax effect	—		74		(24)		50		Tax effect	—		74		(24)		50
Net of tax amount	Net of tax amount	(2,455)		(279)		68		(2,666)		Net of tax amount	(2,455)		(279)		68		(2,666)
Balance at October 1, 2022	Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)	Balance at October 1, 2022	$	(6,109)	$	(279)	$	(451)	$	(6,839)

Nine Months Ended October 2, 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		$	105	$	—	$	—	$	105

Amounts reclassified from accumulated other comprehensive income (loss)		—		—		151		151
Tax effect		—		—		(39)		(39)
Net of tax amount		105		—		112		217
Balance at October 2, 2021		$	(3,633)	$	—	$	(697)	$	(4,330)

~~The~~There was no change in defined benefit pension plans offor the three and nine months ended September 30, 2023 and $30 and $92 for the three and nine months ended October 1, 2022, ~~respectively, and $51 and $151 for the three and nine months ended October 2, 2021, respectively,~~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)

~~October 1, 2022~~September 30, 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:


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Income available to common shareholders:	Income available to common shareholders:									Income available to common shareholders:
Net income	Net income	$	20,464	$	24,927	$	49,031	$	57,897	Net income	$	20,697	$	20,464	$	58,736	$	49,031

Weighted-average shares (in thousands):	Weighted-average shares (in thousands):									Weighted-average shares (in thousands):
Basic:	Basic:									Basic:
Outstanding	Outstanding	43,920		44,885		44,194		45,257		Outstanding	42,809		43,920		42,452		44,194
Partially-paid share subscriptions	Partially-paid share subscriptions	228		—		228		—		Partially-paid share subscriptions	314		228		942		228
Basic weighted-average shares	Basic weighted-average shares	44,148		44,885		44,422		45,257		Basic weighted-average shares	43,123		44,148		43,394		44,422

Diluted:	Diluted:									Diluted:
Basic from above	Basic from above	44,148		44,885		44,422		45,257		Basic from above	43,123		44,148		43,394		44,422
Incremental shares from assumed:	Incremental shares from assumed:									Incremental shares from assumed:

Exercise of stock subscription purchase rights										Exercise of stock subscription purchase rights	38		—		38		—
Exercise of stock options and awards	Exercise of stock options and awards	2,257		3,066		2,297		2,528		Exercise of stock options and awards	2,025		2,257		2,068		2,297
Diluted weighted-average shares	Diluted weighted-average shares	46,405		47,951		46,719		47,785		Diluted weighted-average shares	45,186		46,405		45,501		46,719

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

Basic	Basic	$	.46	$	.56	$	1.10	$	1.28	Basic	$	.48	$	.46	$	1.35	$	1.10

Diluted	Diluted	$	.44	$	.52	$	1.05	$	1.21	Diluted	$	.46	$	.44	$	1.29	$	1.05

Common and Redeemable Shares Outstanding--A summary of the activity of the common and redeemable shares outstanding for the nine months ended ~~October 1, 2022~~September 30, 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	(1,646,735)	(881,136)	(2,527,871)	Shares purchased	(1,641,224)	(974,395)	(2,615,619)
Shares sold	Shares sold	472,110	777,725	1,249,835	Shares sold	789,553	514,397	1,303,950
Stock subscription offering -- cash purchases	Stock subscription offering -- cash purchases	152,800	—	152,800	Stock subscription offering -- cash purchases	12,336	—	12,336
Options and awards exercised	Options and awards exercised	368,402	—	368,402	Options and awards exercised	513,305	—	513,305
Shares outstanding at October 1, 2022		34,457,009	9,288,379	43,745,388
Shares outstanding at September 30, 2023					Shares outstanding at September 30, 2023	33,203,444	8,728,012	41,931,456

- 24 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

On ~~October 1, 2022,~~September 30, 2023, we had ~~43,745,388~~41,931,456 common and redeemable shares outstanding, employee options exercisable to purchase ~~1,725,879~~1,545,520 common shares, partially-paid subscriptions for ~~1,318,450~~1,256,250 common shares and purchase rights outstanding for ~~487,488~~462,473 common shares.

~~Common Stock Split--~~On September 17, 2021, our board of directors approved and declared a two-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 of common shares from 48,000,000 to 96,000,000 and (2) proportionately decreased the par value of our common shares from $1.00 per share to $.50 per share.

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 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 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 three common shares purchased in the offering. As a result of the stock subscription, rights to purchase 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.

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 two 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

~~- 25 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~

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

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--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.

- 25 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

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.

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


	Utility		Residential and Commercial		All Other		Reconciling Adjustments			Consolidated
Three Months Ended September 30, 2023
Revenues	$	247,478	$	201,753	$	1,403	$	—		$	450,634
Income (loss) from operations	17,656		24,398		(4,188)		(1,629)		(a)	36,237
Interest expense							(4,751)			(4,751)
Interest income							502			502
Other income (expense), net							(2,890)			(2,890)
Income before income taxes										$	29,098
Segment assets, total	$	372,114	$	368,062	$	—	$	526,377	(b)	$	1,266,553

Three Months Ended October 1, 2022
Revenues	$	217,305	$	180,706	$	934	$	—		$	398,945
Income (loss) from operations	16,790		21,204		(4,033)		(948)		(a)	33,013
Interest expense							(2,164)			(2,164)
Interest income							303			303
Other income (expense), net							(3,371)			(3,371)
Income before income taxes										$	27,781
Segment assets, total	$	331,393	$	305,216	$	—	$	263,362	(b)	$	899,971

Nine Months Ended September 30, 2023
Revenues	$	700,378	$	563,942	$	2,854	$	—		$	1,267,174
Income (loss) from operations	51,197		61,312		(11,439)		(3,875)		(a)	97,195
Interest expense							(13,588)			(13,588)
Interest income							1,329			1,329
Other income (expense), net							(4,365)			(4,365)
Income before income taxes										$	80,571
Segment assets, total	$	372,114	$	368,062	$	—	$	526,377	(b)	$	1,266,553

Nine Months Ended October 1, 2022
Revenues	$	637,900	$	504,064	$	1,584	$	—		$	1,143,548
Income (loss) from operations	49,260		50,759		(14,852)		(5,665)		(a)	79,502
Interest expense							(5,312)			(5,312)
Interest income							489			489
Other income (expense), net							(8,241)			(8,241)
Income before income taxes										$	66,438
Segment assets, total	$	331,393	$	305,216	$	—	$	263,362	(b)	$	899,971

- 26 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(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
Three Months Ended October 1, 2022
Revenues $ 217,305 $ 180,706 $ 934 $ — $ 398,945
Income (loss) from operations 16,790 21,204 (4,033) (948) (a) 33,013
Interest expense (2,164) (2,164)
Interest income 303 303
Other income (expense), net (3,371) (3,371)
Income before income taxes $ 27,781
Segment assets, total $ 331,393 $ 305,216 $ — $ 263,362 (b) $ 899,971
Three Months Ended October 2, 2021
Revenues $ 204,960 $ 164,737 $ 547 $ — $ 370,244
Income (loss) from operations 23,124 17,595 (2,701) (1,085) (a) 36,933
Interest expense (1,449) (1,449)
Interest income 39 39
Other income (expense), net (2,298) (2,298)
Income before income taxes $ 33,225
Segment assets, total $ 286,157 $ 278,847 $ — $ 210,709 (b) $ 775,713
Nine Months Ended October 1, 2022
Revenues $ 637,900 $ 504,064 $ 1,584 $ — $ 1,143,548
Income (loss) from operations 49,260 50,759 (14,852) (5,665) (a) 79,502
Interest expense (5,312) (5,312)
Interest income 489 489
Other income (expense), net (8,241) (8,241)
Income before income taxes $ 66,438
Segment assets, total $ 331,393 $ 305,216 $ — $ 263,362 (b) $ 899,971
Nine Months Ended October 2, 2021
Revenues $ 557,349 $ 465,524 $ 1,668 $ — $ 1,024,541
Income (loss) from operations 50,015 51,893 (11,367) (2,610) (a) 87,931
Interest expense (4,093) (4,093)
Interest income 161 161
Other income (expense), net (5,548) (5,548)
Income before income taxes $ 78,451
Segment assets, total $ 286,157 $ 278,847 $ — $ 210,709 (b) $ 775,713

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

(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)~~

~~October 1, 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 nine months ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~ by major sources:


Three Months Ended October 1, 2022		Utility		Residential and Commercial		All Other		Consolidated
Three Months Ended September 30, 2023										Three Months Ended September 30, 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	$	138,112	$	105,108	$	(28)	$	243,192	Tree and plant care	$	147,125	$	110,487	$	(202)	$	257,410
Grounds maintenance	Grounds maintenance	—		46,056		—		46,056		Grounds maintenance	—		50,603		—		50,603
Storm damage services	Storm damage services	7,004		2,564		—��		9,568		Storm damage services	5,192		4,240		—		9,432
Consulting and other	Consulting and other	72,189		26,978		962		100,129		Consulting and other	95,161		36,423		1,605		133,189
Total revenues	Total revenues	$	217,305	$	180,706	$	934	$	398,945	Total revenues	$	247,478	$	201,753	$	1,403	$	450,634

Geography:	Geography:									Geography:
United States	United States	$	207,004	$	168,405	$	934	$	376,343	United States	$	229,046	$	189,044	$	1,403	$	419,493
Canada	Canada	10,301		12,301		—		22,602		Canada	18,432		12,709		—		31,141
Total revenues	Total revenues	$	217,305	$	180,706	$	934	$	398,945	Total revenues	$	247,478	$	201,753	$	1,403	$	450,634

- 27 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)


Three Months Ended October 1, 2022	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	138,112	$	105,108	$	(28)	$	243,192
Grounds maintenance	—		46,056		—		46,056
Storm damage services	7,004		2,564		—		9,568
Consulting and other	72,189		26,978		962		100,129
Total revenues	$	217,305	$	180,706	$	934	$	398,945

Geography:
United States	$	207,004	$	168,405	$	934	$	376,343
Canada	10,301		12,301		—		22,602
Total revenues	$	217,305	$	180,706	$	934	$	398,945

Nine Months Ended September 30, 2023	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	425,701	$	309,558	$	(344)	$	734,915
Grounds maintenance	—		138,451		—		138,451
Storm damage services	11,340		12,446		—		23,786
Consulting and other	263,337		103,487		3,198		370,022
Total revenues	$	700,378	$	563,942	$	2,854	$	1,267,174

Geography:
United States	$	658,021	$	529,540	$	2,854	$	1,190,415
Canada	42,357		34,402		—		76,759
Total revenues	$	700,378	$	563,942	$	2,854	$	1,267,174

Nine Months Ended October 1, 2022	Utility		Residential and Commercial		All Other		Consolidated
Type of service:
Tree and plant care	$	420,791	$	294,206	$	(155)	$	714,842
Grounds maintenance	—		128,114		—		128,114
Storm damage services	10,136		6,162		—		16,298
Consulting and other	206,973		75,582		1,739		284,294
Total revenues	$	637,900	$	504,064	$	1,584	$	1,143,548

Geography:
United States	$	608,411	$	469,042	$	1,584	$	1,079,037
Canada	29,489		35,022		—		64,511
Total revenues	$	637,900	$	504,064	$	1,584	$	1,143,548

- 28 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~

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

Three Months Ended October 2, 2021 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 140,039 $ 96,961 $ (29) $ 236,971
Grounds maintenance — 40,452 — 40,452
Storm damage services 10,052 2,688 — 12,740
Consulting and other 54,869 24,636 576 80,081
Total revenues $ 204,960 $ 164,737 $ 547 $ 370,244
Geography:
United States $ 194,140 $ 153,009 $ 547 $ 347,696
Canada 10,820 11,728 — 22,548
Total revenues $ 204,960 $ 164,737 $ 547 $ 370,244
Nine Months Ended October 1, 2022 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 420,791 $ 294,206 $ (155) $ 714,842
Grounds maintenance — 128,114 — 128,114
Storm damage services 10,136 6,162 — 16,298
Consulting and other 206,973 75,582 1,739 284,294
Total revenues $ 637,900 $ 504,064 $ 1,584 $ 1,143,548
Geography:
United States $ 608,411 $ 469,042 $ 1,584 $ 1,079,037
Canada 29,489 35,022 — 64,511
Total revenues $ 637,900 $ 504,064 $ 1,584 $ 1,143,548
Nine Months Ended October 2, 2021 Utility Residential
and
Commercial All Other Consolidated
Type of service:
Tree and plant care $ 393,742 $ 271,682 $ (224) $ 665,200
Grounds maintenance — 116,810 — 116,810
Storm damage services 13,997 5,486 — 19,483
Consulting and other 149,610 71,546 1,892 223,048
Total revenues $ 557,349 $ 465,524 $ 1,668 $ 1,024,541
Geography:
United States $ 525,818 $ 432,158 $ 1,668 $ 959,644
Canada 31,531 33,366 — 64,897
Total revenues $ 557,349 $ 465,524 $ 1,668 $ 1,024,541

~~- 29 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

Contract Balances

Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue. The Company recognized $351 and $2,048 of revenue for the three and nine months ended September 30, 2023, that was included in the contract liability balance at December 31, 2022 and $616 and $1,676 of revenue for the three and nine months ended October 1, 2022, that was included in the contract liability balance at December 31, ~~2021 and $239 and $1,294 of revenue for the three and nine months ended October 2, 2021, that was included in the contract liability balance at December 31, 2020.~~2021. Net contract liabilities consisted of the following:


		October 1, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Contract liabilities - current	Contract liabilities - current	$	4,599	$	3,888	Contract liabilities - current	$	2,584	$	3,723
Contract liabilities - noncurrent	Contract liabilities - noncurrent	1,951		1,845		Contract liabilities - noncurrent	3,044		4,145
Net contract liabilities	Net contract liabilities	$	6,550	$	5,733	Net contract liabilities	$	5,628	$	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.

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.

- 29 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

Our assets and liabilities measured at fair value on a recurring basis at September 30, 2023 were as follows:


			Fair Value Measurements at September 30, 2023 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at September 30, 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	$	2,359	$	2,359	$	—	$	—
Certificates of deposits, noncurrent	4,750		4,750		—		—


Available-for-sale debt securities:
United States Government and agency securities	40,090		40,090		—		—
Corporate notes and bonds	520		520		—		—
Total available-for-sale debt securities	40,610		40,610		—		—

Marketable equity securities:
Mutual funds	5,558		5,558		—		—
Corporate stocks	3,385		3,385		—		—

Exchange traded funds	1,333		1,333		—		—

Total marketable equity securities	10,276		10,276		—		—

Liabilities:
Deferred compensation	$	1,488	$	—	$	—	$	1,488

- 30 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~

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

~~Our assets and liabilities measured at fair value on a recurring basis at October 1, 2022 were as follows:~~

Fair Value Measurements at
October 1, 2022 Using:
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
Total
Carrying
Value at
October 1, 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 $ 4,000 $ 4,000 $ — $ —
Certificates of deposits, noncurrent 7,109 7,109 — —
Available-for-sale debt securities:
United States Government and agency securities 20,261 20,261 — —
Corporate notes and bonds 257 257 — —
Total available-for-sale debt securities 20,518 20,518 — —
Marketable equity securities:
Mutual funds 14,894 14,894 — —
Corporate stocks 2,819 2,819 — —
Exchange traded funds 1,133 1,133 — —
Total marketable equity securities 18,846 18,846 — —
Liabilities:
Deferred compensation $ 4,759 $ — $ 4,759 $ —

~~- 31 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~September 30, 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~~3--is based on the value of the Company's common shares.

The Company's 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, the fair market value of the common shares is determined by an independent ~~valuation.~~stock valuation firm. The semiannual valuations utilize two approaches in determining the fair value of the common shares, a market approach and an income approach. Each approach utilizes Company performance and financial condition, using a peer group of comparable companies selected by the firm as well as significant unobservable inputs such as projected earnings and cash flow, EBITDA and cost of capital. The results of each valuation approach are utilized in a weighted average calculation to arrive at the fair market value.

The peer group at September 30, 2023 consisted 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 the Board of Directors of the Company has determined that the common shares will be bought and sold during that six-month period in transactions involving the Company or one of its employee benefit or stock purchase plans. The Company provides a ready market for all shareholders

- 3231 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

through its direct purchase of their common shares, although the Company is under no obligation to do so (other than for repurchases pursuant to the put option, as described in Note Q).

Management has evaluated the classification of the common shares and determined that due to significant unobservable inputs used in the independent stock valuation, the shares are more appropriately categorized as Level 3 investments.

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:


		October 1, 2022				December 31, 2021					September 30, 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	$	20,518	$	20,518	$	3,406	$	3,406	Available-for-sale debt securities	$	40,610	$	40,610	$	25,518	$	25,518
Marketable equity securities	Marketable equity securities	18,846		18,846		11,386		11,386		Marketable equity securities	10,276		10,276		18,110		18,110

Liabilities:	Liabilities:									Liabilities:
Revolving credit facility, noncurrent	Revolving credit facility, noncurrent	$	98,099	$	98,099	$	46,832	$	46,832	Revolving credit facility, noncurrent	$	206,262	$	206,262	$	150,433	$	150,433
Senior unsecured notes, noncurrent	Senior unsecured notes, noncurrent	75,000		73,396		75,000		78,432		Senior unsecured notes, noncurrent	60,000		57,335		75,000		74,968
Term loans, noncurrent	Term loans, noncurrent	2,038		1,973		2,373		2,431		Term loans, noncurrent	8,409		8,420		5,854		5,610
Total	Total	$	175,137	$	173,468	$	124,205	$	127,695	Total	$	274,671	$	272,017	$	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~~an 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

- 32 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

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.

Georgia wrongful death suit

~~- 33 -~~

~~Index~~

~~The Davey Tree Expert Company~~

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

~~October 1, 2022~~

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

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.~~

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 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 related to their involvement with the murder and other illegal activities~~The State Court case was stayed on March 28, 2022 and April 11, 2022. A third individual criminally charged defendant was scheduled to go to trial on October 25, 2022, and was convicted of charges for his role in the murder, harboring of illegal aliens; and money laundering conspiracy. All three criminal defendants have not yet been sentenced.

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 to remain stayed, although Plaintiffs' counsel~~three criminal defendants have now been sentenced.

Since the individual defendants' criminal matters are now resolved, the State Court permitted limited additional discovery and amended motions for summary judgment. The Company filed a motion for summary judgment and plaintiffs have responded, and the motion remains pending before the State Court. The State Court has ~~submitted~~not yet set a ~~letter~~trial date.

The stay in the Federal Court case was lifted on April 4, 2023. The case will now proceed to the early stages of litigation. The Company filed a request for a motion to dismiss the alleged civil RICO claims by plaintiffs and further filed a motion to stay the case until the motion to dismiss was decided. The Federal Court ~~seeking~~granted the Company’s motion to stay, with two limited exceptions for ongoing discovery. The Federal Court has not yet set a ~~lift of the stay.~~trial date.

- 3433 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

Previously, on December 17, 2018, the United States Attorney's Office for the Southern District of Georgia (“United States Attorney”) 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 fully cooperated with the investigation.

On July 12, 2023, the Company and Wolf Tree entered into a non-prosecution and settlement agreement (the “settlement agreement”) with the United States Attorney’s Office for the Southern District of Georgia and the United States Department of Homeland Security (“DHS”), resolving the investigation for potential violations of immigration and other laws by the Company and Wolf Tree.

The United States Attorney recognized that, since August 2017, both the Company and Wolf Tree have fully cooperated with the criminal and civil investigation and, in entering into the settlement agreement, the United States Attorney took into consideration the Company’s and Wolf Tree’s implementation of a significant compliance program.

The Company and Wolf Tree agreed to pay $3,984 as part of the settlement agreement, including civil penalties, forfeiture and restitution, an amount the Company and Wolf Tree had previously reserved. The United States Attorney agreed that it will not bring any criminal charges against the Company or Wolf Tree concerning the subject matter of the investigation and released the Company and Wolf Tree from civil liability concerning certain immigration code provisions. The DHS also agreed to release the Company and Wolf Tree from administrative liability relating to the subject matter of the investigation, all of which are subject to standard reservations of rights and certain reserved claims. The settlement agreement closes the investigation by the United States Attorney and DHS. The settlement is not an admission of liability by the Company or Wolf Tree.

The civil cases in the State Court of Chatham County in Georgia and the United States District Court for the Southern District of Georgia, Savannah Division relating to the same subject matter, remain pending. 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.

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.

- 34 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2023

(Amounts in thousands, except share data)

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 ~~related to Davey Tree's contracts with PG&E. Separately,~~and the ~~court ordered that all parties shall~~plaintiffs participate in a ~~mediation with the Plaintiffs prior to January 27, 2023.~~mediation. An initial mediation ~~date for all the Plaintiffs and Davey Tree related to parties~~took place on ~~the contractual issues was set for~~ October 17, ~~2022 but~~2022. The matter did not resolve at this initial ~~mediation.~~mediation and mediation efforts are ongoing.

~~The Defendants have also received evidence from~~In November 2022, Davey Tree filed a cross-complaint against the ~~Plaintiff's~~Plaintiffs’ Trust and PG&E ~~collected~~related to the contractual obligations of limitation of liability and hold harmless. Since that time, Davey Tree has dismissed the cross-complaint against PG&E without prejudice. The Plaintiffs’ Trust filed a demurrer which challenged Davey Tree’s claim that the hold harmless provisions in its contracts with PG&E are an obligation of the Plaintiffs’ Trust. In response to the demurrer, Davey Tree filed an amended cross-complaint against the Plaintiffs’ Trust on April 13, 2023. The Plaintiffs’ Trust has since filed another demurrer seeking to dismiss the cross complaint by ~~those parties during the PG&E bankruptcy proceedings~~Davey Tree, and Davey ~~Tree's experts have begun their initial inspection~~Tree has filed a response. The Plaintiffs’ Trust filed a motion for summary adjudication which challenged the limitation of liability as set forth in the assigned contracts. The Court denied the motion for summary adjudication in an order entered April 12, 2023. The court originally set a trial date for October 2, 2023 involving the claim of the ~~evidence.~~ Plaintiffs’ Trust as to the Atlas burn location. On July 26, 2023, based on a joint request by the parties, the court vacated the October 2, 2023 Atlas trial date and reset the Atlas trial for February 26, 2024.

The parties have continued to mediate all of the claims alleged in the consolidated cases. The parties jointly requested that the Court suspend trial dates and other proceeding while the parties attempt to reach final terms on a global resolution. The court granted the parties request and stayed the trial scheduled dates for 60 days.

~~In all cases,~~ However, we believe that a range of losses is probable and we have accrued our best estimate within this range which is also equal to our total coverage limits under our self-insurance and third party insurance providers for the ~~Company denies all liability~~2017-2018 policy year of $218,000. We believe that any losses would be recovered through our self-insurance and ~~will vigorously defend the actions.~~third party insurance providers and have accrued a corresponding insurance recoverable within our Condensed Consolidated Balance Sheet as of September 30, 2023.

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 three percent and 50% of the next two percent of each participant's before-tax contribution, limited to the first five percent of the

- 35 -

Index

The Davey Tree Expert Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~October 1, 2022~~September 30, 2023

(Amounts in thousands, except share data)

~~the first three percent and 50% of the next two percent of each participant's before-tax contribution, limited to the first five 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 two 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 ~~$990~~$1,342 and ~~$1,279~~$1,833 as of ~~October 1, 2022~~September 30, 2023 and December 31, ~~2021,~~2022, respectively. The fair value of the shares held in the Davey 401KSOP and ESOP totaled ~~$167,130~~$180,201 and ~~$168,652~~$168,145 as of ~~October 1, 2022~~September 30, 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 ~~$168,120~~$181,543 and ~~$169,931~~$169,978 as of ~~October 1, 2022~~September 30, 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.

- 36 -

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") pandemic did not have a material adverse effect on our reported results for the first nine months of 2022, 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 nine months of 2022, we incurred expenses of $1,530 as a result of the COVID-19 pandemic mainly for administrative leave and personal protective equipment.

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, as well as the Israel-Hamas war, 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~~ has led us to experience higher costs, including higher labor costs and costs for materials from suppliers and transportation costs, and, in the

~~- 37 -~~

~~Index~~

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 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

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 at $18.10 per share in accordance with the provisions of The Davey Tree Expert Company 2014 Omnibus Stock Plan and

- 37 -

Index

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 Nine Months Ended
October 1,
2022 October 2,
2021
Change October 1,
2022 October 2,
2021
Change
Revenues 100.0 % 100.0 % — % 100.0 % 100.0 % — %
Costs and expenses:
Operating 63.8 62.8 1.0 64.7 63.5 1.2
Selling 18.1 18.2 (.1) 17.6 17.5 .1
General and administrative 7.0 5.6 1.4 7.6 6.8 .8
Depreciation and amortization 3.5 3.8 (.3) 3.6 4.0 (.4)
Gain on sale of assets, net (.7) (.4) (.3) (.5) (.4) (.1)
Income from operations 8.3 10.0 (1.7) 7.0 8.6 (1.6)
Other income (expense):
Interest expense (.5) (.4) (.1) (.5) (.4) (.1)
Interest income .1 — .1 — — —
Other, net (.9) (.6) (.3) (.7) (.5) (.2)
Income before income taxes 7.0 9.0 (2.0) 5.8 7.7 (1.9)
Income taxes 1.9 2.3 (.4) 1.5 2.0 (.5)
Net income 5.1 % 6.7 % (1.6) % 4.3 % 5.7 % (1.4) %


	Three Months Ended						Nine Months Ended
	September 30, 2023		October 1, 2022		Change		September 30, 2023		October 1, 2022		Change
Revenues	100.0	%	100.0	%	—	%	100.0	%	100.0	%	—	%

Costs and expenses:
Operating	63.2		63.8		(.6)		63.8		64.7		(.9)
Selling	18.9		18.1		.8		18.1		17.6		.5
General and administrative	6.9		7.0		(.1)		7.5		7.6		(.1)
Depreciation and amortization	3.2		3.5		(.3)		3.4		3.6		(.2)
Gain on sale of assets, net	(.3)		(.7)		.4		(.5)		(.5)		—

Income from operations	8.0		8.3		(.3)		7.7		7.0		.7

Other income (expense):
Interest expense	(1.1)		(.5)		(.6)		(1.1)		(.5)		(.6)
Interest income	.1		.1		—		.1		—		.1
Other, net	(.5)		(.9)		.4		(.4)		(.7)		.3

Income before income taxes	6.5		7.0		(.5)		6.4		5.8		.6

Income taxes	1.9		1.9		—		1.7		1.5		.2

Net income	4.6	%	5.1	%	(.5)	%	4.6	%	4.3	%	.3	%

- 3938 -

Index

Third Quarter—Three Months Ended ~~October 1, 2022~~September 30, 2023 Compared to Three Months Ended October ~~2, 2021~~1, 2022

Our results of operations for the three months ended ~~October 1, 2022~~September 30, 2023 compared to the three months ended October ~~2, 2021~~1, 2022 were as follows:


		Three Months Ended									Three Months Ended
		October 1, 2022		October 2, 2021		Change		Percentage Change			September 30, 2023		October 1, 2022		Change		Percentage Change
Revenues	Revenues	$	398,945	$	370,244	$	28,701	7.8	%	Revenues	$	450,634	$	398,945	$	51,689	13.0	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	254,661		232,599		22,062		9.5		Operating	285,019		254,661		30,358		11.9
Selling	Selling	72,364		67,353		5,011		7.4		Selling	84,982		72,364		12,618		17.4
General and administrative	General and administrative	27,964		20,739		7,225		34.8		General and administrative	31,155		27,964		3,191		11.4
Depreciation and amortization	Depreciation and amortization	13,780		14,127		(347)		(2.5)		Depreciation and amortization	14,935		13,780		1,155		8.4
Gain on sale of assets, net	Gain on sale of assets, net	(2,837)		(1,507)		(1,330)		88.3		Gain on sale of assets, net	(1,694)		(2,837)		1,143		(40.3)
		365,932		333,311		32,621		9.8			414,397		365,932		48,465		13.2

Income from operations	Income from operations	33,013		36,933		(3,920)		(10.6)		Income from operations	36,237		33,013		3,224		9.8
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(2,164)		(1,449)		(715)		49.3		Interest expense	(4,751)		(2,164)		(2,587)		119.5
Interest income	Interest income	303		39		264		676.9		Interest income	502		303		199		65.7
Other, net	Other, net	(3,371)		(2,298)		(1,073)		46.7		Other, net	(2,890)		(3,371)		481		(14.3)
Income before income taxes	Income before income taxes	27,781		33,225		(5,444)		(16.4)		Income before income taxes	29,098		27,781		1,317		4.7

Income taxes	Income taxes	7,317		8,298		(981)		(11.8)		Income taxes	8,401		7,317		1,084		14.8

Net income	Net income	$	20,464	$	24,927	$	(4,463)	(17.9)	%	Net income	$	20,697	$	20,464	$	233	1.1	%

Revenues--Revenues of ~~$398,945~~$450,634 increased ~~$28,701~~$51,689 compared with ~~$370,244~~$398,945 in the third quarter of ~~2021.~~2022. Utility Services increased ~~$12,345~~$30,173 or ~~6.0%~~13.9% compared with the third quarter of ~~2021.~~2022. 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 ~~$15,969~~$21,047 or ~~9.7%~~11.6% from the third quarter of ~~2021.~~2022. Increases were primarily in tree and plant care revenues, ~~and~~ grounds maintenance revenue and consulting and other revenue.

Operating Expenses--Operating expenses of ~~$254,661~~$285,019 increased ~~$22,062~~$30,358 compared with the third quarter of ~~2021.~~2022. Utility Services increased ~~$14,694~~$23,306 or ~~10.0%~~14.6% compared with the third quarter of ~~2021~~2022 and, as a percentage of revenue, increased to ~~73.7%~~74.2% from ~~71.0%~~73.7%. The increase was ~~primarily~~ attributable to additional expenses for labor and benefits expenses, ~~fuel expense,~~materials expenses, crew meals and lodging expenses and subcontractor expense, which were partially offset by decreases in fuel expense and tools and parts expense. Residential and Commercial Services increased ~~$6,994~~$8,119 or ~~8.1%~~8.7% compared with the third quarter of ~~2021~~2022 but, as a percentage of revenue, decreased to ~~51.6%~~50.3% from ~~52.4%~~51.6%. The increase was ~~primarily~~ attributable to increases in labor and benefits expenses, ~~fuel~~subcontractor expense ~~equipment maintenance~~and materials expense, ~~subcontractor expense,~~which were partially offset by decreases in tools and parts ~~expenses~~expense and ~~materials~~fuel expense.

~~Operating expenses for~~Fuel costs of $13,615 decreased $2,628, or 16.2%, from the $16,243 incurred in the third quarter of 2022 ~~also~~and impacted operating expenses within all segments. The $2,628 decrease included $617 of expenses related directly to COVID-19, including $608 for additional administrative leave offered to employees who have been unable to work due to COVID-19 imposed restrictions, whether from the virus itself or government imposed restrictions or closures. For the third quarter of 2021, the Company had $204 of expenses directly related to COVID-19.usage increases approximating $108 and price decreases approximating $2,736.

- 4039 -

Index

Fuel costs of $16,243 increased $4,807, or 42.0%, from the $11,436 incurred in the third quarter of 2021 and impacted operating expenses within all segments. The $4,807 increase included usage increases approximating $591 and price increases approximating $4,216.

Selling Expenses--Selling expenses of ~~$72,364~~$84,982 increased ~~$5,011~~$12,618 compared with the third quarter of ~~2021 but, as a percentage of revenue, decreased to 18.1% from 18.2%. Utility Services increased $3,517 or 15.6% compared to the third quarter of 2021~~2022 and, as a percentage of revenue, increased to ~~12.0%~~18.9% from ~~11.0%~~18.1%. Utility Services increased $4,734 or 18.2% compared to the third quarter of 2022 and, as a percentage of revenue, increased to 12.4% from 12.0%. The increase was primarily attributable to increases in field management wages and incentive ~~expense.~~expense and travel expenses. Residential and Commercial Services increased ~~$2,052~~$6,848 or ~~4.5%~~14.4% from the third quarter of ~~2021 but,~~2022 and, as a percentage of revenue, ~~decreased~~increased to ~~26.4%~~27.0% from ~~27.7%~~26.4%. The increase was primarily attributable to increases in field management and sales wage expenses, ~~marketing expenses~~personnel development and office ~~rent.~~expenses.

General and Administrative Expenses--General and administrative expenses of ~~$27,964~~$31,155 increased ~~$7,225~~$3,191 from ~~$20,739~~$27,964 in the third quarter of ~~2021.~~2022. The increase was primarily attributable to ~~increases~~an increase in salary and benefits expense and ~~travel expenses and was partially offset by a decrease in~~ professional services expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$13,780 decreased $347~~$14,935 increased $1,155 from ~~$14,127~~$13,780 incurred in the third quarter of ~~2021.~~2022.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$2,837~~$1,694 for the third quarter of ~~2022 increased $1,330~~2023 decreased $1,143 from the ~~$1,507~~$2,837 gain in the third quarter of ~~2021.~~2022. We sold a greater number of units of equipment at a ~~higher~~lower average gain per unit in the third quarter of ~~2022~~2023 as compared with the third quarter of ~~2021.~~2022.

Interest Expense--Interest expense of ~~$2,164~~$4,751 increased ~~$715~~$2,587 from the ~~$1,449~~$2,164 incurred in the third quarter of ~~2021.~~2022. The increase was attributable to higher average borrowing and higher interest rates during the third quarter of ~~2022,~~2023, as compared with the third quarter of ~~2021.~~2022.

Other, Net--Other expense, net, of ~~$3,371 increased $1,073~~$2,890 decreased $481 from the ~~$2,298~~$3,371 of other expense incurred in the third quarter of ~~2021~~2022 and consisted of nonoperating income and expense, including gains and losses on marketable securities, pension expense and foreign currency ~~transaction gains/losses on the intercompany account balances of our Canadian operations.~~translation adjustments.

Income Taxes--Income taxes for the third quarter of ~~2022~~2023 were ~~$7,317,~~$8,401, as compared to ~~$8,298~~$7,317 for the third quarter 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 third quarter of ~~2022~~2023 was ~~26.3%~~28.9% as compared with the third quarter of ~~2021~~2022 effective tax rate of ~~25.0%~~26.3%.

Net Income--Net income of ~~$20,464~~$20,697 for the third quarter of ~~2022~~2023 was ~~$4,463 less~~$233 more than the ~~$24,927~~$20,464 of net income for the third quarter of ~~2021.~~

2022.

- 4140 -

Index

~~First~~ Nine Months—Nine Months Ended ~~October 1, 2022~~September 30, 2023 Compared to Nine Months Ended October ~~2, 2021~~1, 2022

Our results of operations for the nine months ended ~~October 1, 2022~~September 30, 2023 compared to the nine months ended October ~~2, 2021~~1, 2022 were as follows:


		Nine Months Ended									Nine Months Ended
		October 1, 2022		October 2, 2021		Change		Percentage Change			September 30, 2023		October 1, 2022		Change		Percentage Change
Revenues	Revenues	$	1,143,548	$	1,024,541	$	119,007	11.6	%	Revenues	$	1,267,174	$	1,143,548	$	123,626	10.8	%

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating	Operating	740,422		650,909		89,513		13.8		Operating	808,509		740,422		68,087		9.2
Selling	Selling	201,315		178,876		22,439		12.5		Selling	229,480		201,315		28,165		14.0
General and administrative	General and administrative	87,014		69,712		17,302		24.8		General and administrative	95,041		87,014		8,027		9.2
Depreciation and amortization	Depreciation and amortization	41,082		41,287		(205)		(.5)		Depreciation and amortization	43,479		41,082		2,397		5.8
Gain on sale of assets, net	Gain on sale of assets, net	(5,787)		(4,174)		(1,613)		38.6		Gain on sale of assets, net	(6,530)		(5,787)		(743)		12.8
		1,064,046		936,610		127,436		13.6			1,169,979		1,064,046		105,933		10.0

Income from operations	Income from operations	79,502		87,931		(8,429)		(9.6)		Income from operations	97,195		79,502		17,693		22.3
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(5,312)		(4,093)		(1,219)		29.8		Interest expense	(13,588)		(5,312)		(8,276)		155.8
Interest income	Interest income	489		161		328		203.7		Interest income	1,329		489		840		171.8
Other, net	Other, net	(8,241)		(5,548)		(2,693)		48.5		Other, net	(4,365)		(8,241)		3,876		(47.0)
Income before income taxes	Income before income taxes	66,438		78,451		(12,013)		(15.3)		Income before income taxes	80,571		66,438		14,133		21.3

Income taxes	Income taxes	17,407		20,554		(3,147)		(15.3)		Income taxes	21,835		17,407		4,428		25.4

Net income	Net income	$	49,031	$	57,897	$	(8,866)	(15.3)	%	Net income	$	58,736	$	49,031	$	9,705	19.8	%

Revenues--Revenues of ~~$1,143,548~~$1,267,174 increased ~~$119,007~~$123,626 compared with ~~$1,024,541~~$1,143,548 in the first nine months of ~~2021.~~2022. Utility Services increased ~~$80,551~~$62,478 or ~~14.5%~~9.8% compared with the first nine months of ~~2021.~~2022. The increase was primarily attributable to new accounts, 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 ~~$38,540~~$59,878 or ~~8.3%~~11.9% compared with the first nine months of ~~2021.~~2022. Increases were primarily in tree and plant care revenue, grounds maintenance, consulting and other revenue and ~~grounds maintenance~~storm damage revenue.

Operating Expenses--Operating expenses of ~~$740,422~~$808,509 increased ~~$89,513~~$68,087 compared with the first nine months of ~~2021~~2022 but, as a percentage of revenue, decreased to 63.8% from 64.7%. Utility Services increased $46,648 or 9.9% compared with the first nine months of 2022 and, as a percentage of revenue, increased to ~~64.7%~~73.8% from ~~63.5%. Utility Services increased $65,742 or 16.3% compared with the first nine months of 2021 and, as a percentage of revenue, increased to~~ 73.6% ~~from 72.5%~~. The increase was attributable to increases in labor and benefits expense, ~~fuel expense, equipment~~subcontractor expense, materials expense, crew meals and lodging expenses which were partially offset by decreases in tools and parts expense and ~~subcontractor~~fuel expense. Residential and Commercial Services increased ~~$23,107~~$24,980 or ~~9.5%~~9.3% compared with the first nine months of ~~2021 and,~~2022 but, as a percentage of revenue, ~~increased~~decreased to ~~53.0%~~51.8% from ~~52.5%~~53.0%. The increase was primarily attributable to increases in labor and benefits expense, ~~fuel~~material expense, equipment expense ~~tool expense,~~and subcontractor expense, which were partially offset by decreases in fuel expense and ~~materials~~tools and parts expense.

Operating expenses for the first nine months of 2022 also included $1,530 of expenses related directly to COVID-19, including $1,322 for additional administrative leave offered to employees who were unable to work due to COVID-19-related restrictions. For the first nine months of 2021, the Company had $1,058 of expenses directly related to COVID-19.

- 4241 -

Index

Fuel costs of ~~$45,379 increased $15,409,~~$39,594 decreased $5,785, or ~~51.4%~~12.7%, from the ~~$29,970~~$45,379 incurred in the first nine months of ~~2021~~2022 and impacted operating expenses within all segments. The ~~$15,409 increase~~$5,785 decrease included usage increases approximating ~~$1,609~~$1,375 and price ~~increases~~decreases approximating ~~$13,800.~~$7,160.

Selling Expenses--Selling expenses of ~~$201,315~~$229,480 increased ~~$22,439~~$28,165 compared with the first nine months of ~~2021~~2022 and, as a percentage of revenue, increased to ~~17.6%~~18.1% from ~~17.5%~~17.6%. Utility Services increased ~~$12,797~~$10,305 or ~~20.6%~~13.7% compared to the first nine months of ~~2021~~2022 and, as a percentage of revenue, increased to ~~11.8%~~12.2% from ~~11.2%~~11.8%. The increase was primarily attributable to increases in field management wages, office expenses and field management travel expense. Residential and Commercial Services experienced an increase of ~~$9,843~~$17,832 or ~~8.2%~~13.8% compared to the first nine months of ~~2021 but,~~2022 and, as a percentage of revenue, ~~remained at~~increased to 26.1% from 25.7%. The increase was primarily attributable to increases in field management wages, ~~and incentive expense, travel expense, marketing~~office rent, employee development expense and ~~rent~~field management travel expense.

General and Administrative Expenses--General and administrative expenses of ~~$87,014~~$95,041 increased ~~$17,302~~$8,027 from ~~$69,712~~$87,014 in the first nine months of ~~2021.~~2022. The increase was primarily attributable to increases in salary and incentive expense, professional services expense, rent expense and travel expense.

Depreciation and Amortization Expense--Depreciation and amortization expense of ~~$41,082 decreased $205~~$43,479 increased $2,397 from ~~$41,287~~$41,082 incurred in the first nine months of ~~2021.~~2022.

Gain on the Sale of Assets, Net--Gain on the sale of assets of ~~$5,787~~$6,530 for the first nine months of ~~2022~~2023 increased ~~$1,613~~$743 from the ~~$4,174~~$5,787 gain in the first nine months of ~~2021.~~2022. We sold more units of equipment but at a ~~higher~~lower average gain per unit during the first nine months of ~~2022~~2023 as compared with the first nine months of ~~2021.~~2022.

Interest Expense--Interest expense of ~~$5,312~~$13,588 increased ~~$1,219~~$8,276 from the ~~$4,093~~$5,312 incurred in the first nine months of ~~2021.~~2022. The increase was attributable to higher average borrowing and increased interest rates during the first nine months of ~~2022,~~2023, as compared with the first nine months of ~~2021.~~2022.

Other, Net--Other expense, net, of ~~$8,241 increased $2,693~~$4,365 decreased $3,876 from the ~~$5,548~~$8,241 expense incurred in the first nine months of ~~2021~~2022 and consisted of nonoperating income and expense, including gains and 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 nine months of ~~2022~~2023 were ~~$17,407,~~$21,835, as compared to ~~$20,554~~$17,407 for the first nine 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 nine months of ~~2022~~2023 was ~~26.2%~~27.1%. Our effective tax rate for the first nine months of ~~2021~~2022 was 26.2%. The change in the effective tax rate from statutory tax rates was primarily due to the impact of discrete items and state and local ~~taxes, which was partially offset by favorable discrete items.~~taxes.

Net Income--Net income of $58,736 for the first nine months of 2023 was $9,705 more than the net income of $49,031 for the first nine months of ~~2022 was $8,866 less than the net income of $57,897 for the first nine 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. WeDuring 2022, we also engaged in a subscription offering of our common shares to eligible employees and nonemployee directors, which closed tnin the third quarter of 2022 and resulted in the subscription of 1,476,250 common shares for $26,720 at $18.10 per share.

- 4342 -

Index

Cash Flow Summary

Our cash flows from operating, investing and financing activities for the nine months ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~ were as follows:


		Nine Months Ended					Nine Months Ended
		October 1, 2022		October 2, 2021			September 30, 2023		October 1, 2022
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	62,980	$	57,401	Operating activities	$	36,338	$	62,980
Investing activities	Investing activities	(95,608)		(59,777)		Investing activities	(78,411)		(95,608)
Financing activities	Financing activities	36,183		19,192		Financing activities	37,327		36,183
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(171)		40		Effect of exchange rate changes on cash	11		(171)
Increase in cash		$	3,384	$	16,856
(Decrease) increase in cash						(Decrease) increase in cash	$	(4,735)	$	3,384

Cash Provided By Operating Activities--Cash provided by operating activities was ~~$62,980~~$36,338 for the first nine months of ~~2022,~~2023, a ~~$5,579 increase~~$26,642 decrease when compared to the first nine months of ~~2021.~~2022. The ~~$5,579 increase~~$26,642 decrease in operating cash flow was primarily attributable to athe change of ~~$22,180~~$22,922 related to accounts payable and accrued expenses and the change of ~~$8,111~~$14,520 attributable to mitigation bank credit inventory, which was partially offset by the change of $5,730 related to other operating assets and liabilities ~~partially offset by~~and the change of ~~$19,183~~$4,507 related to accounts receivable.

Overall, accounts receivable increased $44,944 during the first nine months of 2023, as compared to an increase of $49,451 during the first nine months of ~~2022, as compared to an increase of $30,268 during the first nine 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 nine months of ~~2022 increased by five days to~~2023 was unchanged at 75 days, compared to ~~70 days at~~ the end of the first nine 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.

Accounts payable and accrued expenses ~~increased $12,709~~decreased $10,213 in the first nine months of ~~2022,~~2023, a change of ~~$22,180~~$22,922 compared to the ~~$9,471 decrease~~$12,709 increase in the first nine 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.~~and customer deposits. Self-insurance accruals increased ~~$13,306~~$5,760 in the first nine months of ~~2022,~~2023, which was ~~$265 more~~$7,546 less than the increase of ~~$13,041~~$13,306 experienced in the first nine months of ~~2021.~~2022. The increase ~~was~~in both the first nine months of 2023 and 2022 were attributable to increased exposures within our workers compensation, general liability and vehicle liability lines of coverage.

~~Other operating assets and liabilities~~Mitigation bank credit inventory increased ~~$7,710~~$14,520 in the first nine months of ~~2022,~~2023. Mitigation bank credit inventory grew as a result of the acquisition of Restoration Systems in December, 2022. This service involves the creation of mitigation credits that are available to sell to third parties through remediation of properties such as stream or wetland restoration.

Other operating assets and liabilities decreased $13,440 in the first nine months of 2023, a change of ~~$8,111~~$5,730 compared to the ~~$401~~$7,710 decrease in the first nine months of ~~2021.~~2022. The change was primarily attributable to ~~cloud computing arrangements.~~decreases in operating supplies and other current assets and an increase in other liabilities.

Cash Used In Investing Activities--Cash used in investing activities for the first nine months of ~~2022~~2023 was ~~$95,608,~~$78,411, a ~~$35,831 increase~~$17,197 decrease when compared to the first nine months of ~~2021.~~2022. The ~~increase~~decrease was primarily the result of decreases in capital expenditures and purchases of marketable securities and increases in ~~purchases~~proceeds from the sale of ~~equipment and land and buildings and~~ marketable securities and property and equipment, which were partially offset by ~~a decrease~~an increase in expenditures for the purchases of businesses.

- 43 -

Index

Cash Provided By Financing Activities--Cash provided by financing activities was ~~$36,183~~$37,327 during the first nine months of ~~2022, a change~~2023, an increase of ~~$16,991~~$1,144 as compared with the ~~$19,192~~$36,183 provided during the first nine months of ~~2021.~~2022. During the first nine months of ~~2022,~~2023, our revolving credit facility, net provided ~~$51,267~~$55,828 in cash as compared with ~~$33,478~~$51,267 provided during the first nine 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 increased ~~$6,735~~$6,873 during the first nine months of ~~2022, a decrease~~2023, an increase of ~~$3,346~~$138 when compared to the ~~$10,081~~$6,735 increase in the first nine months of ~~2021.~~2022. Treasury share transactions (purchases and sales) used ~~$16,824~~$19,624 for the first nine months of ~~2022, $2,728~~2023, $2,800 more than the ~~$19,552~~$16,824 used in the first nine months of ~~2021.~~2022. Dividends paid of ~~$2,682~~$2,807 during the first nine months of ~~2022~~2023 increased ~~$555~~$125 as

~~- 44 -~~

~~Index~~

compared with ~~$2,127~~$2,682 paid in the first nine 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.

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 ~~$12,814~~$14,922 and ~~$6,860~~$12,814 during the nine months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ respectively. Share repurchases, other than redeemable common shares, approximated ~~$33,053~~$34,914 and ~~$29,647~~$33,053 during the nine months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ respectively.

Contractual Obligations Summary and Commercial Commitments

As of ~~October 1, 2022,~~September 30, 2023, total commitments related to issued letters of credit were ~~$94,509,~~$94,695, of which ~~$2,700~~$2,624 were issued under the revolving credit facility, $89,689 were issued under the AR Securitization program, and ~~$2,120~~$2,382 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 ~~October 1, 2022,~~September 30, 2023, we had working capital of ~~$171,930,~~$239,715, availability under short-term lines of credit approximating ~~$8,971~~$8,729 and ~~$224,201~~$116,114 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.”

- 44 -

Index

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.

~~- 45 -~~

~~Index~~

As discussed in our ~~2021 annual report,~~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 ~~2021~~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 ~~COVID-19 pandemic and~~economy or our industry, including as a result of rising inflation or interest rates, instability in the ~~responses thereto;~~global banking system, geopolitical conditions, the possibility of an economic recession, or public health crises; our inability to attract and retain a sufficient number of qualified employees for our field operations or qualified management personnel and the possibility that 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 of the Russia-Ukraine ~~conflict;~~conflict and the Israel-Hamas war; 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

- 45 -

Index

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 a 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~~Russia-Ukraine conflict and the ~~Russia-Ukraine conflict,~~Israel-Hamas war, supply chain shortages and disruptions,, rising interest rates, ~~lab~~orlabor shortages and inflationary cost pressures, among other factors, potentially limiting our access to capital; fluctuations in foreign currency exchange rates; significant

~~- 46 -~~

~~Index~~

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 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 ~~2021 annual report.~~2022 Annual Report.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

While we have ~~experience~~experienced inflation and higher interest rates during ~~2022,~~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.

- 46 -

Index

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~October 1, 2022~~September 30, 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 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 54 are not applicable.

Item 1. Legal Proceedings.

~~- 47 -~~

~~Index~~

basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record ~~a legal~~an 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.

Georgia wrongful death suit

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.

- 47 -

Index

~~- 48 -~~

~~Index~~

~~State Court heard oral argument on Defendants’ motions for summary judgment, and the motions remain pending during the stay of the cases.~~

The stay in the Federal Court case was lifted on April 4, 2023. The case will now proceed to the early stages of litigation. The Company filed a request for a motion to dismiss the alleged civil RICO claims by plaintiffs and further filed a motion to stay the case until the motion to dismiss was decided. The Federal Court granted the Company’s motion to stay, with two limited exceptions for ongoing discovery. The Federal Court has not yet set a trial date.

The Company and Wolf Tree agreed to pay $3,984,325 as part of the settlement agreement, including civil penalties, forfeiture and restitution, an amount the Company and Wolf Tree had previously reserved. The United States Attorney agreed that it will not bring any criminal charges against the Company or Wolf Tree concerning the subject matter of the investigation and released the Company and Wolf Tree from civil liability concerning certain immigration code provisions. The DHS also agreed to release the Company and Wolf Tree from administrative liability relating to the subject matter of the investigation, all of which are subject to standard reservations of rights and certain reserved claims. The settlement agreement closes the investigation by the United States Attorney and DHS. The settlement is not an admission of liability by the Company or Wolf Tree.

- 48 -

Index

The civil cases ~~continue to remain stayed, although Plaintiffs' counsel has submitted a letter~~in the State Court of Chatham County in Georgia and the United States District Court for the Southern District of Georgia, Savannah Division relating to the ~~Court seeking a lift of the stay.~~

same subject matter, remain pending. 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.

Northern California Wildfires

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 ~~related to Davey Tree's contracts with PG&E. Separately,~~and the ~~court ordered that all parties shall~~plaintiffs participate in a ~~mediation with the Plaintiffs prior to January 27, 2023.~~mediation. An initial mediation ~~date for all the Plaintiffs and Davey Tree related to parties~~took place on ~~the contractual issues was set for~~ October 17, ~~2022 but~~2022. The matter did not resolve at this initial ~~mediation.~~mediation and mediation efforts are ongoing.

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. However, we believe that a range of losses is probable and we have accrued our best estimate within this range

~~In all cases,~~

- 49 -

Index

which is also equal to our total coverage limits under our self-insurance and third party insurance providers for the ~~Company denies all liability~~2017-2018 policy year of $218,000,000. We believe that any losses would be recovered through our self-insurance and ~~will vigorously defend the actions.~~third party insurance providers and have accrued a corresponding insurance recoverable within our Condensed Consolidated Balance Sheet as of September 30, 2023.

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~~2022 Annual Report during the nine months ended ~~October 1, 2022.~~September 30, 2023.

~~- 49 -~~

~~Index~~

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of ~~Proceeds.~~Proceeds and Issuer Purchases of Equity Securities.

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

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 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 —
July 3 to July 30 16,083 18.10 — 3,845,851
July 31 to August 27 108,358 18.10 — 3,845,851
August 28 to October 1 366,911 18.10 — 3,845,851
Total Third Quarter 491,352 18.10 —
Total Year-to-Date 2,527,871 $ 18.10 —
(1) During the nine months ended October 1, 2022, the Company purchased 2,527,871 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		—

April 2 to April 29	650,351	18.50		—	3,323,819
April 30 to May 27	638,773	18.50		—	3,323,819
May 28 to July 1	235,631	18.50		116,147	3,207,672
Total Second Quarter	1,524,755	18.50		116,147

July 2 to July 29	4,314	18.50		—	3,207,672
July 30 to August 26	38,621	20.80		—	3,207,672
August 27 to September 30	592,574	20.80		—	3,207,672
Total Third Quarter	635,509	20.78		—

Total Year-to-Date	2,615,619	$	19.05	116,147

(1) During the nine months ended September 30, 2023, the Company purchased 2,499,472 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).

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

- 50 -

Index

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

~~- 50 -~~

~~Index~~

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.

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~~3,207,672 remained available under the program, as of ~~October 1, 2022.~~September 30, 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.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

The Company's securities are not traded on a public market. During the quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

- 51 -

Index

Item 6.Exhibits.

See the Exhibit Index below.

~~- 51 -~~

~~Index~~

Exhibits

Exhibit No.

Description

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 ~~October 1, 2022,~~September 30, 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

* 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.

- 52 -

Index

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:

November ~~8, 2022~~14, 2023

By:

/s/ Joseph R. Paul

Joseph R. Paul

Executive Vice President, Chief Financial Officer and Assistant Secretary

(Principal Financial Officer)

Date:

November ~~8, 2022~~14, 2023

By:

/s/ Thea R. Sears

Thea R. Sears

Vice President and Controller

(Principal Accounting Officer)

- 53 -


Maturity Analysis of Lease Liabilities		As of October 1, 2022
		Operating Leases		Finance Leases
	Remaining three months of 2022	$	9,301	$	747
	2023	31,878		3,237
	2024	24,610		3,106
	2025	16,964		2,472
	2026	9,277		2,101
	2027	3,343		1,123
	Thereafter	4,061		732
	Total lease payments	99,434		13,518
	Less interest	5,122		816
	Total	$	94,312	$	12,702


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, October 1, 2022	43,782	$	1.92	0.3 years	$	19	$	792


			Fair Value Measurements at October 1, 2022 Using:
Assets and Liabilities Recorded at Fair Value on a Recurring Basis	Total Carrying Value at October 1, 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	$	4,000	$	4,000	$	—	$	—
Certificates of deposits, noncurrent	7,109		7,109		—		—


Available-for-sale debt securities:
United States Government and agency securities	20,261		20,261		—		—
Corporate notes and bonds	257		257		—		—
Total available-for-sale debt securities	20,518		20,518		—		—

Marketable equity securities:
Mutual funds	14,894		14,894		—		—
Corporate stocks	2,819		2,819		—		—

Exchange traded funds	1,133		1,133		—		—

Total marketable equity securities	18,846		18,846		—		—

Liabilities:
Deferred compensation	$	4,759	$	—	$	4,759	$	—