The Davey Tree Expert Company

05/13/2026 | Press release | Distributed by Public on 05/13/2026 12:25

Quarterly Report for Quarter Ending April 4, 2026 (Form 10-Q)

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 mainly 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 Other."
Recent Trends
Our business continues to be impacted by a number of macro-economic factors. General economic conditions, geopolitical uncertainty, and market volatility have contributed to an increasingly difficult operating environment. These factors, combined with fluctuating interest rates and a highly competitive labor market, have created an inflationary environment and cost pressures.
Geopolitical developments, including the recent conflict in the Middle East involving Iran, have increased volatility in global energy markets. As a result, fuel prices have experienced periods of fluctuation, which could lead to a material adverse impact on our business and economic pressures on our customers.
We continue to monitor macroeconomic trends and uncertainties and changes in international trade relations and trade policy, including those related to tariffs. The U.S. government has previously announced new and additional tariffs on goods imported into the United States, which has prompted retaliatory tariffs from other countries. Furthermore, on February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act, introducing further uncertainty regarding trade policy actions and any potential refund processes. Incremental tariffs and updated trade policies did not have a significant impact on our financial results in 2025, but could adversely impact our results in the future. As a result of the fluctuating U.S. tariff policy, and potential tariff modifications or the imposition of tariffs or export controls by other countries, combined with the challenges of higher inflation, we anticipate continued supply chain challenges, commodity cost volatility, economic uncertainty, and economic pressures on customers and consumers. While we are implementing measures to mitigate these potential impacts, we are continuing to evaluate these factors and their potential effects on our profitability.
Inflation rates in the markets in which we operate have increased and may continue to rise. Inflation has led us to experience higher costs, including higher labor costs and costs for materials from suppliers and transportation costs, and, in the competitive markets in which we operate, we may not be able to increase our prices correspondingly to preserve our gross margins and profitability. If inflation rates
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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.
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
April 4,
2026 		March 29,
2025
Change
Revenues 100.0 % 100.0 % - %
Costs and expenses:
Operating 67.6 68.1 (.5)
Selling 18.9 18.7 .2
General and administrative 11.3 9.3 2.0
Depreciation and amortization 4.9 4.3 .6
Gain on sale of assets, net (.2) - (.2)
Loss from operations (2.5) (.4) (2.1)
Other income (expense):
Interest expense (1.1) (.9) (.2)
Interest income .1 .1 -
Other, net (.5) (.4) (.1)
Loss before income taxes (4.0) (1.6) (2.4)
Income tax benefit (1.5) (.9) (.6)
Net loss (2.5) % (.7) % (1.8) %
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First Three Months-Three Months Ended April 4, 2026 Compared to Three Months Ended March 29, 2025
Our results of operations for the three months ended April 4, 2026 compared to the three months ended March 29, 2025 were as follows:
Three Months Ended
April 4,
2026 		March 29,
2025 		Change Percentage
Change
Revenues $ 435,775 $ 434,836 $ 939 .2 %
Costs and expenses:
Operating 294,877 295,932 (1,055) (.4)
Selling 82,267 81,353 914 1.1
General and administrative 49,199 40,600 8,599 21.2
Depreciation and amortization 21,256 18,568 2,688 14.5
Gain on sale of assets, net (892) (33) (859) 2,603.0
446,707 436,420 10,287 2.4
Loss from operations (10,932) (1,584) (9,348) 590.2
Other income (expense):
Interest expense (4,593) (4,382) (211) 4.8
Interest income 350 552 (202) (36.6)
Other, net (2,172) (1,716) (456) 26.6
Loss before income taxes (17,347) (7,130) (10,217) 143.3
Income tax benefit (6,662) (3,872) (2,790) 72.1
Net loss $ (10,685) $ (3,258) $ (7,427) 228.0 %
Revenues--Revenues of $435,775 increased $939 compared with $434,836 in the first three months of 2025. Utility Services increased $8,362 or 3.3% compared with the first three months of 2025. The increase was attributable growth on existing accounts along with an increase in consulting and other services, partially offset by lower storm damage revenue. Residential and Commercial Services decreased $7,265 or 4.1% compared with the first three months of 2025. Decreases were primarily in storm damage services revenue partially offset by increases in tree and plant care revenue and grounds maintenance revenue.
Operating Expenses--Operating expenses of $294,877 decreased $1,055 compared with the first three months of 2025 and, as a percentage of revenue, decreased to 67.6% from 68.1%. Utility Services increased $7,655 or 4.1% compared with the first three months of 2025 and, as a percentage of revenue, increased to 74.6% from 74.1%. The increase was attributable to increases in labor and benefits expense and materials expense, partially offset by decreases in subcontractor expense. Residential and Commercial Services decreased $8,996 or 8.4% compared with the first three months of 2025 and, as a percentage of revenue, decreased to 56.9% from 59.7%. The decrease was primarily attributable to decreases in subcontractor expense.
Fuel costs of $8,963 decreased $2,209, or 19.8%, from the $11,172 incurred in the first three months of 2025 and impacted operating expenses within all segments. The $2,209 decrease included usage increases approximating $387 and price decreases approximating $2,596.
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Selling Expenses--Selling expenses of $82,267 increased $914 compared with the first three months of 2025 and, as a percentage of revenue, increased to 18.9% from 18.7%. Utility Services increased $1,081 or 3.5% compared to the first three months of 2025 and, as a percentage of revenue, increased to 12.1% from 12.0%. The increase was primarily attributable to an increase in travel expense which was partially offset by a decrease in wages and benefits expense. Residential and Commercial Services increased $2,068 or 4.0% compared to the first three months of 2025 and, as a percentage of revenue, increased to 31.4% from 29.0%. The increase was primarily attributable to an increase in marketing expenses.
General and Administrative Expenses--General and administrative expenses of $49,199 increased $8,599 from $40,600 in the first three months of 2025. The increase was primarily attributable to increases in salary and benefits expenses, advertising and sales promotion expense, travel expense, and information technology infrastructure related expense.
Depreciation and Amortization Expense--Depreciation and amortization expense of $21,256 increased $2,688 from $18,568 incurred in the first three months of 2025, which was primarily attributable to a higher proportion of equipment purchased or leased under finance leases rather than operating leases, along with depreciation on our corporate office expansion.
Gain on the Sale of Assets, Net--Gain on the sale of assets of $892 for the first three months of 2026 increased $859 from the $33 gain in the first three months of 2025. We sold more units of equipment at a higher average gain during the first three months of 2026 as compared with the first three months of 2025.
Interest Expense--Interest expense of $4,593 increased $211 from the $4,382 incurred in the first three months of 2025. The increase was primarily attributable to higher average borrowings during the first three months of 2026, as compared with the first three months of 2025 on the revolving credit facility.
Other, Net--Other expense, net, of $2,172 increased $456 from the $1,716 expense incurred in the first three months of 2025 and consisted of nonoperating income and expense, including gains and losses on marketable securities, pension expense and foreign currency transaction adjustments.
Income Tax Benefits--Income tax benefits for the first three months of 2026 was $6,662, as compared to $3,872 for the first three months of 2025. 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 actual effective tax rate for the first three months of 2026 was 38.4%. Our actual effective tax rate for the first three months of 2025 was 54.3%. The change in the effective tax rate from statutory tax rates was primarily due to the impact of favorable discrete items, such as equity awards. Such discrete items are a set amount and therefore have a larger impact on the rate based on our net loss before tax in the first three months compared to the impact they will have on the rate for the full year.
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.
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Cash Flow Summary
Our cash flows from operating, investing and financing activities for the three months ended April 4, 2026 and March 29, 2025 were as follows:
Three Months Ended
April 4,
2026 		March 29,
2025
Cash provided by (used in):
Operating activities $ (17,978) $ (4,391)
Investing activities (68,070) (26,420)
Financing activities 101,918 25,049
Effect of exchange rate changes on cash (55) 35
Increase (Decrease) in cash $ 15,815 $ (5,727)
Net Cash Used In Operating Activities--Operating activities in the first three months of 2026 used cash of $17,978 as compared to $4,391 used in the first three months of 2025. The $13,587 increase in cash used in operating activities was primarily attributable to the increase of $12,249 in cash used by accounts receivable and the increase of $5,118 in cash used by refundable income taxes. This was partially offset by the decrease of $6,043 in cash used by self-insurance accruals.
Overall, accounts receivable increased $7,861 during the first three months of 2026, as compared to a decrease of $4,388 during the first three months of 2025. 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 three months of 2026 remained consistent at 82 days when compared to the end of the first three months of 2025. 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 decreased $17,962 in the first three months of 2026, a change of $951 compared to the $18,913 decrease in the first three months of 2025. The change in the first three months of 2026 was largely consistent with the change in the first three months of 2025.
Self-insurance accruals decreased $316 in the first three months of 2026, which is a change of $6,043 from the decrease of $6,359 experienced in the first three months of 2025. The smaller decrease in the first three months of 2026 was mainly attributable to the settlement of claims during the first three months of 2025.
Mitigation bank credit inventory increased $879 in the first three months of 2026, a change of $382 compared to the increase of $497 in the first three months of 2025. Mitigation bank credit inventory levels are affected by the timing of credit inventory sales. Mitigation bank credit inventories are composed of credits that are available to sell to third parties through remediation of properties such as stream or wetland restoration.
Prepaid expenses decreased $9,745 in the first three months of 2026, a change of $976 compared to the $8,769 decrease in the first three months of 2025. The change was primarily related to prepaid insurance premiums.
Refundable income taxes increased $6,710 in the first three months of 2026, a change of $5,118 compared to the $1,592 increase in the first three months of 2025. The change was primarily related to an increase in the balance of income taxes refundable due to the larger net loss in the first three months of 2026 compared to the first three months of 2025.
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Other operating assets and liabilities, net used cash of $5,705 in the first three months of 2026, or $182 less than the $5,887 of cash used in the first three months of 2025. The primary use of cash in this category is cash used by operating supplies.
Net Cash Used In Investing Activities--Cash used in investing activities for the first three months of 2026 was $68,070, a $41,650 increase when compared to the first three months of 2025. The increase was primarily the result of an increase in net purchases of marketable securities of $28,924 to fund our wholly owned captive insurance subsidiary, an increase in cash used for purchases of businesses of $10,989 and an increase in capital expenditures for equipment of $2,175.
Net Cash Provided By Financing Activities--Cash provided by financing activities was $101,918 during the first three months of 2026, an increase of $76,869 as compared with the $25,049 provided during the first three months of 2025. Our net borrowing and repayment activity on our revolving credit facility resulted in a net cash inflow of $139,949 during the first three months of 2026 as compared with $40,703 of cash provided by net borrowings during the first three months of 2025. We use the credit facility primarily for capital expenditures, redemptions of shares and payments of notes payable related to acquisitions. Net cash used for the payment of notes payable totaled $24,716 during the first three months of 2026, a change of $14,078 when compared to the $10,638 net cash used for payments in the first three months of 2025. Treasury share transactions (purchases and sales) used cash of $8,767 for the first three months of 2026, $6,542 more than the $2,225 used in the first three months of 2025. Dividends paid of $1,212 during the first three months of 2026 increased $168 as compared with $1,044 paid in the first three months of 2025.
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 $3,737 and $75 during the three months ended April 4, 2026 and March 29, 2025, respectively. Share repurchases, other than redeemable common shares, approximated $9,568 and $8,781 during the three months ended April 4, 2026 and March 29, 2025, respectively.
Contractual Obligations Summary and Commercial Commitments
As of April 4, 2026, total commitments related to issued letters of credit were $101,761, of which $2,250 were issued under the revolving credit facility, $99,071 were issued under the AR Securitization program, and $440 were issued under short-term lines of credit. As of December 31, 2025, total commitments related to issued letters of credit were $101,659, of which $2,250 were issued under the revolving credit facility, $99,071 were issued under the AR Securitization program, and $338 were issued under short-term lines of credit. For more information, see "Part I - Item 1 - Note G, Short and Long-Term Debt and Commitments Related to Letters of Credit."
Also, as is common in our industry, we have performance obligations that are supported by surety bonds, which expire during 2026 through 2033. We intend to renew the surety bonds where appropriate and as necessary.
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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 April 4, 2026, we had working capital of $194,038, availability under short-term lines of credit approximating $636 and $132,365 available under our revolving credit facility.
For more information regarding our outstanding debt, see "Part I - Item 1 - Note G, Short and Long-Term Debt and Commitments Related to Letters of Credit."
We believe our sources of capital, at this time, provide us with the financial flexibility to meet our capital-spending plans and to continue to complete business acquisitions for at least the next twelve months and for the reasonably foreseeable future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
We believe that our policies related to revenue recognition, the allowance for credit losses, stock valuation, contingent consideration 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; self-insurance accruals; and contingent consideration valuation. 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.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 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," "intends," "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. The following are 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:
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•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 may result from our need to attract and retain employees;
•our ability to withstand intense competition;
•the potential impact of acquisitions or other strategic transactions;
•the impact of wildfires, as well as other severe weather events and natural disasters, which may worsen or increase due to the effects of climate change;
•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;
•fluctuations in our quarterly results due to the seasonal nature of our business or changes in general and local economic conditions, among other factors;
•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 or volatility in fuel prices for extended periods of time, and ongoing volatility arising from the effects of geopolitical conflict;
•disruptions, delays or price increases within our supply chain;
•the impact of global climate change and related regulations;
•being contractually bound to an unprofitable contract;
•a disruption in our information technology systems, including a disruption related to our cybersecurity program or a third-party's information technology system upon which we rely, or the impact of costs incurred to comply with cybersecurity or data privacy regulations;
•widespread outages, interruptions or other failures of operational, communication and other systems;
•damage to our reputation of quality, integrity and performance;
•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;
•an overall decline in the health of the economy or our industry, including as a result of high inflation or interest rates, instability in the global banking system, geopolitical conditions, unemployment rates, or changes in the labor market, political and social unrest, the possibility of an economic recession, or public health crises;
•the effect of various economic factors, including inflationary pressures, that may adversely impact our customers' spending and pricing for our services, and impede our collection of accounts receivable;
•uncertainties in the credit and financial markets, including the negative impacts of geopolitical conflicts, supply chain shortages and disruptions, variable interest rates, unemployment rates, labor shortages and inflationary cost pressures, among other factors, potentially limiting our access to capital;
•changes and instability in policies and regulations affecting international trade, including trade restrictions and tariffs;
•fluctuations in foreign currency exchange rates;
•significant increases in health care costs;
•our inability to properly verify the employment eligibility of our employees;
•the impact of corporate citizenship and environmental, social and governance matters and/or our reporting of such matters;
•the impact of events such as natural disasters, public health epidemics or pandemics, terrorist attacks or other external events;
•the impact of tax increases and changes in tax rules;
•our ability to successfully implement our new enterprise resource planning system in a cost-effective and timely manner;
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•limitations on our shareholders' ability to sell their common shares due to the lack of a public market for such shares; and
•our ability to continue to declare cash dividends.
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 I - Item 1A. Risk Factors" of our 2025 Annual Report.
The Davey Tree Expert Company published this content on May 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 13, 2026 at 18:25 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]