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Table of Contents
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 September 30, 2021
 
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: 000-33001
 
NATUS MEDICAL INCORPORATED
(Exact name of registrant as specified in its charter)
 
 
Delaware 77-0154833
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
6701 Koll Center Parkway, Suite 120, Pleasanton, CA 94566
(Address of principal executive offices) (Zip Code)
(925) 223-6700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareNTUSThe Nasdaq Stock Market LLC
(The Nasdaq Global Market)

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 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,” or an “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large Accelerated Filer   Accelerated Filer 
Non-accelerated Filer 
  
  Smaller reporting company 
  Emerging growth 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  
The number of issued and outstanding shares of the registrant’s Common Stock, $0.001 par value, as of October 29, 2021 was 34,152,317.


Table of Contents
NATUS MEDICAL INCORPORATED
TABLE OF CONTENTS
Page No.

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PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
September 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$68,779 $82,082 
Accounts receivable, net of allowance for doubtful accounts of $5,980 in 2021 and $6,213 in 2020
97,370 93,133 
Inventories71,545 75,650 
Prepaid expenses and other current assets23,977 20,837 
Total current assets261,671 271,702 
Property and equipment, net22,837 24,516 
Operating lease right-of-use assets9,946 11,669 
Intangible assets, net73,602 92,741 
Goodwill149,293 151,299 
Deferred income tax26,296 27,563 
Other assets17,606 20,904 
Total assets$561,251 $600,394 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$28,322 $23,429 
Current portion of long-term debt 50,000 
Accrued liabilities44,575 44,236 
Deferred revenue25,737 21,308 
Current portion of operating lease liabilities5,167 6,779 
Total current liabilities103,801 145,752 
Other liabilities17,732 18,451 
Operating lease liabilities7,370 8,959 
Long-term debt, net of current portion 5,840 
Deferred income tax9,826 10,298 
Total liabilities138,729 189,300 
Stockholders’ equity:
Common stock, $0.001 par value, 120,000,000 shares authorized; shares issued and outstanding 34,152,623 in 2021 and 33,911,703 in 2020
350,457 342,828 
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding in 2021 and 2020
  
Retained earnings82,742 71,309 
Accumulated other comprehensive loss(10,677)(3,043)
Total stockholders’ equity422,522 411,094 
Total liabilities and stockholders’ equity$561,251 $600,394 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenue$113,877 $102,803 $344,782 $296,966 
Cost of revenue44,487 47,160 139,019 134,665 
Intangibles amortization1,642 8,117 5,126 11,440 
Gross profit67,748 47,526 200,637 150,861 
Operating expenses:
Marketing and selling28,260 26,035 86,719 79,567 
Research and development14,267 14,670 42,556 46,574 
General and administrative12,853 12,384 40,316 36,754 
Intangibles amortization3,681 4,025 11,497 11,330 
Restructuring142 350 469 1,842 
Total operating expenses59,203 57,464 181,557 176,067 
Income (loss) from operations8,545 (9,938)19,080 (25,206)
Other expense, net(1,048)(947)(3,355)(3,198)
Income (loss) before provision for (benefit from) income tax7,497 (10,885)15,725 (28,404)
Provision for (benefit from) income taxes1,924 (1,569)4,292 (6,588)
Net income (loss)$5,573 $(9,316)$11,433 $(21,816)
Net income (loss) per share:
Basic$0.17 $(0.28)$0.34 $(0.65)
Diluted$0.16 $(0.28)$0.34 $(0.65)
Weighted average shares used in the calculation of net income (loss) per share:
Basic33,638 33,828 33,649 33,577 
Diluted33,865 33,828 33,877 33,577 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net income (loss)$5,573 $(9,316)$11,433 $(21,816)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(3,517)6,915 (7,844)6,013 
Interest rate swap designated as a cash flow hedge 68 119 (42)
Reclassification of losses on interest rate swap designated as a cash flow hedge  91  
Other comprehensive income (loss), net of tax(3,517)6,983 (7,634)5,971 
Comprehensive income (loss)$2,056 $(2,333)$3,799 $(15,845)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except per share amounts)
 Common StockRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
 SharesAmount
Balances, December 31, 202033,911,703 $342,828 $71,309 $(3,043)$411,094 
Vesting of restricted stock units19,650 — — — — 
Net issuance of restricted stock awards222,899 — — — — 
Stock-based compensation expense— 3,018 — — 3,018 
Taxes paid related to net share settlement of equity awards(57,357)(1,150)— — (1,150)
Other comprehensive loss— — — (6,426)(6,426)
Net income— — 2,396 — 2,396 
Balances, March 31, 202134,096,895 $344,696 $73,705 $(9,469)$408,932 
Net issuance of restricted stock awards10,573 — — — — 
Employee stock purchase plan28,158 612 — — 612 
Stock-based compensation expense— 2,604 — — 2,604 
Taxes paid related to net share settlement of equity awards(3,520)(94)— — (94)
Other comprehensive income— — — 2,309 2,309 
Net income— — 3,464 — 3,464 
Balances, June 30, 202134,132,106 $347,818 $77,169 $(7,160)$417,827 
Net issuance of restricted stock awards20,934 — — — — 
Stock-based compensation expense— 2,649 — — 2,649 
Taxes paid related to net share settlement of equity awards
(417)(10)— — (10)
Other comprehensive loss— — — (3,517)(3,517)
Net income— — 5,573 — 5,573 
Balances, September 30, 202134,152,623 $350,457 $82,742 $(10,677)$422,522 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
 Common StockRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
 SharesAmount
Balances, December 31, 201934,148,700 $344,476 $87,922 $(16,275)$416,123 
Vesting of restricted stock units14,033 — — — — 
Net issuance of restricted stock awards162,212 — — — — 
Stock-based compensation expense— 2,198 — — 2,198 
Repurchase of company stock(465,117)(10,495)— — (10,495)
Taxes paid related to net share settlement of equity awards(57,695)(1,883)— — (1,883)
Other comprehensive loss— — — (4,193)(4,193)
Net loss— — (3,597)— (3,597)
Balances, March 31, 202033,802,133 $334,296 $84,325 $(20,468)$398,153 
Net issuance of restricted stock awards40,483 — — — — 
Employee stock purchase plan30,955 658 — — 658 
Stock-based compensation expense— 2,427 — — 2,427 
Taxes paid related to net share settlement of equity awards(1,848)(43)— — (43)
Other comprehensive income— — — 3,181 3,181 
Net loss— — (8,903)— (8,903)
Balances, June 30, 202033,871,723 $337,338 $75,422 $(17,287)$395,473 
Net issuance of restricted stock awards(856)— — — — 
Stock-based compensation expense— 2,337 — — 2,337 
Taxes paid related to net share settlement of equity awards(480)(10)— — (10)
Other comprehensive income— — — 6,983 6,983 
Net loss— — (9,316)— (9,316)
Balances, September 30, 202033,870,387 $339,665 $66,106 $(10,304)$395,467 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Nine Months Ended
September 30,
 20212020
Operating activities:
Net income (loss)$11,433 $(21,816)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for losses on accounts receivable273 1,158 
Impairment of intangible assets 6,678 
Depreciation and amortization21,337 20,989 
(Gain) loss on disposal of property and equipment(1,516)149 
Warranty reserve1,523 1,129 
Share-based compensation8,271 7,059 
Loss on commencement of sales-type leases3 1,861 
Loss on equity method investment443  
Changes in operating assets and liabilities:
Accounts receivable(428)30,367 
Inventories3,655 (6,417)
Prepaid expenses and other assets(3,878)(11,078)
Accounts payable5,229 (19)
Accrued liabilities(822)(13,844)
Deferred revenue4,629 (941)
Deferred income tax1,060 1,826 
Net cash provided by operating activities51,212 17,101 
Investing activities:
Purchase of property and equipment(2,949)(7,617)
Purchase of equity method investments(1,000) 
Proceeds from sale of property and equipment2,674  
Net cash used in investing activities(1,275)(7,617)
Financing activities:
Proceeds from stock option exercises and Employee Stock Purchase Program purchases612 658 
Repurchase of common stock (10,495)
Taxes paid related to net share settlement of equity awards(1,254)(1,936)
Principal payments of financing lease liability(326)(415)
Proceeds from borrowings 60,000 
Deferred debt issuance costs (1,175)
Payments on borrowings(57,000)(48,000)
Net cash used in financing activities(57,968)(1,363)
Exchange rate changes effect on cash and cash equivalents(5,272)3,118 
Net increase (decrease) in cash and cash equivalents(13,303)11,239 
Cash and cash equivalents, beginning of period82,082 63,297 
Cash and cash equivalents, end of period$68,779 $74,536 
Supplemental disclosure of cash flow information:
Cash paid for interest$1,065 $2,605 
Cash paid for income taxes$3,172 $6,489 
Non-cash investing activities:
Property and equipment included in accounts payable$41 $(59)
Inventory transferred to property and equipment$805 $899 
Transfer of leased assets to sales-type leases$13 $4,063 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1 - Basis of Presentation and Significant Accounting Policies
The accompanying interim condensed consolidated financial statements of Natus Medical Incorporated (“we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Except where noted below within Note 1, the accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent in all material respects with those presented in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Interim financial reports are prepared in accordance with the rules and regulations of the Securities and Exchange Commission; accordingly, the reports do not include all of the information and notes required by GAAP for annual financial statements. The interim financial information is unaudited, and reflects all normal adjustments that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods presented. We have made certain reclassifications to the prior period to conform to current period presentation. The consolidated balance sheet as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The accompanying condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Impact of COVID-19 on Our Financial Statements
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended extensive containment and mitigation measures worldwide. Since that time, we established what we believe are the necessary protocols to operate safely in our manufacturing facilities, virtually engage with customers and suppliers and work remotely when possible. Our businesses continue to recover as sales in our Neuro and Newborn Care business have returned to pre-pandemic levels. Sales for our Hearing & Balance business, which are more concentrated in Europe, have partially recovered but remain below pre-pandemic levels.
Various government programs have been established to provide financial relief for businesses affected by COVID-19 including the Canada Emergency Wage Subsidy ("CEWS") and Canada Emergency Rent Subsidy ("CERS") under the COVID-19 Economic Response Plan in Canada. We received $3.9 million for payroll subsidies under CEWS and CERS during the nine months ended September 30, 2021. Our policy is to account for these subsidies in the same manner as an offset to the expense they relate to in the period in which we are reasonably assured to receive payment. For the nine months ended September 30, 2021 we recognized reductions of $0.5 million in cost of sales, $1.6 million in marketing and selling expense, $1.6 million in research and development expense, and $0.2 million in general and administrative expense in the condensed consolidated statements of operations for these subsidies. As of September 30, 2021 we have collected all amounts recorded and continue to seek additional relief as applicable.
We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of COVID-19 using information that is reasonably available to us at this time. The accounting estimates and other matters we assessed include, but were not limited to, our allowance for doubtful accounts, inventory and warranty reserves, stock-based compensation, goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While based on our current assessment of these estimates there was not a material impact to our consolidated financial statements as of and for the three and nine months ended September 30, 2021, as additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding
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the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our consolidated financial statements in future reporting periods.

Recently Adopted Accounting Pronouncements
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments. This update addresses stakeholders' concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease in accordance with 842-10-25-2 through 25-3 and the lessors would have otherwise recognized a day-one loss. ASU 2021-05 is effective for fiscal years beginning after December 15, 2021. We have early adopted the ASU on a prospective basis in the third quarter of the current fiscal year. The adoption of ASU 2021-05 did not have an impact on our consolidated financial statements.

2 - Revenue
    Unbilled accounts receivable (“AR”) for the periods presented primarily represent the difference between revenue recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to extended service contracts, installation, and training, for which the service fees are billed in advance. The associated deferred revenue is generally recognized ratably over the extended service period or when installation and training are complete.
The following table summarizes the changes in the unbilled AR and deferred revenue balances for the nine months ended September 30, 2021 (in thousands):
Unbilled AR, December 31, 2020$1,925 
Additions145 
Transferred to trade receivable(350)
Unbilled AR, September 30, 2021$1,720 
Deferred revenue, December 31, 2020$25,723 
Additions22,089 
Revenue recognized(17,535)
Deferred revenue, September 30, 2021$30,277 

    At September 30, 2021, the short-term portion of deferred revenue of $25.7 million and the long-term portion of $4.6 million are included in deferred revenue and other long-term liabilities, respectively, in the consolidated balance sheet. As of September 30, 2021, we expect to recognize revenue associated with deferred revenue of approximately $10.5 million in 2021, $15.9 million in 2022, $2.1 million in 2023, $1.2 million in 2024, and $0.6 million thereafter.

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3 - Earnings Per Share
The components of basic and diluted EPS, and shares excluded from the calculation of diluted loss per share because the effect would have been anti-dilutive, are as follows (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net income (loss)$5,573 $(9,316)$11,433 $(21,816)
Weighted average common shares33,638 33,828 33,649 33,577 
Dilutive effect of stock based awards227  228  
Diluted shares33,865 33,828 33,877 33,577 
Basic earnings (loss) per share$0.17 $(0.28)$0.34 $(0.65)
Diluted earnings (loss) per share$0.16 $(0.28)$0.34 $(0.65)
Shares excluded from calculation of diluted EPS 13  61 

4 - Allowance for Doubtful Accounts

We estimate the lifetime allowance for doubtful, potentially uncollectible, accounts receivable upon their inception based on historical collection experience within the markets in which we operate, customer-specific information such as bankruptcy filings or customer liquidity problems, current conditions, and reasonable and supportable forecasts about the future.
Our allowance for doubtful accounts is presented as a reduction to accounts receivable on our consolidated balance sheet. When all internal efforts have been exhausted to collect the receivable, it is written off and relieved from the reserve.
The details of activity in allowance for doubtful accounts are as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Balance, beginning of period$6,130 $7,539 $6,213 $7,384 
Additions charged to expense(14)209 273 1,158 
Write-offs charged against allowance(136)(1,079)(506)(1,873)
Balance, end of period$5,980 $6,669 $5,980 $6,669 

5 - Inventories
Inventories consist of the following (in thousands):
September 30, 2021December 31, 2020
Raw materials and subassemblies$21,349 $22,583 
Work in process2,746 2,294 
Finished goods59,535 65,695 
Total inventories83,630 90,572 
Less: Non-current inventories(12,085)(14,922)
Inventories, current$71,545 $75,650 
As of September 30, 2021 and December 31, 2020, we have classified $12.1 million and $14.9 million, respectively, of inventories as other assets. This inventory consists primarily of service components used to repair products held by customers pursuant to warranty obligations and extended service contracts, including service
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components for products we no longer sell, inventory purchased for lifetime buys, and inventory that is turning over at a slow rate. We believe these inventories will be utilized for their intended purpose.

6 – Intangible Assets
The following table summarizes the components of gross and net intangible asset balances (in thousands):
 September 30, 2021December 31, 2020
 Gross
Carrying
Amount
Accumulated
Impairment
Accumulated
Amortization
Net Book
Value
Gross
Carrying
Amount
Accumulated
Impairment
Accumulated
Amortization
Net Book
Value
Intangible assets with definite lives:
Technology$109,885 $(12,453)$(68,245)$29,187 $112,138 $(12,480)$(64,203)$35,455 
Customer related91,907 (50)(56,703)35,154 94,526 (50)(51,247)43,229 
Trade names46,348 (3,575)(35,895)6,878 47,058 (3,677)(31,890)11,491 
Internally developed software13,281  (12,961)320 13,281  (12,845)436 
Patents2,735 (133)(2,602) 2,810 (133)(2,677) 
Service agreements1,190  (1,149)41 1,190  (1,119)71 
Definite-lived intangible assets$265,346 $(16,211)$(177,555)$71,580 $271,003 $(16,340)$(163,981)$90,682 
Intangible assets with indefinite lives:
Intellectual Property$2,022 $ $— $2,022 $2,059 $ $— $2,059 
Total intangible assets$267,368 $(16,211)$(177,555)$73,602 $273,062 $(16,340)$(163,981)$92,741 

Finite-lived intangible assets are amortized over their weighted average lives, which are 14 years for technology, 10 years for customer related intangibles, 7 years for trade names, 6 years for internally developed software, 13 years for patents, 2 years for service agreements and 11 years weighted average in total.
Internally developed software consists of $11.1 million relating to costs incurred for development of internal use computer software and $2.2 million for development of software to be sold.
Amortization expense related to intangible assets with definite lives was as follows (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Technology$1,686 $8,162 $5,259 $11,572 
Customer related2,168 2,204 6,904 6,468 
Trade names1,459 1,767 4,431 4,700 
Internally developed software24 51 116 188 
Service agreements10 10 30 30 
Total amortization$5,347 $12,194 $16,740 $22,958 

The amortization expense amounts shown above include internally developed software not held for sale of $24 thousand and $72 thousand for the three and nine months ended September 30, 2021, respectively, which is recorded within our income statement as a general and administrative operating expense. The amortization expense amounts shown above include internally developed software held for sale of zero and $44 thousand for the three and
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nine months ended September 30, 2021, respectively, which is recorded within our income statement as cost of goods sold.
Expected amortization expense related to definite-lived amortizable intangible assets is as follows (in thousands):
Three months ending December 31, 2021$5,300 
202217,837 
202315,066 
202413,144 
202512,532 
20262,414 
Thereafter5,287 
Total expected amortization expense$71,580 

7 – Goodwill
The carrying amount of goodwill and the changes in the balance are as follows (in thousands):
December 31, 2020$151,299 
Foreign currency translation(2,006)
September 30, 2021$149,293 

8 - Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
September 30, 2021December 31, 2020
Land$1,785 $1,792 
Buildings7,244 7,365 
Leasehold improvements7,695 8,050 
Finance lease right-of-use assets2,432 2,555 
Equipment and furniture20,821 22,148 
Computer software and hardware11,035 10,246 
Demonstration and loaned equipment3,849 3,086 
54,861 55,242 
Accumulated depreciation(32,024)(30,726)
Total$22,837 $24,516 
Depreciation expense of property and equipment, net was approximately $1.5 million and $4.5 million for the three and nine months ended September 30, 2021, respectively, and approximately $1.9 million and $5.2 million for the three and nine months ended September 30, 2020, respectively.

9 - Reserve for Product Warranties
We provide a warranty for products that is generally one year in length. In some cases, regulations may require us to provide repair or remediation beyond the typical warranty period. If any of the products contain defects, we may incur additional repair and remediation costs. Service, repair and calibration services are provided by a combination of our owned facilities and vendors on a contract basis.
We accrue estimated product warranty costs at the time of sale based on historical experience. A warranty reserve is included in accrued liabilities for the expected future costs of servicing products. Additions to the reserve are based on management’s best estimate of probable liability. We consider a combination of factors including
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material and labor costs, regulatory requirements, and other judgments in determining the amount of the reserve. The reserve is reduced as costs are incurred to honor existing warranty and regulatory obligations.
As of September 30, 2021, we have accrued $4.5 million for product related warranties. Our estimate of these costs is primarily based upon the number of units outstanding that may require repair and costs associated with shipping.
The details of activity in the warranty reserve are as follows (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Balance, beginning of period$4,802 $5,683 $5,195 $6,404 
Additions and adjustments charged to expense509 (151)1,523 1,129 
Utilizations(798)(684)(2,205)(2,685)
Balance, end of period$4,513 $4,848 $4,513 $4,848 

Our estimate of future product warranty costs may vary from actual product warranty costs, and any variance from estimates could impact our cost of sales, operating profits and results of operations.

10 - Share-Based Compensation
As of September 30, 2021, we have one active share-based compensation plan, the 2021 Equity Incentive Plan.
The terms of all awards granted during the nine months ended September 30, 2021 and the methods for determining grant-date fair value of the awards are consistent with those described in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Details of share-based compensation expense are as follows (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Cost of revenue$93 $79 $294 $229 
Marketing and selling511 475 1,677 1,424 
Research and development342 275 1,055 798 
General and administrative1,703 1,507 5,245 4,511 
Total$2,649 $2,336 $8,271 $6,962 

As of September 30, 2021, unrecognized compensation expense related to the unvested portion of stock options and other stock awards was approximately $16.0 million, which is expected to be recognized over a weighted average period of 2.0 years.

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11 - Other Expense, net
Other expense, net consists of (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Interest income$81 $(25)$85 $7 
Interest expense(332)(1,107)(1,655)(2,800)
Foreign currency gain (loss)(568)273 (1,288)(311)
Other expense(229)(88)(497)(94)
Total other expense, net$(1,048)$(947)$(3,355)$(3,198)

12 - Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete events arising in each respective quarter. During each interim period, we update the estimated annual effective tax rate which is subject to significant volatility due to several factors, including our ability to accurately predict the income (loss) before provision for income taxes in multiple jurisdictions, the effects of acquisitions, the integration of those acquisitions, and changes in tax law. In circumstances where we are unable to predict income (loss) in multiple jurisdictions, the actual year to date effective tax rate may be the best estimate of the annual effective tax rate for purposes of determining the interim provision for income tax.
We recorded income tax expense of $1.9 million and $4.3 million for the three and nine months ended September 30, 2021, respectively. The effective tax rate was 25.7% and 27.3% for the three and nine months ended September 30, 2021, respectively. We recorded a benefit from income tax of $1.6 million and $6.6 million for the three and nine months ended September 30, 2020, respectively. The effective tax rate was 14.4% and 23.2% for the three and nine months ended September 30, 2020, respectively. The increase in the effective tax rate for the three months ended September 30, 2021 compared with the three months ended September 30, 2020, is primarily attributable to changes in distribution of income and loss among jurisdictions with varying tax rates. Other significant factors impacting the current period effective tax rate included Federal and California research and development credits, non-deductible executive compensation expenses, and other discrete events.
We recorded no change related to unrecognized tax benefits for the three months ended September 30, 2021. Within the next twelve months, it is possible that the uncertain tax positions may change with a range of approximately zero to $0.2 million. Our tax returns remain open to examination as follows: U.S Federal, 2017 through 2020, U.S. states, 2016