ntus-20210930

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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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	NTUS	The 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.

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NATUS MEDICAL INCORPORATED

TABLE OF CONTENTS


		Page No.
PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5

	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION	28

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

Signatures		31

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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, 2021		December 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
Inventories	71,545		75,650
Prepaid expenses and other current assets	23,977		20,837

Total current assets	261,671		271,702
Property and equipment, net	22,837		24,516
Operating lease right-of-use assets	9,946		11,669
Intangible assets, net	73,602		92,741
Goodwill	149,293		151,299
Deferred income tax	26,296		27,563
Other assets	17,606		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 liabilities	44,575		44,236
Deferred revenue	25,737		21,308
Current portion of operating lease liabilities	5,167		6,779

Total current liabilities	103,801		145,752
Other liabilities	17,732		18,451
Operating lease liabilities	7,370		8,959
Long-term debt, net of current portion	—		5,840
Deferred income tax	9,826		10,298
Total liabilities	138,729		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 earnings	82,742		71,309
Accumulated other comprehensive loss	(10,677)		(3,043)
Total stockholders’ equity	422,522		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,
	2021		2020		2021		2020
Revenue	$	113,877	$	102,803	$	344,782	$	296,966
Cost of revenue	44,487		47,160		139,019		134,665
Intangibles amortization	1,642		8,117		5,126		11,440
Gross profit	67,748		47,526		200,637		150,861
Operating expenses:
Marketing and selling	28,260		26,035		86,719		79,567
Research and development	14,267		14,670		42,556		46,574
General and administrative	12,853		12,384		40,316		36,754
Intangibles amortization	3,681		4,025		11,497		11,330
Restructuring	142		350		469		1,842
Total operating expenses	59,203		57,464		181,557		176,067
Income (loss) from operations	8,545		(9,938)		19,080		(25,206)
Other expense, net	(1,048)		(947)		(3,355)		(3,198)
Income (loss) before provision for (benefit from) income tax	7,497		(10,885)		15,725		(28,404)
Provision for (benefit from) income taxes	1,924		(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:
Basic	33,638		33,828		33,649		33,577
Diluted	33,865		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,
	2021		2020		2021		2020
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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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(unaudited)

(in thousands, except per share amounts)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2020	33,911,703	$	342,828	$	71,309	$	(3,043)	$	411,094

Vesting of restricted stock units	19,650	—		—		—		—
Net issuance of restricted stock awards	222,899	—		—		—		—

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, 2021	34,096,895	$	344,696	$	73,705	$	(9,469)	$	408,932

Net issuance of restricted stock awards	10,573	—		—		—		—
Employee stock purchase plan	28,158	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, 2021	34,132,106	$	347,818	$	77,169	$	(7,160)	$	417,827

Net issuance of restricted stock awards	20,934	—		—		—		—

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, 2021	34,152,623	$	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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	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2019	34,148,700	$	344,476	$	87,922	$	(16,275)	$	416,123

Vesting of restricted stock units	14,033	—		—		—		—
Net issuance of restricted stock awards	162,212	—		—		—		—

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, 2020	33,802,133	$	334,296	$	84,325	$	(20,468)	$	398,153

Net issuance of restricted stock awards	40,483	—		—		—		—
Employee stock purchase plan	30,955	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, 2020	33,871,723	$	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, 2020	33,870,387	$	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,
	2021		2020
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 receivable	273		1,158
Impairment of intangible assets	—		6,678
Depreciation and amortization	21,337		20,989
(Gain) loss on disposal of property and equipment	(1,516)		149
Warranty reserve	1,523		1,129
Share-based compensation	8,271		7,059
Loss on commencement of sales-type leases	3		1,861
Loss on equity method investment	443		—
Changes in operating assets and liabilities:
Accounts receivable	(428)		30,367
Inventories	3,655		(6,417)
Prepaid expenses and other assets	(3,878)		(11,078)
Accounts payable	5,229		(19)
Accrued liabilities	(822)		(13,844)
Deferred revenue	4,629		(941)
Deferred income tax	1,060		1,826

Net cash provided by operating activities	51,212		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 equipment	2,674		—
Net cash used in investing activities	(1,275)		(7,617)
Financing activities:
Proceeds from stock option exercises and Employee Stock Purchase Program purchases	612		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 period	82,082		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
Additions	145
Transferred to trade receivable	(350)
Unbilled AR, September 30, 2021	$	1,720


Deferred revenue, December 31, 2020	$	25,723
Additions	22,089
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,
	2021		2020		2021		2020
Net income (loss)	$	5,573	$	(9,316)	$	11,433	$	(21,816)
Weighted average common shares	33,638		33,828		33,649		33,577
Dilutive effect of stock based awards	227		—		228		—
Diluted shares	33,865		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,
	2021		2020		2021		2020
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, 2021		December 31, 2020
Raw materials and subassemblies	$	21,349	$	22,583
Work in process	2,746		2,294
Finished goods	59,535		65,695
Total inventories	83,630		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, 2021								December 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 related	91,907		(50)		(56,703)		35,154		94,526		(50)		(51,247)		43,229
Trade names	46,348		(3,575)		(35,895)		6,878		47,058		(3,677)		(31,890)		11,491
Internally developed software	13,281		—		(12,961)		320		13,281		—		(12,845)		436
Patents	2,735		(133)		(2,602)		—		2,810		(133)		(2,677)		—
Service agreements	1,190		—		(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,
	2021		2020		2021		2020
Technology	$	1,686	$	8,162	$	5,259	$	11,572
Customer related	2,168		2,204		6,904		6,468
Trade names	1,459		1,767		4,431		4,700
Internally developed software	24		51		116		188

Service agreements	10		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
2022	17,837
2023	15,066
2024	13,144
2025	12,532
2026	2,414
Thereafter	5,287
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, 2021		December 31, 2020
Land	$	1,785	$	1,792
Buildings	7,244		7,365
Leasehold improvements	7,695		8,050
Finance lease right-of-use assets	2,432		2,555
Equipment and furniture	20,821		22,148
Computer software and hardware	11,035		10,246
Demonstration and loaned equipment	3,849		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,
	2021		2020		2021		2020
Balance, beginning of period	$	4,802	$	5,683	$	5,195	$	6,404

Additions and adjustments charged to expense	509		(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,
	2021		2020		2021		2020
Cost of revenue	$	93	$	79	$	294	$	229
Marketing and selling	511		475		1,677		1,424
Research and development	342		275		1,055		798
General and administrative	1,703		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,
	2021		2020		2021		2020
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