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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, 2020
 
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 28, 2020 was 33,867,567.


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

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Table of Contents
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, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$74,536 $63,297 
Accounts receivable, net of allowance for doubtful accounts of $6,669 in 2020 and $7,384 in 201984,107 115,889 
Inventories80,135 71,368 
Prepaid expenses and other current assets27,740 19,195 
Total current assets266,518 269,749 
Property and equipment, net24,245 24,702 
Operating lease right-of-use assets11,960 15,046 
Intangible assets, net94,030 114,799 
Goodwill147,716 146,367 
Deferred income tax28,749 30,355 
Other assets23,672 21,509 
Total assets$596,890 $622,527 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$27,597 $27,253 
Current portion of long-term debt40,000 35,000 
Accrued liabilities39,034 54,451 
Deferred revenue20,034 20,246 
Current portion of operating lease liabilities5,343 5,871 
Total current liabilities132,008 142,821 
Other liabilities19,574 17,616 
Operating lease liabilities9,358 12,051 
Long-term debt, net of current portion25,697 19,665 
Deferred income tax14,786 14,251 
Total liabilities201,423 206,404 
Stockholders’ equity:
Common stock, $0.001 par value, 120,000,000 shares authorized; shares issued and outstanding 33,870,387 in 2020 and 34,148,700 in 2019339,665 344,476 
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding in 2020 and 2019  
Retained earnings66,106 87,922 
Accumulated other comprehensive loss(10,304)(16,275)
Total stockholders’ equity395,467 416,123 
Total liabilities and stockholders’ equity$596,890 $622,527 
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 STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenue$102,803 $123,463 $296,966 $363,759 
Cost of revenue47,160 48,389 134,665 147,291 
Intangibles amortization8,117 1,736 11,440 5,237 
Gross profit47,526 73,338 150,861 211,231 
Operating expenses:
Marketing and selling26,035 30,787 79,567 96,841 
Research and development14,670 14,447 46,574 41,166 
General and administrative12,384 15,394 36,754 44,390 
Intangibles amortization4,025 3,751 11,330 11,300 
Restructuring350 1,106 1,842 41,147 
Total operating expenses57,464 65,485 176,067 234,844 
Income (loss) from operations(9,938)7,853 (25,206)(23,613)
Other expense, net(947)(1,609)(3,198)(4,921)
Income (loss) before benefit from income tax(10,885)6,244 (28,404)(28,534)
Benefit from income taxes(1,569)(1,987)(6,588)(9,852)
Net income (loss)(9,316)$8,231 $(21,816)$(18,682)
Net income (loss) per share:
Basic$(0.28)$0.24 $(0.65)$(0.55)
Diluted$(0.28)$0.24 $(0.65)$(0.55)
Weighted average shares used in the calculation of net income (loss) per share:
Basic33,828 33,655 33,577 33,666 
Diluted33,828 33,738 33,577 33,666 
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 STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Net income (loss)$(9,316)$8,231 $(21,816)$(18,682)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment6,915 (6,181)6,013 (6,411)
Interest rate swap designated as a cash flow hedge68 (27)(42)(236)
Reclassification of stranded tax effects upon adoption of ASU 2018-02   (1,332)
Reclassification of deferred foreign currency related adjustments related to the sale of Medix   24,845 
Other comprehensive income (loss), net of tax6,983 (6,208)5,971 16,866 
Comprehensive income (loss)(2,333)2,023 (15,845)(1,816)
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, 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 



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Table of Contents
 Common StockRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
 SharesAmount
Balances, December 31, 201833,804,379 $334,215 $102,261 $(38,032)$398,444 
Reclassification of stranded tax effects for ASU 2018-02— — 1,332 (1,332) 
Vesting of restricted stock units42,130 — — — — 
Net issuance of restricted stock awards139,718 — — — — 
Stock-based compensation expense— 2,432 — — 2,432 
Repurchase of company stock  — —  
Taxes paid related to net share settlement of equity awards(47,767)(1,567)— — (1,567)
Exercise of stock options16,617 268 — — 268 
Other comprehensive loss— — — (1,875)(1,875)
Net loss— — (30,398)— (30,398)
Balances, March 31, 201933,955,077 $335,348 $73,195 $(41,239)$367,304 
Net issuance of restricted stock awards5,762 — — — — 
Employee stock purchase plan31,879 725 — — 725 
Stock-based compensation expense— 1,987 — — 1,987 
Taxes paid related to net share settlement of equity awards(274)(7)— — (7)
Exercise of stock options47,786 682 — — 682 
Other comprehensive income— — — 26,281 26,281 
Net income— — 3,486 — 3,486 
Balances, June 30, 201934,040,230 $338,735 $76,681 $(14,958)$400,458 
Net issuance of restricted stock awards27,025 — — — — 
Stock-based compensation expense— 1,851 — — 1,851 
Taxes paid related to net share settlement of equity awards(754)(22)— — (22)
Exercise of stock options23,800 519 — — 519 
Other comprehensive loss— — — (6,208)(6,208)
Net income— — 8,231 — 8,231 
Balances, September 30, 201934,090,301 $341,083 $84,912 $(21,166)$404,829 
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,
 20202019
Operating activities:
Net loss$(21,816)$(18,682)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for losses on accounts receivable1,158 3,934 
Impairment of intangible assets6,678  
Depreciation and amortization20,989 22,946 
Loss on disposal of property and equipment149 482 
Warranty reserve1,129 2,588 
Share-based compensation7,059 6,377 
Loss on commencement of sales-type leases1,861  
Impairment charge for sale of entity 24,571 
Changes in operating assets and liabilities:
Accounts receivable30,367 14,850 
Inventories(6,417)(2,074)
Prepaid expenses and other assets(11,078)(9,527)
Accounts payable(19)2,076 
Accrued liabilities(13,844)1,073 
Deferred revenue(941)2,371 
Deferred income tax1,826 (3,072)
Net cash provided by operating activities17,101 47,913 
Investing activities:
Purchase of property and equipment(7,617)(3,872)
Purchase of intangible assets (13)
Net cash used in investing activities(7,617)(3,885)
Financing activities:
Proceeds from stock option exercises and Employee Stock Purchase Program purchases658 2,193 
Repurchase of common stock(10,495) 
Taxes paid related to net share settlement of equity awards(1,936)(1,596)
Principal payments of financing lease liability(415)(404)
Proceeds from borrowings60,000  
Deferred debt issuance costs(1,175) 
Payments on borrowings(48,000)(35,000)
Net cash used in financing activities(1,363)(34,807)
Exchange rate changes effect on cash and cash equivalents3,118 (2,532)
Net increase in cash and cash equivalents11,239 6,689 
Cash and cash equivalents, beginning of period63,297 56,373 
Cash and cash equivalents, end of period$74,536 $63,062 
Supplemental disclosure of cash flow information:
Cash paid for interest$2,605 $3,727 
Cash paid for income taxes$6,489 $4,169 
Non-cash investing activities:
Property and equipment included in accounts payable$(59)$15 
Inventory transferred to property and equipment$899 $205 
Transfer of leased assets to sales-type leases$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, 2019.
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, 2019 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, 2019.
Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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
The global spread and unprecedented impact of COVID-19 is complex and rapidly-evolving. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended extensive containment and mitigation measures worldwide. The outbreak has reached all of the regions in which we do business, and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, school closures, and social distancing requirements. The global spread of COVID-19 and actions taken in response to the virus have negatively affected workforces, customers, consumer confidence, financial markets, employment rates, consumer spending, credit markets and housing demand, caused significant economic and business disruption, volatility and financial uncertainty, and led to a significant economic downturn, including in the markets where we operate.
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, 2020, as additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding 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 June 2016, the FASB issued ASU 2016-13, Credit Losses (Topic 326). This update requires financial assets measured at amortized cost, such as trade receivables and contract assets, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and
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future expectation for each pool of similar financial assets. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU 2019-05 which provides targeted transition relief guidance intended to increase comparability of financial statement information. The guidance for these pronouncements became effective on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Tax. This update includes removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in several other areas such as accounting for franchise tax (or similar tax) that is partially based on income. We early adopted the ASU in the second quarter of the current fiscal year. We early adopted the ASU in the second quarter of 2020. As a result, we recorded an additional income tax benefit of $0.9 million in the second quarter of 2020 due to the elimination of the year-to-date loss limitation rule that limited the interim period tax benefit.

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, 2020 (in thousands):

Unbilled AR, December 31, 2019$2,667 
Additions123 
Transferred to trade receivable(919)
Unbilled AR, September 30, 2020$1,871 

Deferred revenue, December 31, 2019$24,808 
Additions15,824 
Revenue recognized(16,740)
Deferred revenue, September 30, 2020$23,892 

    At September 30, 2020, the short-term portion of deferred revenue of $20.0 million and the long-term portion of $3.9 million were included in deferred revenue and other long-term liabilities, respectively, in the consolidated balance sheet. As of September 30, 2020, we expect to recognize revenue associated with deferred revenue of approximately $7.6 million in 2020, $13.1 million in 2021, $1.7 million in 2022, $1.0 million in 2023, and $0.5 million thereafter.

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):

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Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income (loss)$(9,316)$8,231 $(21,816)$(18,682)
Weighted average common shares33,828 33,655 33,577 33,666 
Dilutive effect of stock based awards 83   
Diluted shares33,828 33,738 33,577 33,666 
Basic earnings (loss) per share$(0.28)$0.24 $(0.65)$(0.55)
Diluted earnings (loss) per share$(0.28)$0.24 $(0.65)$(0.55)
Shares excluded from calculation of diluted EPS13  61 105 

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,
2020201920202019
Balance, beginning of period$7,539 $8,579 $7,384 $6,960 
Additions charged to expense209 711 1,158 3,934 
Write-offs charged against allowance(1,079)(243)(1,873)(1,847)
Balance, end of period$6,669 $9,047 $6,669 $9,047 

5 - Inventories
Inventories consist of the following (in thousands):
September 30, 2020December 31, 2019
Raw materials and subassemblies$31,484 $37,259 
Work in process2,656 1,780 
Finished goods63,180 50,521 
Total inventories97,320 89,560 
Less: Non-current inventories(17,185)(18,192)
Inventories, current$80,135 $71,368 

As of September 30, 2020 and December 31, 2019, we have classified $17.2 million and $18.2 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 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
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The following table summarizes the components of gross and net intangible asset balances (in thousands):
 September 30, 2020December 31, 2019
 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$110,139 $(12,459)$(61,380)$36,300 $108,400 $(6,035)$(55,408)$46,957 
Customer related92,178 (50)(47,737)44,391 90,351 (50)(40,527)49,774 
Trade names46,437 (3,595)(30,071)12,771 45,874 (3,237)(25,355)17,282 
Internally developed software13,281  (12,794)487 13,281  (12,606)675 
Patents2,750 (133)(2,617) 2,692 (133)(2,559) 
Service agreements1,190  (1,109)81 1,190  (1,079)111 
Definite-lived intangible assets$265,975 $(16,237)$(155,708)$94,030 $261,788 $(9,455)$(137,534)$114,799 

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.
In the third quarter of 2020 we recorded an impairment charge related to intangible assets of $6.7 million of which $6.4 million was recorded within intangibles amortization within cost of revenue and $0.3 million was recorded within intangibles amortization within operating expenses on the Company's income statement. The impairment relates to an end of life decision for an acquired tradename and technology. During the third quarter of 2020, the Company made the decision to discontinue sales of the related product rather than continuing to invest in the product.
Amortization expense related to intangible assets with definite lives was as follows (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Technology$8,162 $1,719 $11,572 $5,186 
Customer related2,204 2,159 6,468 6,509 
Trade names1,767 1,487 4,700 4,476 
Internally developed software51 359 188 1,369 
Patents 20  60 
Service agreements$10 $102 30 307 
Total amortization$12,194 $5,846 $22,958 $17,907 

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, 2020, 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 $27 thousand and $116 thousand for the three and nine months ended September 30, 2020, respectively which is recorded within our income statement as cost of goods sold.
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Expected amortization expense related to definite-lived amortizable intangible assets is as follows (in thousands):
Three months ending December 31, 2020$5,264 
202120,186 
202216,765 
202315,806 
202413,877 
202513,261 
Thereafter8,871 
Total expected amortization expense$94,030 

7 – Goodwill
The carrying amount of goodwill and the changes in the balance are as follows (in thousands):
December 31, 2019$146,367 
Foreign currency translation1,349 
September 30, 2020$147,716 

8 - Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
September 30, 2020December 31, 2019
Land$1,728 $1,719 
Buildings7,061 6,943 
Leasehold improvements7,997 8,664 
Finance lease right-of-use assets2,423 2,377 
Equipment and furniture24,184 22,819 
Computer software and hardware14,404 12,610 
Demonstration and loaned equipment3,006 11,621 
60,803 66,753 
Accumulated depreciation(36,558)(42,051)
Total$24,245 $24,702 

Depreciation expense of property and equipment was approximately $1.9 million and $5.2 million for the three and nine months ended September 30, 2020 and approximately $1.7 million and $5.3 million for the three and nine months ended September 30, 2019.

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 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.
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As of September 30, 2020, we have accrued $4.8 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,
 2020201920202019
Balance, beginning of period$5,683 $8,076 $6,404 $9,391 
Additions charged to expense215 911 1,494 3,159 
Utilizations(684)(1,560)(2,684)(4,543)
Changes in estimate related to product remediation activities(366) (366)(571)
Divestiture adjustments   (9)
Balance, end of period$4,848 $7,427 $4,848 $7,427 

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, 2020, we have two active share-based compensation plans, the 2018 Equity Incentive Plan and the 2011 Employee Stock Purchase Plan.
In January 2020, we granted performance stock unit (“PSU”) awards to our CEO and CFO. These PSUs fully vest on December 31, 2022 and have separate performance goals than the previously granted market stock units. We estimate fair value of performance stock unit awards based on the share price and other pertinent factors on the grant date. Compensation expense for performance stock unit awards are recognized on a straight-line basis over the requisite service period of the award based on expected achievement of the performance condition. Provided that the requisite service is rendered, the shares will become vested and payout will occur based on the outcome of the performance condition. Any unrecognized compensation cost shall be recognized when the award becomes vested.
The terms of all other awards granted during the nine months ended September 30, 2020 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, 2019.
Details of share-based compensation expense are as follows (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Cost of revenue$79 $37 $229 $193 
Marketing and selling475 270 1,424 773 
Research and development275 161 798 600 
General and administrative1,507 1,384 4,511 4,705 
Total$2,336 $1,852 $6,962 $6,271 

As of September 30, 2020, unrecognized compensation expense related to the unvested portion of stock options and other stock awards was approximately $13.0 million, which is expected to be recognized over a weighted average period of 2.0 years.

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11 - Other Income (Expense), net
Other income (expense), net consists of (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Interest income$(25)$93 $7 $239 
Interest expense(1,107)(1,172)(2,800)(4,167)
Foreign currency gain (loss)273 (397)(311)(860)
Other expense(88)(133)(94)(133)
Total other expense, net$