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 June 30, 2019March 31, 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 INCORPORATEDINCORPORATED
(Exact name of registrant as specified in its charter)
 
Delaware
77-0154833
Delaware
77-0154833
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
6701 Koll Center Parkway, Suite 120,, Pleasanton,, CA94566
(Address of principal executive offices) (Zip Code)
(925) (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☐
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  ☒

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)

The number of issued and outstanding shares of the registrant’s Common Stock, $0.001 par value, as of July 31, 2019April 29, 2020 was 34,069,32833,802,042.


Table of Contents
NATUS MEDICAL INCORPORATED
TABLE OF CONTENTS
Page No.
3
Page No.
3
Item 1.
3
Condensed Consolidated Balance Sheets as of June 30, 2019March 31, 2020 and December 31, 20182019 (unaudited)
3
4
5
6
87
98
2218
3028
3128
3129
3129
3129
3130
3230
3230
3332


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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)
June 30, 2019 December 31, 2018March 31, 2020December 31, 2019
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$52,009
 $56,373
Cash and cash equivalents$107,016  $63,297  
Accounts receivable, net of allowance for doubtful accounts of $8,579 in 2019 and $6,960 in 2018106,934
 127,041
Accounts receivable, net of allowance for doubtful accounts of $7,291 in 2020 and $7,384 in 2019Accounts receivable, net of allowance for doubtful accounts of $7,291 in 2020 and $7,384 in 2019101,219  115,889  
Inventories78,275
 79,736
Inventories74,808  71,368  
Prepaid expenses and other current assets28,022
 22,625
Prepaid expenses and other current assets19,671  19,195  
Total current assets265,240
 285,775
Total current assets302,714  269,749  
Property and equipment, net26,547
 22,913
Property and equipment, net26,267  24,702  
Operating lease right-of-use assets17,217
 —
Operating lease right-of-use assets14,198  15,046  
Intangible assets, net126,985
 139,453
Intangible assets, net108,346  114,799  
Goodwill147,740
 147,644
Goodwill145,028  146,367  
Deferred income tax19,187
 22,639
Deferred income tax30,176  30,355  
Other assets25,084
 19,716
Other assets20,741  21,509  
Total assets$628,000
 $638,140
Total assets$647,470  $622,527  
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:   Current liabilities:
Accounts payable$25,235
 $28,805
Accounts payable$33,284  $27,253  
Current portion of long-term debt35,000
 35,000
Current portion of long-term debt35,000  35,000  
Accrued liabilities51,605
 52,568
Accrued liabilities45,255  54,451  
Deferred revenue19,861
 17,073
Deferred revenue22,823  20,246  
Current portion of operating lease liabilities5,960
 —
Current portion of operating lease liabilities5,727  5,871  
Total current liabilities137,661
 133,446
Total current liabilities142,089  142,821  
Long-term liabilities:   Long-term liabilities:
Other liabilities21,237
 19,845
Other liabilities17,268  17,616  
Operating lease liabilities14,326
 —
Operating lease liabilities11,212  12,051  
Long-term debt, net44,570
 69,474
Long-term debt, net of current portionLong-term debt, net of current portion64,713  19,665  
Deferred income tax8,649
 16,931
Deferred income tax14,035  14,251  
Total liabilities226,443
 239,696
Total liabilities249,317  206,404  
Stockholders’ equity:   Stockholders’ equity:
Common stock, $0.001 par value, 120,000,000 shares authorized; shares issued and outstanding 34,040,230 in 2019 and 33,804,379 in 2018338,735
 334,215
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding in 2019 and 2018—
 —
Common stock, $0.001 par value, 120,000,000 shares authorized; shares issued and outstanding 33,802,133 in 2020 and 34,148,700 in 2019Common stock, $0.001 par value, 120,000,000 shares authorized; shares issued and outstanding 33,802,133 in 2020 and 34,148,700 in 2019334,296  344,476  
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding in 2020 and 2019Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding in 2020 and 2019—  —  
Retained earnings77,780
 102,261
Retained earnings84,325  87,922  
Accumulated other comprehensive loss(14,958) (38,032)Accumulated other comprehensive loss(20,468) (16,275) 
Total stockholders’ equity401,557
 398,444
Total stockholders’ equity398,153  416,123  
Total liabilities and stockholders’ equity$628,000
 $638,140
Total liabilities and stockholders’ equity$647,470  $622,527  
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 
 June 30,		 Six Months Ended 
 June 30,		 Three Months Ended   March 31,
2019 2018 2019 2018 20202019
Revenue$125,539
 $130,653
 $240,296
 $259,261
Revenue$109,383  $114,757  
Cost of revenue52,164
 52,897
 98,534
 108,266
Cost of revenue44,933  46,509  
Intangibles amortization1,746
 2,717
 3,502
 4,305
Intangibles amortization1,668  1,756  
Gross profit71,629
 75,039
 138,260
 146,690
Gross profit62,782  66,492  
Operating expenses:       Operating expenses:
Marketing and selling32,236
 33,401
 65,966
 69,273
Marketing and selling30,730  33,729  
Research and development12,769
 15,616
 25,827
 31,059
Research and development17,569  13,394  
General and administrative12,691
 23,721
 28,995
 41,169
General and administrative13,182  16,306  
Intangibles amortization3,763
 4,151
 7,549
 8,957
Intangibles amortization3,661  3,786  
Restructuring2,668
 1,938
 40,040
 2,750
Restructuring871  37,372  
Total operating expenses64,127
 78,827
 168,377
 153,208
Total operating expenses66,013  104,587  
Income (loss) from operations7,502
 (3,788) (30,117) (6,518)
Loss from operationsLoss from operations(3,231) (38,095) 
Other expense, net(1,200) (2,398) (3,312) (4,218)Other expense, net(1,494) (2,112) 
Income (loss) before provision for (benefit from) income tax6,302
 (6,186) (33,429) (10,736)
Provision for (benefit from) income tax2,114
 (3,609) (7,616) (5,009)
Net income (loss)4,188
 $(2,577) $(25,813) $(5,727)
Net income (loss) per share:       
Loss before provision for income tax benefitLoss before provision for income tax benefit(4,725) (40,207) 
Benefit from income taxesBenefit from income taxes(1,128) (9,809) 
Net lossNet loss(3,597) $(30,398) 
Net loss per share:Net loss per share:
Basic$0.12
 $(0.08) $(0.77) $(0.17)Basic$(0.11) $(0.90) 
Diluted$0.12
 $(0.08) $(0.77) $(0.17)Diluted$(0.11) $(0.90) 
Weighted average shares used in the calculation of net income (loss) per share:       
Weighted average shares used in the calculation of net loss per share:Weighted average shares used in the calculation of net loss per share:
Basic33,639
 32,859
 33,630
 32,809
Basic33,800  33,590  
Diluted33,690
 32,859
 33,630
 32,809
Diluted33,800  33,590  
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)LOSS
(unaudited)
(in thousands, except per share amounts)

 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Net income (loss)$4,188
 $(2,577) $(25,813) $(5,727)
Other comprehensive income (loss), net of tax:       
Foreign currency translation adjustment1,436
 (13,253) (439) (9,636)
Reclassification of stranded tax effects upon adoption of ASU 2018-02—
 —
 (1,332) —
Reclassification of deferred foreign currency related adjustments related to the sale of Medix (See Footnote 17 - Sale of Certain Subsidiary Assets)
24,845
 —
 24,845
 —
Other comprehensive income (loss), net of tax26,281
 (13,253) 23,074
 (9,636)
Comprehensive income (loss)30,469
 (15,830) (2,739) (15,363)
 Three Months Ended   March 31,
 20202019
Net loss$(3,597) $(30,398) 
Other comprehensive loss, net of tax:
Foreign currency translation adjustment(4,018) (1,797) 
Interest rate swap designated as a cash flow hedge(175) (78) 
Reclassification of stranded tax effects upon adoption of ASU 2018-02—  (1,332) 
Other comprehensive loss, net of tax(4,193) (3,207) 
Comprehensive loss(7,790) (33,605) 
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
Loss		Stockholders’
Equity
SharesAmount
Balances, December 31, 2019Balances, December 31, 201934,148,700  $344,476  $87,922  $(16,275) $416,123  
Vesting of restricted stock unitsVesting of restricted stock units14,033  —  —  —  —  
Net issuance of restricted stock awardsNet issuance of restricted stock awards162,212  —  —  —  —  
Stock-based compensation expenseStock-based compensation expense—  2,198  —  —  2,198  
Repurchase of company stockRepurchase of company stock(465,117) (10,495) —  —  (10,495) 
Taxes paid related to net share settlement of equity awardsTaxes paid related to net share settlement of equity awards(57,695) (1,883) —  —  (1,883) 
Other comprehensive lossOther comprehensive loss—  —  —  (4,193) (4,193) 
Net lossNet loss—  —  (3,597) —  (3,597) 
Balances, March 31, 2020Balances, March 31, 202033,802,133  $334,296  $84,325  $(20,468) $398,153  
Common Stock Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Stockholders’
Equity
Shares Amount 
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
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—
 —
 (30,001) —
 (30,001)
Balances, March 31, 201933,955,077
 $335,348
 $73,592
 $(41,239) $367,701
Vesting of restricted stock units—
 —
 —
 —
 —
Net issuance of restricted stock awards5,762
 —
 —
 —
 —
Employee stock purchase plan31,879
 725
 —
 —
 725
Stock-based compensation expense—
 1,987
 —
 —
 1,987
Repurchase of company stock—
 —
 —
 —
 —
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—
 —
 4,188
 —
 4,188
Balances, June 30, 201934,040,230
 $338,735
 $77,780
 $(14,958) $401,557



 Common StockRetained
Earnings		Accumulated
Other
Comprehensive
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 income—  —  —  (1,875) (1,875) 
Net loss—  —  (30,398) —  (30,398) 
Balances, March 31, 201933,955,077  $335,348  $73,195  $(41,239) $367,304  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except per share amounts)

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 Common Stock Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Stockholders’
Equity
 Shares Amount 
Balances, December 31, 201733,134,101
 $316,577
 $129,115
 $(23,595) $422,097
Cumulative-effect adjustment for ASU 2016-16—
 —
 (3,919) —
 (3,919)
Vesting of restricted stock units100
 —
 —
 —
 —
Net issuance of restricted stock awards239,649
 —
 —
 —
 —
Stock-based compensation expense—
 2,361
 —
 —
 2,361
Repurchase of company stock(147,893) (4,736) —
 —
 (4,736)
Taxes paid related to net share settlement of equity awards(600) (19) —
 —
 (19)
Exercise of stock options46,173
 577
 —
 —
 577
Other comprehensive income—
 —
 —
 3,617
 3,617
Net loss—
 —
 (3,148) —
 (3,148)
Balances, March 31, 201833,271,530
 $314,760
 $122,048
 $(19,978) $416,830
Vesting of restricted stock units166
 —
 —
 —
 —
Net issuance of restricted stock awards21,599
 —
 —
 —
 —
Employee stock purchase plan30,971
 870
 —
 —
 870
Stock-based compensation expense—
 3,219
 —
 —
 3,219
Repurchase of company stock(25,652) (893) —
 —
 (893)
Taxes paid related to net share settlement of equity awards(8,627) (306) —
 —
 (306)
Exercise of stock options300,350
 3,645
 —
 —
 3,645
Other comprehensive income—
 —
 —
 (13,253) (13,253)
Net loss—
 —
 (2,577) —
 (2,577)
Balances, June 30, 201833,590,337
 $321,295
 $119,471
 $(33,231) $407,535

The accompanying notes are an integral partTable of these unaudited condensed consolidated financial statements.Contents


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended 
 June 30,		 Three Months Ended   March 31,
2019 2018 20202019
Operating activities:   Operating activities:
Net loss$(25,813) $(5,727)Net loss$(3,597) $(30,398) 
Adjustments to reconcile net loss to net cash provided by operating activities:   Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for losses on accounts receivable960
 4,089
Provision for losses on accounts receivable1,564  1,797  
Loss on commencement of sales-type leasesLoss on commencement of sales-type leases295  —  
Depreciation and amortization15,427
 16,694
Depreciation and amortization6,994  7,711  
Loss on disposal of property and equipment482
 160
Loss on disposal of property and equipment42  179  
Warranty reserve1,677
 975
Warranty reserve704  354  
Share-based compensation4,462
 5,632
Share-based compensation2,291  2,554  
Impairment charge for sale of entity24,571
 —
Impairment charge for sale of entity—  24,571  
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:
Accounts receivable19,170
 2,064
Accounts receivable14,570  14,358  
Inventories(2,475) (2,483)Inventories(3,443) (4,476) 
Prepaid expenses and other assets(11,060) (15,141)Prepaid expenses and other assets(1,060) (7,367) 
Accounts payable(3,517) (364)Accounts payable6,038  (3,436) 
Accrued liabilities(2,620) 3,414
Accrued liabilities(9,329) (1,319) 
Deferred revenue2,739
 1,687
Deferred revenue2,190  1,982  
Deferred income tax44
 326
Deferred income tax103  (17) 
Net cash provided by operating activities24,047
 11,326
Net cash provided by operating activities17,362  6,493  
Investing activities:   Investing activities:
Acquisition of businesses, net of cash acquired—
 151
Purchase of property and equipment(2,919) (3,387)Purchase of property and equipment(3,575) (2,461) 
Purchase of intangible assets(13) (298)
Net cash used in investing activities(2,932) (3,534)Net cash used in investing activities(3,575) (2,461) 
Financing activities:   Financing activities:
Proceeds from stock option exercises and Employee Stock Purchase Program purchases1,674
 5,092
Proceeds from stock option exercises and Employee Stock Purchase Program purchases—  268  
Repurchase of common stock—
 (5,630)Repurchase of common stock(10,495) —  
Taxes paid related to net share settlement of equity awards(1,573) (326)Taxes paid related to net share settlement of equity awards(1,883) (1,567) 
Principal payments of financing lease liability(265) —
Principal payments of financing lease liability(133) (165) 
Payment of contingent consideration related to a business combination—
 (147)
Proceeds from borrowingsProceeds from borrowings60,000  —  
Payments on borrowings(25,000) (35,000)Payments on borrowings(15,000) (5,000) 
Net cash used in financing activities(25,164) (36,011)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities32,489  (6,464) 
Exchange rate changes effect on cash and cash equivalents(315) (5,823)Exchange rate changes effect on cash and cash equivalents(2,557) (518) 
Net decrease in cash and cash equivalents(4,364) (34,042)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents43,719  (2,950) 
Cash and cash equivalents, beginning of period56,373
 88,950
Cash and cash equivalents, beginning of period63,297  56,373  
Cash and cash equivalents, end of period$52,009
 $54,908
Cash and cash equivalents, end of period$107,016  $53,423  
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Cash paid for interest$3,071
 $2,966
Cash paid for interest$637  $1,347  
Cash paid for income taxes$5,328
 $7,234
Cash paid for income taxes$3,492  $1,224  
Non-cash investing activities:   Non-cash investing activities:
Property and equipment included in accounts payable$35
 $93
Property and equipment included in accounts payable$131  $141  
Inventory transferred to property and equipment$589
 $293
Inventory transferred to property and equipment$196  $143  
Transfer of leased assets to sales-type leasesTransfer of leased assets to sales-type leases$663  $—  
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 (“Natus,we,” “us,” or the “Company”“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 the Company’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019.
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. The Company hasWe have made certain reclassifications to the prior period to conform to current period presentation. The consolidated balance sheet as of December 31, 20182019 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 the Company’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Operating results for the three and six months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020. The accompanying condensed consolidated financial statements include theour accounts of the Company and itsour wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Recent Adopted Accounting PronouncementsImpact of COVID-19 on Our Financial Statements
In February 2016,The global spread and unprecedented impact of COVID-19 is complex and rapidly-evolving. On March 11, 2020, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires lease assetsWorld Health Organization declared COVID-19 a global pandemic and lease liabilities arising from operating leases to be presented in the statement of financial position. Qualitative along with specific quantitative disclosures are required by lesseesrecommended extensive containment and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. In July 2018, FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which affects narrow aspectsmitigation measures worldwide. The outbreak has reached all of the guidance issuedregions in which we do business, and governmental authorities around the amendments in Update 2016-02. In July 2018,world have implemented numerous measures attempting to contain and mitigate the FASB also issued ASU 2018-11, Targeted Improvements. The amendments in ASU 2018-11 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02.
The new standard provides a number of optional practical expedients in transition. The Company elected the 'package of practical expedients,' which permits an entity to not reassess prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company has not elected the use-of-hindsight practical expedient or the practical expedient pertaining to land easements; the latter of which is not applicable to the Company. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term.
The new standard became effective for the Company on January 1, 2019. The Company adopted the new standard using the modified retrospective transition method with the effective date as the date of initial application. Upon adoption, the Company recognized additional new lease assets of approximately $19.5 million and additional lease liabilities of approximately $22.3 million as of January 1, 2019. The standard did not materially affect consolidated net earnings. By electing the effective date as the date of initial application, financial performance has not been adjusted and the disclosures required under the new standard have not been provided for periods prior to January 1, 2019. See Significant Accounting Policies and Note 14 for additional discussion and disclosure.
The adoption of the new standard did not impact the Company's liquidity or debt-covenant compliance under its current agreements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for the Company's annual and any interim goodwill impairment tests performed on or after January 1, 2020. The Company elected to early adopt. The adoption of ASU 2017-04 did not have an impact on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This update permits a company to reclassify its disproportionate income tax effects of the Tax Cutsvirus, including travel bans and Jobs Actrestrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of 2017 (the “2017 Act”)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 items within accumulated other comprehensive income (“AOCI”)our current assessment of these estimates there was not a material impact to retained earnings (termed “stranded tax effects”). Only the stranded tax effects resulting from the 2017 Act are eligible for reclassification. The ASU is effectiveour consolidated financial statements as of and for the Company on January 1, 2019. Upon adoption,quarter ended March 31, 2020, as additional information becomes available to us, our future assessment of these estimates, including our expectations at the Company reclassified its stranded tax effects resulting fromtime regarding the 2017 Actduration, scope and severity of $1.3 million, resultingthe pandemic, as well as other factors, could materially and adversely impact our consolidated financial statements in a decreasefuture reporting periods. For further information, refer to AOCI and an increase to retained earnings asPart II - Item 1A - "Risk Factors" of January 1, 2019.this 10-Q.
Recent Issued
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
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losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset.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 both of these iswas effective beginning January 1, 2020. The Company is evaluating theadoption of ASU 2016-13 did not have a material impact if any, that these pronouncements will have on itsour consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 813)820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This update amends Topic 820 to add, remove, and clarify disclosure requirements related to fair value measurement disclosure. For calendar year-end entities, the update will beis effective for annual periods beginning January 1, 2020, and interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period. As the standard relates only to disclosures, the Company doesThe adoption of ASU 2018-13 did not expect the adoption to have a materialan impact on theour consolidated financial statements and is still evaluating if it will early adopt.
Significant Accounting Policies
Leases
The Company determines if an arrangement is a lease at inception of the lease. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit borrowing rate, generally the Company uses an incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the lease commencement date. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company's lease terms may include options to exclude or terminate the lease when it is reasonably certain that they will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term.
Operating leases are included in operating lease ROU assets, accrued liabilities, and operating lease liabilities in the Company's consolidated balance sheet. Finance leases are included in property and equipment, accrued liabilities, and other liabilities in the consolidated balance sheet.

The Company has lease agreements with lease and non-lease components, which are generally accounted for based on the type of asset. For real estate and telecom leases, the Company accounts for these components separately. For equipment leases, such as office equipment and vehicles, the Company accounts for the lease and non-lease components as a single lease component.
Assets and Liabilities Held for Salestatements. 
The Company considers assets and liabilities to be held for sale when all of the following criteria are met:
Management approves and commits to a formal plan to sell the asset or disposal group;
The assets or disposal group is available for immediate sale in its present condition;
An active program to locate a buyer and other actions required to complete the sale have been initiated;
The sale of the asset or disposal group is expected to be completed within one year;
The asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to the current fair value; and
It is unlikely that significant changes will be made to the plan.
Assets held for sale are not depreciated. Upon designation of the asset or disposal group as held for sale, the Company records the asset or disposal group at the lower of its carrying value or its estimated fair value, less estimated costs of sale. The Company considers deferrals accumulated in other comprehensive income, including cumulative currency translation adjustments, in the total carrying value of the disposal group in accordance with GAAP. Any loss resulting from this measurement is recognized on the Company's income statement as a restructuring operating expense in the period in which the held for sale criteria are met and gains, if any are not recognized until the date of sale. The Company assesses the fair value of assets held for sale less any costs to sell each reporting period it remains classified as held for sale and reports any reduction in fair value as an adjustment to the carrying value of the assets held for sale.
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 sixthree months ended June 30, 2019March 31, 2020 (in thousands):
Unbilled AR, December 31, 2018$3,012
Additions420
Transferred to Trade Receivable(667)
Unbilled AR, June 30, 2019$2,765
Deferred Revenue, December 31, 2018$21,410
Additions14,242
Revenue Recognized(11,502)
Deferred Revenue, June 30, 2019$24,150

Unbilled AR, December 31, 2019$2,667 
Additions106 
Transferred to trade receivable(153)
Unbilled AR, March 31, 2020$2,620 

Deferred Revenue, December 31, 2019$24,808 
Additions10,575 
Revenue recognized(8,362)
Deferred Revenue, March 31, 2020$27,021 

At June 30, 2019,March 31, 2020, the short-term portion of deferred revenue of $19.9$22.8 million and the long-term portion of $4.3$4.2 million were included in deferred revenue and other long-term liabilities respectively, in the consolidated balance sheet. As of June 30, 2019, the Company expectsMarch 31, 2020, we expect to recognize revenue associated with deferred revenue of

approximately $12.8 million in 2019, $8.3$19.3 million in 2020, $1.5$5.3 million in 2021, $0.9$1.3 million in 2022, $0.8 million in 2023, and $0.7$0.3 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):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Net income (loss)$4,188
 $(2,577) $(25,813) $(5,727)
Weighted average common shares33,639
 32,859
 33,630
 32,809
Dilutive effect of stock based awards51
 —
 —
 —
Diluted Shares33,690
 32,859
 33,630
 32,809
Basic income (loss) per share$0.12
 $(0.08) $(0.77) $(0.17)
Diluted income (loss) per share$0.12
 $(0.08) $(0.77) $(0.17)
Shares excluded from calculation of diluted EPS—
 382
 103
 387
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Three Months Ended   March 31,
20202019
Net loss$(3,597) $(30,398) 
Weighted average common shares33,800  33,590  
Dilutive effect of stock based awards—  —  
Diluted Shares33,800  33,590  
Basic loss per share$(0.11) $(0.90) 
Diluted loss per share$(0.11) $(0.90) 
Shares excluded from calculation of diluted EPS85  119  


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 for the three months ended March 31, 2020 (in thousands):
Three Months Ended   March 31,
20202019
Balance, beginning of period$7,384  $6,960  
Additions charged to expense1,564  1,797  
Write-offs charged against allowance(557) (726) 
Recoveries of amounts previously written off(1,100) (580) 
Balance, end of period$7,291  $7,451  

5 - Inventories
Inventories consist of the following (in thousands):
March 31, 2020December 31, 2019
Raw materials and subassemblies$35,516  $37,259  
Work in process2,270  1,780  
Finished goods54,186  50,521  
Total inventories91,972  89,560  
Less: Non-current inventories(17,164) (18,192) 
Inventories, current$74,808  $71,368  
 June 30, 2019 December 31, 2018
Raw materials and subassemblies$34,310
 $31,459
Work in process2,603
 2,424
Finished goods62,650
 63,932
Total inventories99,563
 97,815
Less: Non-current inventories(21,288) (18,079)
Inventories, current$78,275
 $79,736

As of June 30, 2019March 31, 2020 and December 31, 2018, the Company has2019, we have classified $21.3$17.2 million and $18.1$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 the Companywe no longer sells,sell, inventory purchased for lifetime buys, and inventory that is turning over at a slow rate. The Company believesWe believe these inventories will be utilized for their intended purpose.

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5
6 – Intangible Assets
The following table summarizes the components of gross and net intangible asset balances (in thousands):

 March 31, 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$107,716  $(6,029) $(56,827) $44,860  $108,400  $(6,035) $(55,408) $46,957  
Customer related89,191  (50) (42,071) 47,070  90,351  (50) (40,527) 49,774  
Trade names45,644  (3,214) (26,722) 15,708  45,874  (3,237) (25,355) 17,282  
Internally developed software13,281  —  (12,674) 607  13,281  —  (12,606) 675  
Patents2,675  (133) (2,542) —  2,692  (133) (2,559) —  
Service agreements1,190  —  (1,089) 101  1,190  —  (1,079) 111  
Definite-lived intangible assets$259,697  $(9,426) $(141,925) $108,346  $261,788  $(9,455) $(137,534) $114,799  
 June 30, 2019 December 31, 2018
 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$110,516
 $(6,636) $(53,225) $50,655
 $111,198
 $(6,768) $(50,046) $54,384
Customer related99,050
 (50) (44,523) 54,477
 99,440
 (1,961) (38,574) 58,905
Trade names47,047
 (3,831) (22,714) 20,502
 47,217
 (4,397) (19,250) 23,570
Internally developed software16,282
 —
 (15,179) 1,103
 16,264
 —
 (14,164) 2,100
Patents2,953
 (132) (2,801) 20
 2,718
 (133) (2,524) 61
Service Agreements1,190
 —
 (962) 228
 1,190
 —
 (757) 433
Definite-lived intangible assets$277,038
 $(10,649) $(139,404) $126,985
 $278,027
 $(13,259) $(125,315) $139,453

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, 1213 years for patents, 2 years for service agreements and 11 years weighted average in total.
Internally developed software consists of $14.1$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   March 31,
 20202019
Technology$1,712  $1,738  
Customer related2,140  2,183  
Trade names1,466  1,498  
Internally developed software69  504  
Patents—  20  
Service agreements$10  $102  
Total amortization$5,397  $6,045  
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Technology$1,729
 $2,558
 $3,467
 $4,378
Customer related2,167
 2,302
 4,350
 5,183
Trade names1,491
 1,456
 2,989
 3,082
Internally developed software506
 528
 1,010
 1,058
Patents20
 22
 40
 43
Service Agreements$103
 $486
 205
 486
Total amortization$6,016
 $7,352
 $12,061
 $14,230

The amortization expense amounts shown above include internally developed software not held for sale of $0.5 million$24.0 thousand and $1.0 million$459.0 thousand for the three and six months ended June 30,March 31, 2020 and March 31, 2019, respectively which is recorded within the Company'sour income statement as a general and administrative operating expense.

Expected amortization expense related to definite-lived amortizable intangible assets is as follows (in thousands):
Six months ending December 31, 2019$11,333
202021,805
202120,918
202217,473
202316,500
202414,592
Thereafter24,364
Total expected amortization expense$126,985
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Nine months ending December 31, 2020$16,062  
202120,540  
202217,153  
202316,199  
202414,333  
202513,676  
Thereafter10,383  
Total expected amortization expense$108,346  


67 – Goodwill

The carrying amount of goodwill and the changes in the balance are as follows (in thousands):
December 31, 2019$146,367 
Foreign currency translation(1,339)
March 31, 2020$145,028 
December 31, 2018$147,644
Foreign currency translation96
June 30, 2019$147,740


78 - Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
March 31, 2020December 31, 2019
Land$1,719  $1,719  
Buildings6,878  6,943  
Leasehold improvements8,697  8,664  
Finance lease right-of-use assets2,548  2,377  
Equipment and furniture23,496  22,819  
Computer software and hardware13,750  12,610  
Demonstration and loaned equipment11,871  11,621  
68,959  66,753  
Accumulated depreciation(42,692) (42,051) 
Total$26,267  $24,702  
 June 30, 2019 December 31, 2018
Land$1,720
 $1,828
Buildings6,778
 7,036
Leasehold improvements7,616
 4,649
Finance lease right-of-use assets2,955
 —
Equipment and furniture23,725
 23,487
Computer software and hardware12,635
 12,803
Demonstration and loaned equipment12,201
 12,843
 67,630
 62,646
Accumulated depreciation(41,083) (39,733)
Total$26,547
 $22,913

Depreciation expense of property and equipment was approximately $1.8 million and $3.3$1.7 million for the three and six months ended June 30, 2019March 31, 2020 and approximately $1.4 million and $2.4$1.5 million for the three and six months ended June 30, 2018.March 31, 2019.

89 - Reserve for Product Warranties
The Company providesWe provide a warranty for products that is generally one year in length, but inlength. In some cases, regulations may require us to provide repair or remediation beyond the typical warranty period. If any of the products contain defects, the Companywe may incur additional repair and remediation costs. Service, for domestic customers is provided by Company-owned service centers that perform all service, repair and calibration services. Service for international customers isservices are provided by a combination of Company-ownedour owned facilities and vendors on a contract basis, and distributors.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. The Company considersWe 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 servicing is performedcosts are incurred to honor existing warranty and regulatory obligations.
As of June 30, 2019, the Company hasMarch 31, 2020, we have accrued $8.1$5.8 million for product related warranties, which includes $2.9 million of estimated costs to bring certain products into regulatory compliance. The Company'swarranties. Our estimate of these costs is primarily based upon the number of units outstanding that may require repair and costs associated with shipping.
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The details of activity in the warranty reserve are as follows (in thousands):

 Three Months Ended   March 31,
 20202019
Balance, beginning of period$6,404  $9,391  
Additions charged to expense704  609  
Utilizations(1,271) (1,511) 
Changes in estimate related to product remediation activities—  (255) 
Divestiture adjustments—  (9) 
Balance, end of period$5,837  $8,225  
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Balance, beginning of period$8,225
 $9,068
 $9,391
 $10,995
Additions charged to expense1,639
 2,100
 2,248
 2,335
Utilizations(1,473) (255) (2,983) (1,057)
Changes in estimate related to product remediation activities(315) —
 (571) (1,360)
Divestiture adjustments—
 —
 (9) —
Balance, end of period$8,076
 $10,913
 $8,076
 $10,913

The Company's estimatesOur 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.

910 - Share-Based Compensation
As of June 30, 2019, the Company has twoMarch 31, 2020, we have 2 active share-based compensation plans, the 2018 Equity Incentive Plan and the 2011 Employee Stock Purchase Plan.
In January 2019, the Company2020, we granted market stock unit (“MSU”) awards to certain employees. These MSUs fully vest on December 31, 2021 and have separate market performance goals than the 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 Company grants. Each MSU represents the right to one sharepreviously granted market stock units. We estimate fair value of common stock. The actual number of MSUs which will be eligible to vest will beperformance stock unit awards based on the share price and other pertinent factors on the grant date. Compensation expense for performance of Natus' stock priceunit awards are recognized on a straight-line basis over the vesting period. The maximum number of MSUs which will be eligible to vest are 200%requisite service period of the MSUs initially granted. A Monte Carlo simulation model was used to estimate the fair valueaward based on expected achievement of the MSUs as of their grant date. This model simulatesperformance condition. Provided that the stock price movementsrequisite service is rendered, the shares will become vested and payout will occur based on the outcome of the Company using certain assumptions, includingperformance condition. Any unrecognized compensation cost shall be recognized when the stock price of the company.award becomes vested.
The terms of all other awards granted during the sixthree months ended June 30, 2019March 31, 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, 2018.2019.
Details of share-based compensation expense are as follows (in thousands):
 Three Months Ended   March 31,
 20202019
Cost of revenue$75  $67  
Marketing and selling469  245  
Research and development254  230  
General and administrative1,400  1,890  
Total$2,198  $2,432  
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Cost of revenue$89
 $71
 $156
 $139
Marketing and selling209
 199
 439
 396
Research and development258
 272
 503
 549
General and administrative1,431
 2,728
 3,321
 4,548
Total$1,987
 $3,270
 $4,419
 $5,632

As of June 30, 2019,March 31, 2020, unrecognized compensation expense related to the unvested portion of stock options and other stock awards was approximately $13.5$16.4 million, which is expected to be recognized over a weighted average period of 2.52.4 years.


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11 - Other Income (Expense), net
Other income (expense), net consists of (in thousands):
 Three Months Ended   March 31,
 20202019
Interest income$24  $20  
Interest expense(717) (1,527) 
Foreign currency loss(801) (598) 
Other expense—  (7) 
Total other expense, net$(1,494) $(2,112) 
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Interest income$127
 $(5) $147
 $5
Interest expense(1,468) (1,641) (2,995) (3,601)
Foreign currency gain (loss)134
 (838) (463) (234)
Other expense7
 86
 (1) (388)
Total other expense, net$(1,200) $(2,398) $(3,312) $(4,218)


1112 - Income Taxes
The Company'sOur 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, the Company updateswe update the estimated annual effective tax rate which is subject to significant volatility due to several factors, including the Company'sour 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 the Company iswe 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. For the three months ended March 31, 2020, we have included our best estimate of the impact of the COVID-19 pandemic to the estimated annual effective tax rate. Our estimated annual effective tax rate could be impacted by any changes in facts and circumstances or new information related to the COVID-19 pandemic.
The CompanyWe recorded an expensea benefits from income tax of $2.1$1.1 million and a benefit from income tax of $7.6$9.8 million for the three and six months ended June 30,March 31, 2020 and March 31, 2019, respectively. The effective tax rate was 33.5%23.9% and 22.8%24.4% for the three and six months ended June 30,March 31, 2020 and March 31, 2019 respectively. Of the $7.6$9.8 million benefit from income tax recorded for the sixthree months ended June 30,March 31, 2019, $8.2 million relates to the tax accounting effects of the sale of Medix.
The Company recorded a benefit for income tax of $3.6 million and $5.0 million for the three and six months ended June 30, 2018, respectively. The effective tax rate was 58.3% and 46.7% for the three and six months ended June 30, 2018, respectively.
The decrease in the effective tax rate for the three and six months ended June 30, 2019March 31, 2020 compared with the three and six months ended June 30, 2018March 31, 2019 is primarily attributable to thechanges in distribution of income among jurisdictions with varying tax accounting effects of the sale of Medix. The Company's effective tax rate for the three and six months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the tax accounting effects of the sale of Medix.rates. Other significant factors that impact the effective tax rate are Federal and California research and development credits, non-deductible executive compensation expenses, and inclusions related to global intangible low-taxed income.
The CompanyWe recorded $0.2 million of net tax expenseno changes related to unrecognized tax benefits for the three and six months ended June 30, 2019, primarily due to the increase in uncertain tax positions related to the prior year.March 31, 2020. Within the next twelve months, it is possible that the uncertain tax benefit may change with a range of approximately zero0 to $3.8$2.4 million. The Company'sOur tax returns remain open to examination as follows: U.S Federal, 2016 through 2019, U.S. states, 2015 through 2018, U.S. states, 2014 through 2018,2019, and significant foreign jurisdictions, generally 20142015 through 2018.2019.

1213 - Debt and Credit Arrangements
The Company has        We have a Credit Agreement with JP Morgan Chase Bank ("JP Morgan"), Citibank, NA (“Citibank”), and Wells Fargo Bank, National Association (“Wells Fargo”). The Credit Agreement provides for an aggregate $225.0 million of secured revolving credit facility. The Credit Agreement contains covenants, including covenants relating to maintenance of books and records, financial reporting and notification, compliance with laws, maintenance of properties and insurance, and limitations on guaranties, investments, issuance of debt, lease

obligations and capital expenditures, and is secured by virtually all of the Company'sour assets. The Credit Agreement provides for events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, bankruptcy or insolvency events and the occurrence of the event has a material adverse effect. The Company hasWe have no other significant credit facilities.

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In addition to the customary restrictive covenants listed above, the Credit Agreement also contains financial covenants that require the Companyus to maintain a certain leverage ratio and fixed charge coverage ratio, each as defined in the Credit Agreement:

•
•Leverage Ratio, as defined, to be no higher than 2.75 to 1.00.2.75 to 1.00.
•
Interest Coverage Ratio, as defined, to be at least 1.75 to 1.00 at all times.

•Interest Coverage Ratio, as defined, to be at least 1.75 to 1.00 at all times.
At June 30, 2019, the Company wasMarch 31, 2020, we were in compliance with the Leverage Ratio and the Interest Coverage Ratio covenants as defined in the Credit Agreement.
        During the first quarter of 2020 we drew an additional $60.0 million on our credit line as a precaution to ensure we have the necessary capital to continue to reliably serve our customers during an extended period of uncertainty. At June 30, 2019, the CompanyMarch 31, 2020, we had $80.0$100.0 million outstanding under the Credit Agreement.

Pursuant to the terms of the Credit Agreement, the outstanding principal balance will bear interest at either (a) a fluctuating rate per annum equal to the Applicable Rate, as defined in the Credit Agreement, depending on our leverage ratio plus the higher of (i) the federal funds rate plus one-half of one percent per annum; (ii) the prime rate in effect on such a day; and (iii) the LIBOR rate plus one percent, or (b) a fluctuating rate per annum of LIBOR Rate plus the Applicable Rate, which ranges between 1.75% to 2.75%. The effective interest rate during the sixthree months ended June 30, 2019March 31, 2020 was 4.74%3.64%. The Credit Agreement matures on September 23, 2021, at which time all principal amounts outstanding under the Credit Agreement will be due and payable. As of June 30, 2019,March 31, 2020, we have classified $35.0 million of the $80.0$100.0 million outstanding as short-term on our balance sheet due to our intent to repay this portion over the next twelve months.

Long-term debt consists of (in thousands):

 June 30, 2019 December 31, 2018
Revolving credit facility$80,000
 $105,000
Debt issuance costs(430) (526)
Less: current portion of long-term debt35,000
 35,000
Total long-term debt$44,570
 $69,474

 March 31, 2020December 31, 2019
Revolving credit facility$100,000  $55,000  
Debt issuance costs(287) (335) 
Less: current portion of long-term debt35,000  35,000  
Total long-term debt$64,713  $19,665  
Maturities of long-term debt as of June 30, 2019March 31, 2020 are as follows (in thousands):
 March 31, 2020December 31, 2019
2020$—  $—  
2021100,000  55,000  
2022—  —  
Thereafter—  —  
Total$100,000  $55,000  
 June 30, 2019 December 31, 2018
2019$—
 $—
2020—
 —
202180,000
 105,000
Thereafter—
 —
Total$80,000
 $105,000
As of June 30, 2019,March 31, 2020, the carrying value of total debt approximated fair market value.

1314 - Financial Instruments and Derivatives
The Company uses        We use interest rate swap derivative instruments to reduce earnings volatility and manage cash flow exposure resulting from changes in interest rates. These interest rate swaps apply a fixed interest rate on a portion of the Company'sour expected LIBOR-indexed floating-rate borrowings. The CompanyWe held the following interest rate swaps as of June 30, 2019March 31, 2020 (in thousands):


Hedged ItemCurrent Notional AmountDesignation DateEffective DateTermination DateFixed Interest RateFloating RateEstimated Fair Value
1-month USD LIBOR Loan$25,000
May 31, 2018June 1, 2018September 23, 20212.611%1-month USD LIBOR$384
Total interest rate derivatives designated as cash flow hedge$25,000
     $384


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The Company
Hedged ItemCurrent Notional AmountDesignation DateEffective DateTermination DateFixed Interest RateFloating RateEstimated Fair Value
1-month USD LIBOR Loan$25,000  May 31, 2018June 1, 2018September 23, 20212.611%1-month USD LIBOR$545  
Total interest rate derivatives designated as cash flow hedge$25,000  $545  

        We have designated these derivative instruments as cash flow hedges. The Company assessesWe assess the effectiveness of these derivative instruments and records the change in the fair value of a derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive income (“AOCI”), net of tax. Once the hedged item affects earnings, the effective portion of any gain or loss will be reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Companywe will reclassify the amount of any gain or loss on the related cash flow hedge to interest expense at that time.
As of June 30, 2019, the Company estimatesMarch 31, 2020, we estimate that approximately $136.0$281.0 thousand of losses associated with the cash flow hedge, net of tax, could be reclassified from AOCI into earnings within the next twelve months.

14 - Leases
The Company has operating and finance leases for offices, warehouses, and certain equipment. The leases have remaining lease terms of one to eight years, some of which include options to extend the leases for up to ten years. The Company's leases do not have any residual value guarantees or any restrictions or covenants imposed by leases.

Components of lease cost were as follows (in thousands):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2019
Operating lease cost$1,659
 $3,424
Finance lease cost:

 

Amortization of right-of-use assets (principal payments)100
 265
Interest on lease liabilities14
 36
Short-term lease cost13
 51
Variable lease cost356
 1,240
Sublease income(56) (89)
Total lease cost$2,086
 $4,927
Supplemental cash flow information related to leases was as follows (in thousands):
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2019
Cash paid for amounts included in the measurement of lease liabilities:

  
Operating cash flows from operating leases$3,265
 $6,757
Operating cash flows from finance leases29
 66
Financing cash flows from finance leases100
 265
Right-of-use assets obtained in exchange for lease obligations:

  
Operating leases601
 1,721
Finance leases17
 105


Supplemental balance sheet information related to leases was as follows (in thousands):

 June 30, 2019
Operating Leases

Operating lease right-of-use assets$17,217
Current portion of operating lease liabilities
$5,960
Operating lease liabilities14,326
Total operating lease liabilities$20,286
  
Finance Leases 
Property and equipment, gross$2,955
Accumulated amortization1,637
Property and equipment, net$1,318
Accrued liabilities$483
Other liabilities888
Total finance lease liabilities$1,371
  
Weighted Average Remaining Lease Term 
Operating leases4.1 years
Finance leases3.2 years
Weighted Average Discount Rate 
Operating leases5.3%
Finance leases5.1%


As of June 30, 2019, future minimum lease payments included in the measurement of lease liabilities on the consolidated balance sheet, for the following five fiscal years and thereafter, were as follows (in thousands):

Year ending December 31,Operating Leases Finance Leases
2019$6,849
 $529
20205,727
 429
20214,337
 340
20222,714
 144
20232,049
 24
Thereafter1,283
 2
Total lease payments22,959
 1,468
Less imputed interest(2,673) (97)
Total$20,286
 $1,371


As the Company elected to apply the provisions of Topic 842 on a prospective basis, the following comparative period disclosure is being presented in accordance with Topic 840. The future minimum commitments under the Company’s leases as of December 31, 2018 were as follows (in thousands):
Year ending December 31,Operating Leases
2019$8,092
20206,951
20215,290
20223,423
20232,426
Thereafter1,365
Total minimum lease payments$27,547



15 - Segment, Customer and Geographic Information
The Company operatesWe operate in one1 reportable segment in which the Company provideswe provide medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages.
End-user customer base includes hospitals, clinics, laboratories, physicians, audiologists, and governmental agencies. Most of the Company'sour international sales are to distributors who resell products to end users or sub-distributors.
RevenueThe following tables present revenue and long-lived asset information by end market and geographic region. Revenue is based on the destination of the shipments and long-lived assets are as followsbased on the physical location of the assets (in thousands):
 Three Months Ended   March 31,
 20202019
Consolidated Revenue:
United States$68,338  $66,067  
International41,045  48,690  
Totals$109,383  $114,757  

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 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Consolidated Revenue:       
United States$73,531
 $75,467
 $139,598
 $144,154
International52,008
 55,186
 100,698
 115,107
Totals$125,539
 $130,653
 $240,296
 $259,261
 Three Months Ended   March 31,
 20202019
Revenue by End Market:
Neuro Products
Devices and Systems$49,397  $45,692  
Supplies15,924  15,898  
Services—  800  
Total Neuro Revenue65,321  62,390  
Newborn Care Products
Devices and Systems11,690  14,644  
Supplies9,794  10,047  
Services2,748  4,845  
Total Newborn Care Revenue24,232  29,536  
Hearing & Balance Products
Devices and Systems18,589  21,525  
Supplies1,241  1,306  
Total Hearing & Balance Revenue19,830  22,831  
Total Revenue$109,383  $114,757  

 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Revenue by End Market:       
Neurology Products       
Devices and Systems$54,617
 $50,275
 $100,366
 $96,234
Supplies16,910
 16,535
 32,751
 33,707
Services71
 3,565
 871
 6,303
Total Neurology Revenue71,598
 70,375
 133,988
 136,244
Newborn Care Products       
Devices and Systems12,615
 15,471
 27,260
 34,450
Supplies8,933
 9,625
 18,979
 19,147
Services5,015
 5,477
 9,860
 10,880
Total Newborn Care Revenue26,563
 30,573
 56,099
 64,477
Audiology Products       
Devices and Systems26,178
 29,119
 47,703
 52,968
Supplies1,200
 586
 2,506
 5,572
Total Audiology Revenue27,378
 29,705
 50,209
 58,540
Total Revenue$125,539
 $130,653
 $240,296
 $259,261
March 31, 2020December 31, 2019
Property and equipment, net:
United States$13,728  $11,868  
Ireland5,623  5,732  
Canada4,073  4,140  
Denmark1,761  1,799  
Other countries1,082  1,163  
Totals$26,267  $24,702  
 June 30, 2019 December 31, 2018
Property and equipment, net:   
United States$13,128
 $10,019
Ireland5,868
 5,083
Canada4,384
 4,504
Denmark1,950
 1,371
Argentina—
 999
Other countries1,217
 937
Totals$26,547
 $22,913

During the three and six months ended June 30,March 31, 2020 and 2019, and 2018, no single customer or country outside the United States contributed more than 10% of the Company'sour consolidated revenue.


16 - Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes the following three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
On April 1, 2019, as part of the sale of the Company's Argentinian subsidiary, Medix, Natus provided a loan to Medix for $2.2 million. This asset was measured at fair value less costs to sell as of June 30, 2019 and is classified as Level 3 asset. The loan is classified within other assets on our condensed consolidated balance sheet. Subsequent changes in the fair value of the loan receivable are recorded within the Company's income statement as an operating expense.
 December 31, 2018 Additions Receipts Adjustments June 30, 2019
Other assets:         
Loan receivable$—
 $2,200
 $—
 $—
 $2,200
Total$—
 $2,200
 $—
 $—
 $2,200

The derivative financial instruments described in Note 1314 are measured at fair value on a recurring basis and are presented on the consolidated balance sheets at fair value. The Company estimatesWe estimate the fair value of the interest rate swaps
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by calculating the present value of the expected future cash flows of each swap. The calculation incorporatedincorporates the contractual terms of the derivatives, observable market interest rates which are considered to be Level 2 inputs, and credit risk adjustments, if any, to reflect the counterpart's as well as the Company'sour nonperformance risk. As of June 30, 2019,March 31, 2020, there have been no events of default under the interest rate swap agreement. The table below presents the fair value of the derivative financial instruments as well as the classification on the consolidated balance sheet (in thousands):
December 31, 2019AdditionsPaymentsAdjustmentsMarch 31, 2020
Liabilities:
Interest rate swap$313  $—  $—  $232  $545  
Total$313  $—  $—  $232  $545  
 December 31, 2018 Additions Payments Adjustments June 30, 2019
Liabilities:         
Interest rate swap$77
 $—
 $—
 $307
 $384
Total$77
 $—
 $—
 $307
 $384

The following financial instruments are not measured at fair value on the Company’sour consolidated balance sheet as of June 30, 2019March 31, 2020 and December 31, 20182019 but require disclosure of their fair values: cash and cash equivalents, accounts receivable, and accounts payable. The carrying value of these financial instruments approximates fair values because of their relatively short maturity.

17 - Sale of Certain Subsidiary
As part of the One Natus restructuring initiative, the Company divested its wholly owned subsidiary, Medix SA, on April 2, 2019 via a stock sale. In exchange for the stock, the Company received $2,500 in cash and provided Medix with a $2.2 million limited-recourse loan. The loan is secured by a specific asset of Medix and repayment is conditional upon the sale of the asset.

The held for sale criteria under GAAP was met in the first quarter of 2019. As such, the Company completed an asset impairment analysis which resulted in the full impairment of all assets held for sale. The Company recognized an impairment loss of $24.6 million which included an accrual for the anticipated realization of deferred foreign currency related translation adjustments in accumulated other comprehensive income of $24.8 million, net of tax, and an adjustment of $4.6 million for assets with a book value in excess of their fair market value. As of June 30, 2019, the sale is final and the deferred foreign currency related translation adjustments previously in accumulated other comprehensive income have been released from the balance sheet along with the held for sale accrual.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) supplements the MD&A in theour Annual Report on Form 10-K for the year ended December 31, 2018 of Natus Medical Incorporated.2019. MD&A should be read in conjunction with our condensed consolidated financial statements and accompanying footnotes, the risk factors referred to in Part II, Item 1A of this report, our Annual Report filed on Form 10-K for the year ended December 31, 20182019 and the cautionary information regarding forward-looking statements at the end of this section.
Our Business
Natus isWe are a leading provider of medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages.
We have completed a number of acquisitions since 2003, consisting of either the purchase of a company, substantially all of the assets of a company, or individual products or product lines.
End Markets
Our products address the below end markets:
•Neuro - Includes products and services that provide diagnostic, therapeutic and surgical solutions in neurodiagnostics, neurocritical care and neurosurgery. Neuro's comprehensive neurodiagnostic solutions include electroencephalography and long-term monitoring, Intensive Care Unit monitoring, electromyography, sleep analysis or polysomnography, and intra-operative monitoring. These solutions enhance the diagnosis of neurological conditions such as epilepsy, sleep disorders and neuromuscular diseases. Our neurocritical care solutions include management of traumatic brain injury by continuous monitoring of intracranial pressure and cerebrospinal fluid drainage, as well as cranial access kits for entry into the cranium. Our neurosurgical solutions such as dural grafts to facilitate dural repair in the cranium as well as valves, shunts and related treatment solutions for procedures involving hydrocephalus.
•Newborn Care - Includes products and services for newborn care including hearing screening, brain injury, ROP vision screening,monitoring, eye imaging, jaundice management, and various disposable newborn care supplies, as well assupplies.
•Hearing & Balance - The Hearing portfolio includes products for diagnostic hearing assessment for children through adult populations, and products to diagnose and assist in treating balance and mobility disorders.
Audiology - Includes products for hearing, diagnostics, and hearing aid fitting, including computer-based audiological, otoneurologic and vestibular instrumentation and sound rooms for hearing and balance care professionals. Audiology hasOur Balance portfolio provides diagnosis and assessment of vestibular and balance disorders. These solutions have a complete product and brand portfolio known for its sophisticated design technology in the hearing and balance assessment markets. Global brands include Aurical®, ICS®, and Madsen®.
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Segment and Geographic Information
We operate inas one operating segment and one reportable segment, which we have presented as the aggregation of our Neuro, Newborn Care, and Audiology end markets. Within this reportable segment we are organized on the basis of theprovides healthcare products, and services we provide which are used forfocused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages.

Our end-user customer base includes hospitals, clinics, laboratories, physicians, nurses, audiologists, Financial information is reviewed on a consolidated basis for purposes of making operating decisions and governmental agencies. Mostassessing financial performance. Consolidated financial information is accompanied by disaggregated information about revenues by end market and geographic region. We do not asses the performance of our international sales areend markets or geographic regions on measures of profit or loss, or asset-based metrics. We have disclosed the revenues for each of our end markets and geographic regions to distributors, who in turn resellprovide the reader of the financial statements transparency into our products to end users or sub-distributors.operations.
Information regarding our salesrevenues and long-lived assets in the U.S. and in countries outside the U.S. is contained in Note 15 – Segment, Customer and Geographic Information of our condensed consolidated financial statements included in this report and is incorporated in this section by reference.
Revenue by Product Category
We generate our revenue from sales of Devices and Systems, which are generally non-recurring, and from related Supplies and Services, which are generally recurring. The products that are attributable to these categories are described in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Revenue from Devices and Systems, Supplies, and Services, as a percent of total revenue for the three and six months ended June 30,March 31, 2020 and 2019, and 2018, is as follows:
 Three Months Ended   March 31,
 20202019
Devices and Systems72 %71 %
Supplies25 %24 %
Services3 %5 %
Total100 %100 %
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Devices and Systems74% 73% 73% 70%
Supplies22% 20% 23% 23%
Services4% 7% 4% 7%
Total100% 100% 100% 100%
2019 Second2020 First Quarter Overview
Our business and operating results are driven in part by worldwide economic conditions. Our sales arerevenue is significantly dependent on both capital spending by hospitals in the United States and healthcare spending by ministries of health outside the United States.
We experienced a significant decline in demand particularly in Asia and Europe during the quarter as a result of the COVID-19 pandemic. Our consolidated revenue decreased $5.1$5.4 million in the secondfirst quarter ended June 30, 2019March 31, 2020 to $125.5$109.4 million compared to $130.7$114.8 million in the secondfirst quarter of the previous year. The decline in revenue was driven primarily by the impact of COVID-19 on demand, the exit of the GND, Neurocom and, Neurocom businesses,Medix, as well as the impact of product discontinuations in our Medix businessNewborn Care market and voluntary ship holds for our Newborn Care and Hearing & Balance markets partially offset by growth in Argentina and Audiology products pending product registrations.Neurodiagnostic device sales in the United States.
Net incomeOur net loss was $4.2$3.6 million or $0.12$0.11 per diluted share in the three months ended June 30, 2019,March 31, 2020, compared with net loss of $2.6$30.4 million or $(0.08)$0.90 per share in the same period in 2018.2019. The increasedecrease in our net incomeloss was driven by lower operating expensesan impairment recorded related to the sale of Medix in 2019 that did not repeat during the first quarter of 2020.
COVID-19 Update
Healthcare providers and patients continue to depend on our products and services every day. Our team members and partners are continuing to maintain our supply chain, manufacturing and delivery of our products and services. The health and welfare of our employees, our customers and our partners remain our top priority as we continue our business operations.
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We have implemented safeguards in our facilities to protect team members, including social distancing practices, work from home and other measures consistent with specific regulatory requirements and guidance from health authorities. As an essential supplier of healthcare products and services, all of our manufacturing, engineering and customer support functions remain fully operational and will continue to support customers with vital supplies, service and equipment. We have taken actions to reduce costs, including reducing travel and discretionary expenses. We will continue to prioritize spending to allow continued investment in products and services that are key elements of our stated strategy for profitable growth in the years ahead.
Impact to our supply chain
Many of our materials are single source and require lengthy qualification periods. Disruptions in our supply chain could negatively impact our ability to produce and supply our finished products. We have made strategic investments in inventory to help mitigate potential supply chain disruptions. These investments include increased inventory and firm purchase orders beyond our typical timeframe in order to secure capacity at our key suppliers. To date, we have not incurred any significant supply disruptions and we believe our suppliers are positioned well to provide us with the materials we need to meet our demand. The health and safety of our suppliers is also a priority for us and we have transitioned collaboration with our suppliers to online technology so that we can continue our business operations.
Liquidity
In addition to the $17.4 million of cash flow from operations generated during the quarter, we also drew an additional $60.0 million on our credit line as a precaution to ensure we have the necessary capital to continue to reliably serve our customers during an extended period of uncertainty. In addition to our cash on hand, we have $118.0 million available on our revolving credit line. However, our current revolving credit line has minimum leverage ratios that if not met, will increase our borrowing costs or restrict our ability to borrow on the credit line.
Looking ahead, we expect each of our businesses to experience significant decreases in demand as a result of shelter in place orders and the resultant decline in economic activity. We expect hospitals and clinics globally to begin to delay payments for products and services over the coming months and we intend to work with our customers to arrange mutually acceptable payment terms during this uncertain time. However, this may have a negative effect on cash flow and potentially have a negative impact on future earnings as some customers may eventually be unable to pay their outstanding debts.
In 2019, we completed a restructuring exitof the Company and strengthened our balance sheet by generating over $60.0 million in cash from operations and paying down $55.0 million in debt. These actions, in addition to implementing further cost control measures, have put us in a strong financial position.
We believe that we have sufficient liquidity to operate the Company for the foreseeable future should negative economic conditions persist for an extended period of time.
Impact to fair-value of intangible assets
We have reviewed the assets on our balance sheet, particularly goodwill and significant intangible assets for indications of impairment and as of the end of the first quarter, and determined that impairment is unnecessary at this time. The values of these assets are particularly sensitive to our market cap and the long term value of their cash flows. If these conditions change significantly, we may need to record an impairment to their value. However, any impairment charges would not require the use of cash and are excluded from the GND business,calculation of our debt covenants and therefore would not affect our ability to borrow under our existing credit line.
Impact to our financial systems and internal controls
To date, the saleCOVID-19 pandemic has not had a material impact to our ability to operate our accounting and financial functions. We are staffed with approximately 150 dedicated finance, accounting and IT professionals. Our accounting and IT systems are maintained with third party support agreements and we have documented disaster recovery plans in place. Our finance, accounting and IT professionals are performing their normal functions while working from home with little to no physical presence and with no changes to our internal controls. We are confident that we can operate in this manner for an extended period of Medix,time without disruption and chargeswithout significant impact to our internal controls.
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Travel restrictions and use of online technology
The global Natus team is geographically diverse with multiple small locations and hundreds of employees that typically work from home in normal circumstances. We use the prior yearlatest collaboration technology and have been able to transition to a company-wide work from home model without major interruption. Our manufacturing, distribution and field service operations require physical presence of certain employees as their work requires them to handle our products. In these cases, we have made adjustments to shift size and schedule and limited access to these groups by non-related employees. Our field service technicians are following our customers' requirements for bad debt expense, contested proxy solicitationdistancing practices but continue to provide service where needed.
Travel restrictions have forced most customer and remediation activities that did not recurexternal partner collaboration to online technology. Using this technology has enabled us to continue operations without incident. However, in-person customer engagement as well as physical presence in laboratory settings is required for the current year.long term success of our company and eventually, we will need to return to traditional forms of interaction.
Application of Critical Accounting Policies
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. In so doing, we must often make estimates and use assumptions that can be subjective, and, consequently, our actual results could differ from those estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable.
We believe that the following critical accounting policies require the use of significant estimates, assumptions, and judgments:
•Revenue recognition
Income taxes•Acquisition accounting
•Inventory valuation

The use of different estimates, assumptions, or judgments could have a material effect on the reported amounts of assets, liabilities, revenue, expenses, and related disclosures as of the date of the financial statements and during the reporting period. These critical accounting policies are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Results of Operations
The following table sets forth selected consolidated statement of operations data as a percentage of total revenue for the periods indicated:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		 Three Months Ended   March 31,
2019 2018 2019 2018 20202019
Revenue100.0 % 100.0 % 100.0 % 100.0 %Revenue100.0 %100.0 %
Cost of revenue41.6 % 40.5 % 41.0 % 41.8 %Cost of revenue41.1 %40.5 %
Intangibles amortization1.4 % 2.1 % 1.5 % 1.6 %Intangibles amortization1.5 %1.5 %
Gross profit57.0 % 57.4 % 57.5 % 56.6 %Gross profit57.4 %58.0 %
Operating expenses:       Operating expenses:
Marketing and selling25.7 % 25.6 % 27.5 % 26.7 %Marketing and selling28.1 %29.4 %
Research and development10.2 % 12.0 % 10.7 % 12.0 %Research and development16.1 %11.7 %
General and administrative10.1 % 18.2 % 12.1 % 15.9 %General and administrative12.1 %14.2 %
Intangibles amortization3.0 % 3.2 % 3.1 % 3.6 %Intangibles amortization3.3 %3.3 %
Restructuring2.1 % 1.5 % 16.7 % 1.1 %Restructuring0.8 %32.6 %
Total operating expenses51.1 % 60.5 % 70.1 % 59.3 %Total operating expenses60.4 %91.2 %
Income (loss) from operations5.9 % (3.1)% (12.6)% (2.7)%
Loss from operationsLoss from operations(3.0)%(33.2)%
Other expense, net(1.0)% (1.8)% (1.4)% (1.6)%Other expense, net(1.4)%(1.9)%
Income (loss) before provision for (benefit from) income tax4.9 % (4.9)% (14.0)% (4.3)%
Provision for (benefit from) income tax1.7 % (2.8)% (3.2)% (1.9)%
Net income (loss)3.2 % (2.1)% (10.8)% (2.4)%
Loss before benefit from income taxLoss before benefit from income tax(4.4)%(35.1)%
Benefit from income taxBenefit from income tax(1.0)%(8.5)%
Net lossNet loss(3.4)%(26.6)%
Revenues
The following table shows revenue by products during the three and six months ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 (in thousands):
Three Months Ended 
 June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
2019 2018 Change 2019 2018 Change 20202019Change
Neuro Products           Neuro Products
Devices and Systems$54,617
 $50,275
 9 % $100,366
 $96,234
 4 %Devices and Systems$49,397  $45,692  8 %
Supplies16,910
 16,535
 2 % 32,751
 33,707
 (3)%Supplies15,924  15,898  — %
Services71
 3,565
 (98)% 871
 6,303
 (86)%Services—  800  (100)%
Total Neurology Revenue71,598
 70,375
 2 % 133,988
 136,244
 (2)%
Total Neuro RevenueTotal Neuro Revenue65,321  62,390  5 %
Newborn Care Products           Newborn Care Products
Devices and Systems12,615
 15,471
 (18)% 27,260
 34,450
 (21)%Devices and Systems11,690  14,644  (20)%
Supplies8,933
 9,625
 (7)% 18,979
 19,147
 (1)%Supplies9,794  10,047  (3)%
Services5,015
 5,477
 (8)% 9,860
 10,880
 (9)%Services2,748  4,845  (43)%
Total Newborn Care Revenue26,563
 30,573
 (13)% 56,099
 64,477
 (13)%Total Newborn Care Revenue24,232  29,536  (18)%
Audiology Products           
Hearing & Balance ProductsHearing & Balance Products
Devices and Systems26,178
 29,119
 (10)% 47,703
 52,968
 (10)%Devices and Systems18,589  21,525  (14)%
Supplies1,200
 586
 105 % 2,506
 5,572
 (55)%Supplies1,241  1,306  (5)%
Total Audiology Revenue27,378
 29,705
 (8)% 50,209
 58,540
 (14)%
Total Hearing & Balance RevenueTotal Hearing & Balance Revenue19,830  22,831  (13)%
Total Revenue$125,539
 $130,653
 (4)% $240,296
 $259,261
 (7)%Total Revenue$109,383  $114,757  (5)%
For the three months ended June 30, 2019,March 31, 2020, Neuro revenue increased by 2%5% compared to the same quarter last year. Revenue from sales of Neuro Devices and Systems increased by 9%8% driven by strong demand in early 2019 for electroencephalography (“EEG”) products in our domestic market as well as electromyography (“EMG”) productspartly offset by a drop in our international markets.demand related to the COVID-19 pandemic. Revenue from Supplies increased by 2%were flat to the prior year due to higher salesdecreased demand related to the
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Table of neurodiagnostic products in our domestic market.Contents
COVID-19 pandemic. Revenue from Services decreased by 98%100% due to the exit of GND, our ambulatory EEG services business, as of January 31, 2019.
For the three months ended June 30, 2019,March 31, 2020, Newborn Care revenue decreased by 13%18% compared to the same quarter last year. The 19% decrease in Newborn Care Device revenue was due to the impact of end of life products, a decline in balance and mobility revenue driven by the exit from our Neurocom and Medix businesses in 2019 and the impact of non-repeated tender business in 2019. Newborn Care Supplies revenue decreased 4% due to a decline in demand in our domestic market. Revenue from Services decreased primarily due to the sale of the Medixexit from our Peloton business as of MarchDecember 31, 2019, and reduced billings for Peloton.2019.
For the three months ended June 30, 2019, AudiologyMarch 31, 2020, Hearing & Balance revenue decreased by 8%13% compared to the same period last year. The decrease in revenue was mainly due to products on hold pending international product registrations and end of sale products.
For the six months ended June 30, 2019, Neuro revenue decreased by 2% compared to the same quarter last year due mainly to the exit from the GND business as of January 31, 2019. Revenue from sales of Neuro Devices and Systems increased by 4% driven by strong demand for EEG systems in our domestic market, partly offset by a decline in neurosurgery revenue in our domestic market. Revenue from Supplies decreased by 3% due to lower sales of neurodiagnostic products in our international markets. Revenue from Services decreased by 86% due to the exit of GND, our ambulatory EEG services business, as of January 31, 2019.
For the six months ended June 30, 2019, Newborn Care revenue decreased by 13% compared to the same quarter last year. The decrease was due to the impact of end of life products, a decline in balancethe COVID-19 pandemic on demand for Devices and mobility revenue driven by the exit from our Neurocom business, lower business in Argentina due to the sale of Medix, and reduced billings for Peloton.

For the six months ended June 30, 2019, Audiology revenue decreased by 14% compared to the same period last year. The decrease in revenue was due to products on hold pending international product registrations and end of sale products.Systems.
Revenue from domestic sales decreasedincreased to $73.5$68.3 million for the three months ended June 30, 2019March 31, 2020 compared to $75.5$66.1 million in the three months ended June 30, 2018.March 31, 2019. The decreaseincrease in domestic revenue was driven by the exit of GND and Neurocom businesses, lower neurosurgery product revenue and a decline in Peloton billings, partly offsetmainly by growth in EEG devices.
Revenue from international sales decreased to $52.0$41.0 million for the three months ended June 30, 2019March 31, 2020 compared to $55.2$48.7 million for the three months ended June 30, 2018. Decreases are due to audiology productsMarch 31, 2019. The reduction was driven by the impact of the COVID-19 pandemic on hold pending international product registrations and end of sales for certain Newborn Care and Audiology products, partly offset by growth for neurodiagnostics and neurocritical care productsdemand in our international markets.
Cost of Revenue and Gross Profit
Cost of revenue and gross profit consists of (in thousands):
Three Months Ended 
 June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
2019 2018 2019 2018 20202019
Revenue$125,539
 $130,653
 $240,296
 $259,261
Revenue$109,383  $114,757  
Cost of revenue52,164
 52,897
 98,534
 108,266
Cost of revenue44,933  46,509  
Intangibles amortization1,746
 2,717
 3,502
 4,305
Intangibles amortization1,668  1,756  
Gross profit71,629
 75,039
 138,260
 146,690
Gross profit62,782  66,492  
Gross profit percentage57.0% 57.4% 57.5% 56.6%Gross profit percentage57.4 %57.9 %
For the three and six months ended June 30, 2019,March 31, 2020, gross profit as a percentage of revenue decreased 0.4% and increased 0.9%, respectively,0.5% compared to the same period in the prior year. The decrease for the three-month period was due to lower marginsrevenue and higher other costs of revenue in the current quarter for Audiology products,freight and inventory related adjustments, partly offset by increased margins for Newborn Care products. The increase for the six-month period was primarily driven by increased margins on neurodiagnostics, duea decrease in part to the exit from the GND business in January 2019, which was partly offset by lower margins for Newborn Care and Audiology products.operations overhead expense.
Operating Costs
Operating costs consist of (in thousands):
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Three Months Ended 
 June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
2019 2018 2019 2018 20202019
Marketing and selling$32,236
 $33,401
 $65,966
 $69,273
Marketing and selling$30,730  $33,729  
Percentage of revenue25.7% 25.6% 27.5% 26.7%Percentage of revenue28.1 %29.4 %
Research and development$12,769
 $15,616
 $25,827
 $31,059
Research and development$17,569  $13,394  
Percentage of revenue10.2% 12.0% 10.7% 12.0%Percentage of revenue16.1 %11.7 %
General and administrative$12,691
 $23,721
 $28,995
 $41,169
General and administrative$13,182  $16,306  
Percentage of revenue10.1% 18.2% 12.1% 15.9%Percentage of revenue12.1 %14.2 %
Intangibles amortization$3,763

$4,151
 $7,549
 $8,957
Intangibles amortization$3,661  $3,786  
Percentage of revenue3.0% 3.2% 3.1% 3.6%Percentage of revenue3.3 %3.3 %
Restructuring$2,668
 $1,938
 $40,040
 $2,750
Restructuring$871  $37,372  
Percentage of revenue2.1% 1.5% 16.7% 1.1%Percentage of revenue0.8 %32.6 %

Marketing and Selling

Marketing and selling expenses decreased for the three and six months ended June 30, 2019.March 31, 2020. The reduction was primarily driven by exiting the GND, businessPeloton and Medix businesses in 2019 and lower travel and tradeshow expenses due to One Natus.the impact of COVID-19 restrictions. While not material, we expect lower travel and tradeshow spend in the three months ending June 30, 2020 as a result of COVID-19 restrictions with travel spend returning to historical levels in the last two quarters of fiscal year 2020 assuming worldwide travel restrictions are removed, an assumption that has no certainty of happening within the predicted timeframe.
Research and Development
Research and development expenses decreasedincreased during the three and six months ended June 30, 2019March 31, 2020 compared to the same period in 2018.2019. The decreaseincrease is due mainly to lower recallhigher spend to support remediation and remediation costs in the current periods and lower employee expenses due to One Natus.MDR projects.
General and Administrative
General and administrative expense during the three and six months ended June 30, 2019March 31, 2020 decreased when compared to the same period in the prior year. This decrease was due to a reduction in employeeoutside service expenses related to our exit from the GND business and One NatusPeloton businesses and organization changes, lower bad debt expense related to our GND andexiting the Peloton businesses, and contested proxy solicitation expenses from 2018 which did not recur inbusiness as of December 31, 2019.
Intangibles Amortization
Intangibles amortization decreasedremained flat during the three and six months ended June 30, 2019March 31, 2020 as compared to the same period in 2018. This decrease was due to a reduction of intangible assets for impairments recognized during the fourth quarter of 2018 for GND, Neurocom, and Bio-Logic core technology.2019.
Restructuring
Restructuring expenses increaseddecreased during the three and six months ended June 30, 2019March 31, 2020 compared to the same period in 2018.2019. The increase in the three-month perioddecrease was primarily driven by restructuring expenses incurred related to the exiting of the GND business and our One Natus restructuring project. These additional expenses also contributed to the six-month period increase, but the main driver was an impairment recorded related to the sale of Medix which included the recognition of deferred foreign currency related adjustments in accumulated other comprehensive income of $24.8 million, net of tax, and an adjustment of $4.6 million for assets with a book value in excess of their fair market value. In addition to the impairment for Medix, we also incurred restructuring expenses related to exiting the GND business and our One Natus restructuring project in 2019. We do not currently project restructuring expenses related to COVID-19 will have an impact on the business.
Other Expense, net
Other expense, net consists of investment income, interest expense, net currency exchange gains and losses, and other miscellaneous income and expense. For the three months ended June 30, 2019March 31, 2020 we reported $1.2$1.5 million of other expense compared to $2.4$2.1 million of other expense for the same period in 2018. For the six months ended June 30, 2019 we reported $3.3 million of other expense compared to $4.2 million of other expense for the same period in 2018. These decreases2019. The decrease in expense werewas attributable to foreign currency fluctuations.less interest expense than the prior period.
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Provision for (benefit from) Income Tax
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 an expensea benefits from income tax of $2.1$1.1 million and a benefit from income tax of $7.6$9.8 million for the three and six months ended June 30,March 31, 2020 and March 31, 2019, respectively. The effective tax rate was 33.5%23.9% and 22.8%24.4% for the three and six months ended June 30,March 31, 2020 and March 31, 2019 respectively. Of the $7.6$9.8 million benefit from income tax recorded for the sixthree months ended June 30,March 31, 2019, $8.2 million relates to the tax accounting effects of the sale of Medix.
We recorded a benefit for income tax of $3.6 million and $5.0 million for the three and six months ended June 30, 2018, respectively. The effective tax rate was 58.3% and 46.7% for the three and six months ended June 30, 2018, respectively.

The decrease in the effective tax rate for the three and six months ended June 30, 2019March 31, 2020 compared with the three and six months ended June 30, 2018March 31, 2019 is primarily attributable to thechanges in distribution of income among jurisdictions with varying tax accounting effects of the sale of Medix. The effective tax rate for the three and six months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the tax accounting effects of the sale of Medix.rates. Other significant factors that impact the effective tax rate are Federal and California research and development credits, non-deductible executive compensation expenses, and inclusions related to global intangible low-taxed income.
We recorded $0.2 million of net tax expenseno changes related to unrecognized tax benefits for the three and six months ended June 30, 2019, primarily due to the increase in uncertain tax positions related to the prior year.March 31, 2020. Within the next twelve months, it is possible that the uncertain tax benefit may change with a range of approximately zero to $3.8$2.4 million. Our tax returns remain open to examination as follows: U.S Federal, 2016 through 2019, U.S. states, 2015 through 2018, U.S. states, 2014 through 2018,2019, and significant foreign jurisdictions, generally 20142015 through 2018.2019.

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law on March 27, 2020. The CARES Act did not have a material impact on our provision for income taxes for the three months ended March 31, 2020.
Liquidity and Capital Resources
Liquidity and capital resources consist of (in thousands):
March 31, 2020December 31, 2019
Cash and cash equivalents$107,016  $63,297  
Working capital160,625  126,928  
 June 30, 2019 December 31, 2018
Cash and cash equivalents$52,009
 $56,373
Working capital127,579
 152,329

Six Months Ended 
 June 30,		 Three Months Ended   March 31,
2019 2018 20202019
Net cash provided by operating activities$24,047
 $11,326
Net cash provided by operating activities$17,362  $6,493  
Net cash used in investing activities(2,932) (3,534)Net cash used in investing activities(3,575) (2,461) 
Net cash used in financing activities(25,164) (36,011)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities32,489  (6,464) 
We believe that our current cash and cash equivalents and any cash generated from operations will be sufficient to meet our ongoing operating requirements for the foreseeable future.
As of June 30, 2019,March 31, 2020, we had cash and cash equivalents outside the U.S. in certain of our international subsidiaries of $40.3$35.7 million, primarily in Canada and Ireland. We intend to permanently reinvest the cash held by our international subsidiaries except for Excel-Tech and Natus Ireland, which we intend to repatriate. A net deferred tax liability has been recorded for the potential future repatriation. If, however, a portion of thesepermanently reinvested funds were needed for and distributed to our operations in the United States, we would be subject to additional U.S. income taxes and foreign withholding taxes depending on facts and circumstances at the time of distribution. The
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amount of taxes due would depend on the amount and manner of repatriation, as well as the country from which the funds were repatriated.
The Company hasWe have a Credit Agreement with JP Morgan, Citibank, and Wells Fargo. The Credit Agreement provides for an aggregate $225.0 million of secured revolving credit facility. The Credit Agreement contains covenants, including covenants relating to maintenance of books and records, financial reporting and notification, compliance with laws, maintenance of properties and insurance, and limitations on guaranties, investments, issuance of debt, lease obligations and capital expenditures, and is secured by virtually all of the Company'sour assets. The Credit Agreement provides for events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, bankruptcy or insolvency events and the occurrence of the event has a material adverse effect. The Credit Agreement matures on September 23, 2021, at which time all principal amounts outstanding under the Credit Agreement will be due and payable. The Company hasWe have no other significant credit facilities. During the first quarter of 2020 we drew an additional $60.0 million on our credit line as a precaution to ensure we have the necessary capital to continue to reliably serve our customers during an extended period of uncertainty. As of June 30, 2019,March 31, 2020, we had $80.0$100.0 million outstanding under the Credit Facility.

During the sixthree months ended June 30, 2019March 31, 2020 cash provided by operating activities of $24.0$17.4 million was the result of $25.8$3.6 million of net loss, non-cash adjustments to net loss of $47.6$11.9 million, and net cash inflows of $2.3$9.1 million from changes in operating assets and liabilities. The change in non-cash adjustment to net loss was driven by depreciation and amortization of $7.0 million. Cash used in investing activities during the period was $3.6 million to acquire other property and equipment. Cash provided by financing activities during the three months ended March 31, 2020 was $32.5 million and consisted of proceeds from borrowing of $60.0 million offset by repayment on borrowing of $15.0 million, $10.5 million for repurchases of common stock under our share repurchase program, $1.9 million for taxes paid related to net share settlement of equity awards, and $0.1 million for principal payments of financing lease liability.
During the three months ended March 31, 2019 cash provided by operating activities of $6.5 million was the result of $30.4 million of net loss, non-cash adjustments to net loss of $37.2 million, and net cash outflows of $0.3 million from changes in operating assets and liabilities. The change in non-cash adjustment to net loss was driven by an impairment recorded related to the held for sale status of Medix, which included an accrual for the anticipated realization of $24.6deferred foreign currency related adjustments in accumulated other comprehensive income of $28.2 million and depreciation and amortizationadjustment of $15.4 million.$4.6 million for assets with a book value in excess of their fair market value. Cash used in investing activities during the period was $2.9$2.5 million to acquire other property and equipment. Cash used in financing activities during the sixthree months ended June 30,March 31, 2019 was $25.2$6.5 million and consisted of repayment ofon borrowing of $25.0$5.0 million, $1.6 million for taxes paid related to net share settlement of equity awards, $0.3and $0.2 million for principal payments of financing lease liability, offset by stock option exercises of $1.7$0.3 million.
During the six months ended June 30, 2018 cash provided by operating activities of $11.3 million was the result of $5.7 million of net loss, non-cash adjustments to net loss of $27.6 million, and net cash outflows of $10.5 million from changes in operating assets and liabilities. The change in non-cash adjustment to net loss was driven by increased depreciation and amortization due to the Neurosurgery assets acquisition, share based compensation, and accounts receivable reserves. Cash used in investing activities during the period was $3.5 million, driven by cash used to acquire other property and equipment. Cash used in financing activities during the six months ended June 30, 2018 was $36.0 million and consisted of repayment of borrowing of $35.0 million, $5.6 million for repurchases of common stock under our share program, $0.3 million for taxes paid related to net share settlement of equity awards, and $0.1 million for a contingent consideration payment partially offset by stock option exercises of $5.1 million.
Our future liquidity and capital requirements will depend on numerous factors, including the:
•Extent to which we make acquisitions;
•Amount and timing of revenue;
•Length and severity of business disruptions caused by COVID-19;
•Extent to which our existing and new products gain market acceptance;
•Cost and timing of product development efforts and the success of these development efforts;
•Cost and timing of marketing and selling activities; and
•Availability of borrowings under line of credit arrangements and the availability of other means of financing.
Commitments and Contingencies
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In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments result primarily from firm, non-cancellable purchase orders placed with contract vendors that manufacture some of the components used in our medical devices and related disposable supply products, as well as commitments for leased office space, and bank debt. The following table summarizes our contractual obligations and commercial commitments as of June 30, 2019March 31, 2020 (in thousands):
  Payments Due by Period
 TotalLess than
1 Year		1-3 Years3-5 YearsMore than
5 Years
Unconditional purchase obligations$72,589  $69,981  $2,608  $—  $—  
Bank debt100,000  —  100,000  —  —  
Interest payments4,773  2,964  1,809  —  
Repatriation tax9,113  797  1,751  3,830  2,735  
Total$186,475  $73,742  $106,168  $3,830  $2,735  
   Payments Due by Period
 Total Less than
1 Year		 1-3 Years 3-5 Years More than
5 Years
Unconditional purchase obligations$64,997
 $60,702
 $4,295
 $—
 $—
Bank debt80,000
 —
 80,000
 —
 —
Interest payments7,299
 4,413
 2,127
 759
 

Repatriation tax9,113
 797
 1,751
 3,830
 2,735
Total$161,409
 $65,912
 $88,173
 $4,589
 $2,735

Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding. Included in the purchase obligations category above are obligations related to purchase orders for inventory

purchases under our standard terms and conditions and under negotiated agreements with vendors. We expect to receive consideration (products or services) for these purchase obligations. The purchase obligation amounts do not represent all anticipated purchases in the future but represent only those items for which we are contractually obligated. The table above does not include obligations under employment agreements for services rendered in the ordinary course of business.
The Company'sOur Credit Agreement with JP Morgan, Citibank, and Wells Fargo matures in 2021. We have recorded this obligation in the payments due in one to three years category in the table above based on the maturity date of the Agreement. As of June 30, 2019,March 31, 2020, we have classified $35.0 million out of the $80.0$100.0 million outstanding as short-term on our balance sheet due to our intent to repay this portion over the next twelve months.
The interest payments noted above are an estimate of expected interest payments but could vary materially based on the timing of future loan draws and payments. See Note 1213 to the unaudited Condensed Consolidated Financial Statements for additional discussion on our debt and credit arrangements.
We are not able to reasonably estimate the timing of any potential payments for uncertain tax positions under ASC 740, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109. As a result, the preceding table excludes any potential future payments related to our ASC 740 liability for uncertain tax positions. See Note 1718 in our Annual Report filed on Form 10-K for the year ended December 31, 20182019 for further discussion on income taxes and repatriation tax.
RecentRecently Issued Accounting Pronouncements
See NoteIn 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. The ASU is effective for us on January 1, to2021. We are in the process of evaluating the impact of this standard on our Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements that affect us.consolidated financial statements.
Cautionary Information Regarding Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 about Natus Medical Incorporated. These statements include, among other things, statements concerning our expectations, beliefs, plans, intentions, future operations, financial condition and prospects, and business strategies. The words “may,” “will,” “continue,” “estimate,” “project,” “intend,” “believe,” “expect,” “anticipate,” and other similar expressions generally identify forward-looking statements. Forward-looking statements in this Item 2 include, without limitation, statements regarding our
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ability to capitalize on improving market conditions, the sufficiency of our current cash, cash equivalents and short-term investment balances, any cash generated from operations to meet our ongoing operating and capital requirements for the foreseeable future, outcomes of new product development, improved operations performance and profitability as the result of restructuring activities, and our intent to acquire additional technologies, products or businesses.
Forward-looking statements are not guarantees of future performance and are subject to substantial risks and uncertainties that could cause the actual results predicted in the forward-looking statements as well as our future financial condition and results of operations to differ materially from our historical results or currently anticipated results. Investors should carefully review the information contained under the caption “Risk Factors” referred to in Part II, Item 1A of this report for a description of risks and uncertainties. All forward-looking statements are based on information available to us on the date hereof, and we assume no obligation to update forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk on our LIBOR-indexed floating-rate debt. We have entered into an interest rate swap agreement to effectively covert a portion of our floating-rate debt to a fixed-rate. The principal objective of the swap contract is to reduce the variability of future earnings and cash flows associated with our floating-rate debt. Please refer to Part II, Item 7A, Quantitative"Quantitative and Qualitative Disclosures About Market Risk

Risk" included in our Annual Report on Form 10-K for the ended December 31, 20182019 for a more complete discussion on the market risks we encounter.


ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the rules of the Securities and Exchange Commission, “disclosure controls and procedures” are controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, includingAs of December 31, 2019, our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud due to inherent limitations of internal controls. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management, with the participation of our chief executive officerChief Executive Officer and our chief financial officer, hasChief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.that period. Based on that evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures were not effective atas of December 31, 2019. That conclusion was based on the material weakness in our internal control over financial reporting further described below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable assurance levelpossibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The material weakness identified by our management related to immaterial errors that indicated certain deficiencies existed in the Company's internal control over financial reporting. Specifically, we did not have controls designed to identify and properly account for certain research and development activities related to an arrangement with a third party. Additionally, insufficient training provided to a new control operator and the design of one of our controls over payroll accounts contributed to an error in the period end accrual. The Company concluded that these deficiencies could have resulted in a material misstatement of the consolidated financial statements that would not have been prevented or detected on a timely basis, and as such, these control deficiencies resulted in a material weakness in internal control over financial reporting as of June 30,December 31, 2019.
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As of March 31, 2020, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2020 due to the material weakness described above that has not yet been remediated.
Changes in Internal Control over Financial Reporting
ThereOther than the actions taken as described below under “Remediation Efforts to Address Material Weakness”, there were no changes in the Company's internal control over financial reporting during the secondfirst quarter of 2019,2020, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonable likely to materially affect, the Company'sour internal control over financial reporting.

Remediation Effort to Address Material Weakness
To remediate the material weakness in our internal control over financial reporting described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, we plan to make substantive changes to enhance our design of controls intended to identify and assess contracts that include research and development activities and to aid in confirming the accuracy of our payroll accounts. Specifically, we plan to formalize a policy that provides guidance on proper identification, analysis and treatment of contracts that include research and development activities. To date, we have made progress by coordinating with our legal team to flag contracts that include terminology indicative of research and development components. The policy is drafted and in review currently. The policy will require that management document conclusions on accounting treatment in supporting memos depending on materiality. We also intend to provide training to relevant teams to ensure the policy is communicated, understood and followed. We plan to provide the training on the policy during Q2 2020. We intend to strengthen the control design for payroll accounts to require that specific review procedures be completed and to formalize the results of required review procedures in a checklist format including reviewer signoff. To date, the checklists for the reviewer of payroll accounting entries are prepared. We plan to use the checklists during the Q2 2020 quarter close process. We have also coordinated with our third party payroll administrators to build efficiency in our payroll reporting process with the goal of reducing manual work. The intent of this project is to free up the payroll accounting reviewers and enable them to focus more on material review items and continue our methodology of continuous improvement and risk reduction. Additionally, we plan to institute a process to monitor changes to our control operator responsible for key controls over financial reporting and implement a control to verify that appropriate training is provided to new control operators to mitigate this risk of change in our system of control. With the oversight of senior management and our audit committee, we have begun taking the above steps. While our remediation efforts are in process, they have not been completed. There can be no assurances that these steps will be successful in fully remediating the material weakness.
PART II.    OTHER INFORMATION

ITEM 1. Legal Proceedings
We currently are, and may from time to time become, a party to various other legal proceedings or claims that arise in the ordinary course of business. Our management reviews these matters if and when they arise and believes that the resolution of any such matters currently known will not have a material effect on our results of operations or financial position.

ITEM 1A. Risk Factors
A description ofThe following updates the risks associated with our business, financial condition and results of operations is set forthrisk factors previously reported in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There2019:
Our business has been and may continue to be negatively affected by the ongoing COVID-19 pandemic and any future outbreaks of disease.
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Our operations have been no material changesand continue to be affected by the ongoing global COVID-19 pandemic and the resulting volatility and uncertainty it has caused in the U.S. and international markets. On January 30, 2020, the WHO announced a global health emergency because of COVID-19, the novel coronavirus disease that originated in Wuhan, China, and the risks to the international community as the virus spread globally beyond its point of origin. On March 11, 2020, the WHO declared the COVID-19 outbreak a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, President Trump declared a National Emergency relating to the disease. The widespread infection in the U.S. and abroad has caused significant volatility and uncertainty in U.S. and international markets, which could result in a prolonged economic downturn that has disrupted and is expected to continue to disrupt our business.
National, state and local authorities have recommended social distancing and have imposed or are considering quarantine, shelter-in-place, curfew and similar isolation measures, including government orders and other restrictions on the conduct of business operations. Such measures have had adverse impacts on the U.S. and foreign economies of uncertain severity and duration and have and may continue to negatively impact our ongoing operations, including our revenue, manufacturing and supply chain. For example, our business relies on continued investment and activity in the healthcare system, and as a result of the significant reduction, or in some cases elimination, of elective medical procedures and healthcare visits, as well as the deferring or cancelling of customer capital expenditure projects, we have seen a decline in revenue from our Supplies and Devices and Systems products. In addition, we have experienced disruption and delays in parts of our direct and indirect supply chain.
As a result of the ongoing COVID-19 outbreak, we have transitioned the majority of our workforce to a temporary remote working model, which may result in us experiencing lower work efficiency and productivity, which in turn may adversely affect our business. As our employees work from home and access our systems remotely, we may be subject to heightened security and privacy risks, including the risks of cyber attacks and privacy incidents. Additionally, we have a number of employees who continue to work in our facilities or perform services at our customers' facilities who may be subject to heightened risks for COVID-19 exposure thus potentially impacting their health and future worker compensation claims against us. We may also be subject to lawsuits from such description.employees and others exposed to COVID-19 at our facilities, which could involve large demands and substantial defense costs. Our professional and general liability insurance may not cover all claims against us. Furthermore, if any of our employees are unable to perform his or her duties for a period of time, including as the result of illness, our results of operations or financial condition could be adversely affected. Finally, the widespread pandemic has caused and is expected to continue to cause significant disruption of global financial markets, which may reduce or impair our ability to access capital, or access capital on terms that would be consistent with our expectations, temporarily during this period.

We cannot reasonably estimate the length or severity of the COVID-19 pandemic or the related response, including the length of time it may take for normal economic and operating conditions to resume or the extent to which the disruption may materially impact our business, consolidated financial position, consolidated results of operations or consolidated cash flows. To the extent the COVID-19 pandemic adversely affects our business operations, financial position or consolidated cash flows, it may also have the effect of heightening many of the other risks described in the other disclosures, including the risk factors contained in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.


ITEM 5. Other Information

None

ITEM 6. Exhibits
 
(a)Exhibits
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(a)ExhibitsIncorporated By Reference
Exhibit
No.		ExhibitFilingExhibit
No.		File DateFiled
Herewith
X
X
X
101 The following materials from Natus Medical Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.X
104 The cover page from Natus Medical Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL (included as Exhibit 101).X

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      Incorporated By Reference
Exhibit
No.
  Exhibit  Filing  
Exhibit
No.
  File Date  
Filed
Herewith
           
3.1
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Natus Medical Incorporated, as filed with the Delaware Secretary of State of June 5, 2019
 8-K 3.1 6/5/2019  
           
31.1
  
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
           X
       
31.2
  
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
           X
       
32.1
  
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
           X
       
101  The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.           X

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NATUS MEDICAL INCORPORATED
Dated:August 7, 2019By:
Dated:May 6, 2020By:/s/ Jonathan A. Kennedy
Jonathan A. Kennedy

President and Chief Executive Officer

(Principal Executive Officer)
Dated:August 7, 2019May 6, 2020By:/s/ B. Drew Davies
B. Drew Davies

Executive Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

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