NATUS MEDICAL INCORPORATED Overview
The following Management Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") supplements the MD&A in our Annual Report on Form
10-K for the year ended December 31, 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, 2019 and the
cautionary information regarding forward-looking statements at the end of this
section.
Our Business
We 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.
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 include
items such as valves, shunts and related treatment solutions for procedures
involving hydrocephalus.
•Newborn Care - Includes products and services for newborn care including
hearing screening, brain monitoring, eye imaging, jaundice management, and
various disposable newborn care supplies.
•Hearing & Balance - The Hearing portfolio includes products for hearing
assessment and diagnostics, and hearing aid fitting, including computer-based
audiological, and otoneurologic and vestibular instrumentation. Our 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.
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Segment and Geographic Information
We operate as one operating segment and one reportable segment, which provides
healthcare products, and services focused on the diagnosis and treatment of
central nervous and sensory system disorders for patients of all ages. Financial
information is reviewed on a consolidated basis for purposes of making operating
decisions and assessing 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 end 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 provide the reader of the financial statements transparency into our
operations.
Information regarding our revenues 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, 2019 . Revenue
from Devices and Systems, Supplies, and Services, as a percent of total revenue
for the three and nine months ended September 30, 2020 and 2019, is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Devices and Systems 71 % 74 % 73 % 73 %
Supplies 24 % 22 % 24 % 23 %
Services 5 % 4 % 3 % 4 %
Total 100 % 100 % 100 % 100 %
2020 Third Quarter Overview
Our business and operating results are driven in part by worldwide economic
conditions. Our revenue 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 the U.S. and
Europe , during the third quarter compared to the same period in the prior year
as a result of the COVID-19 pandemic. Our consolidated revenue for the third
quarter ended September 30, 2020 was $102.8 million compared to $123.5 million
in the third quarter of the previous year, a decrease of $20.7 million .
Our net loss was $9.3 million or $0.28 per share in the three months ended
September 30, 2020 , compared with net income of $8.2 million or $0.24 per
diluted share in the same period in 2019. The net loss was driven mainly by
lower revenue resulting from the impact of the COVID-19 pandemic on global
demand for our products and impairment of intangibles related to end of sale
products.
We are encouraged by the rate of business recovery during the third quarter
ended September 30, 2020 as compared to the second quarter ended June 30, 2020 .
Our consolidated revenue increased $18.0 million during the third quarter of
2020 to $102.8 million compared to $84.8 million in the second quarter ended
June 30, 2020 .
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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.
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.
Going into the fourth quarter, supply appears to be stable, which could allow
for the reduction of inventory levels in future quarters. 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 2019, we completed a restructuring of 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. At the end of 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. During the third quarter of 2020 we amended our
Credit Agreement which extended the maturity date of the original agreement from
September 23, 2021 to September 25, 2023 , reduced the aggregate revolving credit
facility from $225.0 million to $150.0 million , and amended certain covenants.
During the nine months ended September 30, 2020 , we repaid $48.0 million in debt
and continued to maintain a strong cash position ending the period with $74.5
million in cash.
Some hospitals and clinics delayed payments for products and services and we
have worked with our customers to arrange mutually acceptable payment terms
during this uncertain time. Looking ahead, we expect revenues and margins to
improve compared to the third quarter, but remain below historical levels. We
see our customers adapting to the COVID environment with elective procedures
resuming, which we believe will result in increased capital spending, improving
our business for the remainder of 2020.
While 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, we are evaluating additional measures we could take to
improve our liquidity position.
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 related to COVID-19
and determined that there are no indicators of impairment 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 calculation of our
debt covenants and therefore would not affect our ability to borrow under our
existing credit line.
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During the third quarter of 2020 we made the decision to discontinue the sale of
one of our products rather than continuing to invest in the product which
resulted in the impairment of an acquired tradename and technology. See Note 6
to the unaudited Condensed Consolidated Financial Statements for additional
discussion on this impairment charge.
Impact to our financial systems and internal controls
To date, the COVID-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 time without disruption and without significant impact to our internal
controls.
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 latest 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 distancing practices but continue to provide service
where needed.
Travel restrictions have forced most customer and external 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 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
•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, 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 Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 45.9 % 39.2 % 45.3 % 40.4 %
Intangibles amortization 7.9 % 1.4 % 3.9 % 1.4 %
Gross profit 46.2 % 59.4 % 50.8 % 58.2 %
Operating expenses:
Marketing and selling 25.3 % 24.9 % 26.8 % 26.6 %
Research and development 14.3 % 11.7 % 15.7 % 11.3 %
General and administrative 12.0 % 12.5 % 12.4 % 12.2 %
Intangibles amortization 3.9 % 3.0 % 3.8 % 3.1 %
Restructuring 0.3 % 0.9 % 0.6 % 11.3 %
Total operating expenses 55.8 % 53.0 % 59.3 % 64.5 %
Income (loss) from operations (9.6) % 6.4 % (8.5) % (6.3) %
Other expense, net (0.9) % (1.2) % (1.1) % (1.5) %
Income (loss) before benefit from income tax (10.5) % 5.2 % (9.6) % (7.8) %
Benefit from income taxes (1.5) % (1.6) % (2.2) % (2.7) %
Net income (loss) (9.0) % 6.8 % (7.4) % (5.1) %
Revenues
The following table shows revenue by products during the three and nine months
ended
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 Change 2020 2019 Change
Neuro Products
Devices and Systems $ 44,309 $ 55,460 (20) % $ 126,957 $ 155,726 (18) %
Supplies 14,427 16,732 (14) % 40,723 49,582 (18) %
Services - - - % - 871 (100) %
Total Neuro Revenue 58,736 72,192 (19) % 167,680 206,179 (19) %
Newborn Care Products
Devices and Systems 11,800 12,487 (6) % 36,708 39,747 (8) %
Supplies 9,231 9,864 (6) % 27,856 28,844 (3) %
Services 4,679 4,654 1 % 12,181 14,514 (16) %
Total Newborn Care Revenue 25,710 27,005 (5) % 76,745 83,105 (8) %
Hearing & Balance Products
Devices and Systems 17,312 23,092 (25) % 49,540 70,795 (30) %
Supplies 1,045 1,174 (11) % 3,001 3,680 (18) %
Total Hearing & Balance Revenue 18,357 24,266 (24) %
52,541 74,475 (29) % Total Revenue$ 102,803 $ 123,463 (17) %$ 296,966 $ 363,759 (18) % For the three months endedSeptember 30, 2020 , Neuro revenue decreased by 19% compared to the same period last year. Revenue from sales of both Neuro Devices andSystems and Neuro Supplies decreased due to slowing demand attributed to impact of the COVID-19 pandemic. -23- -------------------------------------------------------------------------------- Table of Contents For the three months endedSeptember 30, 2020 , Newborn Care revenue decreased by 5% compared to the same period last year. The decrease in Newborn Care revenue was due the exit from our Peloton business in 2019 and the impact of non-repeated tender business in 2019. These declines were partially offset by increases relating to our supply agreement with Pediatrix and sales of NICVIEW devices which had been on ship hold during the same period last year. For the three months endedSeptember 30, 2020 , Hearing & Balance revenue decreased by 24% compared to the same period last year. The decrease in revenue was driven by the impact of the COVID-19 pandemic on demand. For the nine months endedSeptember 30, 2020 , Neuro revenue decreased by 19% compared to the same period last year. Revenue from sales of Neuro Devices andSystems and Neuro Supplies decreased by 18% driven by a drop in demand related to the COVID-19 pandemic. Revenue from Services decreased by 100% due to the exit of GND, our ambulatory EEG services business, as ofJanuary 31, 2019 . For the nine months endedSeptember 30, 2020 , Newborn Care revenue decreased by 8% compared to the same period last year. The decrease in Newborn Care revenue was due to the exit from our Neurocom,Medix , and Peloton businesses in 2019 and the impact of non-repeated tender business in 2019, partly offset by an increase resulting from our supply agreement with Pediatrix and release of the ship hold on NICVIEW devices in the current year. For the nine months endedSeptember 30, 2020 , Hearing & Balance revenue decreased by 29% compared to the same period last year. The decrease in revenue was driven by the impact of the COVID-19 pandemic on demand. Revenue from domestic sales decreased to$63.6 million for the three months endedSeptember 30, 2020 compared to$73.6 million in the three months endedSeptember 30, 2019 . The decrease in domestic revenue was mainly due to the impact of the COVID-19 pandemic on demand. Revenue from international sales decreased to$39.3 million for the three months endedSeptember 30, 2020 compared to$49.9 million for the three months endedSeptember 30, 2019 . The reduction was driven by the impact of the COVID-19 pandemic on demand in our international markets. Cost of Revenue and Gross Profit Cost of revenue and gross profit consists of (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue$ 102,803 $ 123,463 $ 296,966 $ 363,759 Cost of revenue 47,160 48,389 134,665 147,291 Intangibles amortization 8,117 1,736 11,440 5,237 Gross profit 47,526 73,338
150,861 211,231
Gross profit percentage 46.2 % 59.4 % 50.8 % 58.1 %
For the three and nine months endedSeptember 30, 2020 , gross profit as a percentage of revenue decreased 13.2% and 7.4%, respectively, compared to the same period in the prior year. The decrease was due to lower revenue and higher other costs of revenue for freight, both driven by the impact of COVID-19, inventory related adjustments, and impairment of intangibles related to end of sale products, partly offset by a decrease in operations overhead expense. Operating Costs Operating costs consist of (in thousands): -24-
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Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Marketing and selling $ 26,035 $ 30,787 $ 79,567 $ 96,841
Percentage of revenue 25.3 % 24.9 % 26.8 % 26.6 %
Research and development $ 14,670 $ 14,447 $ 46,574 $ 41,166
Percentage of revenue 14.3 % 11.7 % 15.7 % 11.3 %
General and administrative $ 12,384 $ 15,394 $ 36,754 $ 44,390
Percentage of revenue 12.0 % 12.5 % 12.4 % 12.2 %
Intangibles amortization $ 4,025 $ 3,751 $ 11,330 $ 11,300
Percentage of revenue 3.9 % 3.0 % 3.8 % 3.1 %
Restructuring $ 350 $ 1,106 $ 1,842 $ 41,147
Percentage of revenue 0.3 % 0.9 % 0.6 % 11.3 %
Marketing and Selling
Marketing and selling expenses decreased for the three and nine months ended
September 30, 2020 . The reduction was primarily driven by exiting the GND,
Peloton and Medix businesses in 2019, lower commissions due to lower revenue,
and lower travel and tradeshow expenses due to the impact of COVID-19
restrictions.
Research and Development
Research and development expenses increased during the three and nine months
ended September 30, 2020 compared to the same period in 2019. The increase is
due mainly to higher spend to support remediation activities and projects to
comply with the European Union's adoption of the Medical Device Regulation which
imposes stricter requirements for the marketing and sale of medical devices,
including new quality system and post-market surveillance requirements.
General and Administrative
General and administrative expense during the three and nine months ended
September 30, 2020 decreased when compared to the same period in the prior year.
This decrease was due to a reduction in outside service expenses related to our
exit from the GND and Peloton businesses and other organization changes as well
as lower bad debt expense related to exiting the Peloton business as of December
31, 2019 .
Intangibles Amortization
Intangibles amortization remained flat during the three and nine months ended
September 30, 2020 as compared to the same period in 2019.
Restructuring
Restructuring expenses decreased during the three and nine months ended
September 30, 2020 compared to the same period in 2019. The decrease in the
three months ended September 30, 2020 was primarily driven by lower severance
costs as the costs incurred in 2019 related to our One Natus initiative that did
not repeat in the current year. For the nine months ended September 30, 2020 ,
the decrease was primarily due to 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. We do not currently project that 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 September 30, 2020 we reported $0.9 million of other expense
compared to $1.6 million of other expense for the same period in 2019. The
decrease in expense was driven by foreign currency fluctuations.
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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 a benefit from income tax of $1.6 million and $6.6 million for the
three and nine months ended September 30, 2020 , respectively. The effective tax
rate was 14.4% and 23.2% for the three and nine months ended September 30, 2020
respectively.
We recorded a benefit from income tax of $2.0 million and $9.9 million for the
three and nine months ended September 30, 2019 , respectively. The effective tax
rate was (31.8)% and 34.5% for the three and nine months ended September 30,
2019 , respectively.
The decrease in the effective tax rate for the three months ended September 30,
2020 compared with the three months ended September 30, 2019 is primarily
attributable to changes in distribution of income among jurisdictions with
varying tax rates. The decrease in the effective tax rate for the nine months
ended September 30, 2020 compared with the nine months ended September 30, 2019
is primarily attributable to the tax accounting effects of the sale of Medix
included in the nine months ended September 30, 2019 . Other significant factors
that impact the effective tax rate are research and development credits and
non-deductible executive compensation expenses.
We recorded an increase of $1.8 million related to unrecognized tax benefits for
the three and nine months ended September 30, 2020 . Within the next twelve
months, it is possible that the uncertain tax benefit may change with a range of
approximately zero to $2.4 million . Our tax returns remain open to examination
as follows: U.S Federal, 2016 through 2019, U.S. states, 2015 through 2019, and
significant foreign jurisdictions, generally 2015 through 2019.
For the three and nine months ended September 30, 2020 , we have included our
best estimate of the impact of 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.
Liquidity and Capital Resources
Liquidity and capital resources consist of (in thousands):
September 30, 2020 December 31, 2019
Cash and cash equivalents $ 74,536 $ 63,297
Working capital 134,510 126,928
Nine Months Ended
September 30,
2020 2019
Net cash provided by operating activities
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.
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As of September 30, 2020 , we had cash and cash equivalents outside the U.S. in
certain of our international subsidiaries of $31.3 million , primarily in Canada
and Ireland . We intend to permanently reinvest the cash held by our
international subsidiaries except for Excel Tech Corporation and Natus
Manufacturing Limited , which we intend to repatriate. A net deferred tax
liability has been recorded for the potential future repatriation. If, however,
a portion of permanently 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 amount of taxes due would depend on the amount and
manner of repatriation, as well as the country from which the funds were
repatriated.
We have a Credit Agreement with JP Morgan, Citibank, and Wells Fargo. During the
third quarter of 2020 we amended the terms of the Credit Agreement to extend the
maturity of the original agreement, reduce the aggregate value of the revolving
credit facility, and amend certain covenants. The amended Credit Agreement
provides for an aggregate $150.0 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 our 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 25, 2023 , at which time all principal
amounts outstanding under the Credit Agreement will be due and payable. We 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 September 30, 2020 , we had $67.0 million
outstanding under the Credit Facility.
During the nine months ended September 30, 2020 cash provided by operating
activities of $17.1 million was the result of $21.8 million of net loss,
non-cash adjustments to net loss of $39.0 million , and net cash outflows of $0.1
million from changes in operating assets and liabilities. The non-cash
adjustment to net loss was driven by depreciation and amortization of $21.0
million . Cash used in investing activities during the period was $7.6 million to
acquire other property and equipment. Cash used in financing activities during
the nine months ended September 30, 2020 was $1.4 million and consisted of
proceeds from borrowing of $60.0 million and Employee Stock Purchase Program
("ESPP") purchases of $0.7 million offset by repayment on borrowing of $48.0
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, $1.2 million for deferred debt issuance costs, and $0.4
million for principal payments of financing lease liability.
During the nine months ended September 30, 2019 cash provided by operating
activities of $47.9 million was the result of $18.7 million of net loss,
non-cash adjustments to net loss of $60.9 million , and net cash inflows of $5.7
million from changes in operating assets and liabilities. The non-cash
adjustment to net loss was driven by an impairment recorded related to the held
for sale status of Medix of $24.6 million and depreciation and amortization of
$22.9 million . Cash used in investing activities during the period was $3.9
million to acquire other property and equipment. Cash used in financing
activities during the nine months ended September 30, 2019 was $34.8 million and
consisted of repayment on borrowing of $35.0 million , $1.6 million for taxes
paid related to net share settlement of equity awards, and $0.4 million for
principal payments of financing lease liability, offset by stock option
exercises and ESPP purchases of $2.2 million .
Our future liquidity and capital requirements will depend on numerous factors,
including the:
•Extent to which we make acquisitions;
•Amount and timing of revenue;
•Length and severity of business disruptions caused by COVID-19;
•Extent to which our existing and new products gain market acceptance;
•Cost and timing of product development efforts and the success of these
development efforts;
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Table of Contents •Cost and timing of marketing and selling activities; and •Availability of borrowings under line of credit arrangements and the availability of other means of financing.
Commitments and Contingencies In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments result primarily from firm, non-cancellable purchase orders placed with contract vendors that manufacture some of the components used in our medical devices and related disposable supply products, as well as commitments for leased office space, and bank debt. The following table summarizes our contractual obligations and commercial commitments as ofSeptember 30, 2020 (in thousands): Payments Due by Period Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years Unconditional purchase obligations$ 41,915 $ 41,714 $ 201 $ - $ - Bank debt 67,000 - 67,000 - - Interest payments 3,458 2,254 1,204 - Repatriation tax 7,016 459 2,218 4,339 - Total$ 119,389 $ 44,427 $ 70,623 $ 4,339 $ - 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. Our Credit Agreement with JP Morgan, Citibank, and Wells Fargo matures in 2023. 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 ofSeptember 30, 2020 , we have classified$40.0 million out of the$67.0 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 13 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 18 in our Annual Report filed on Form 10-K for the year endedDecember 31, 2019 for further discussion on income taxes and repatriation tax. Recently Issued Accounting Pronouncements None. 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 aboutNatus Medical Incorporated . These statements -28-
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Table of Contents 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 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.
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