ClearStar : Interim Results

16 September 2020

ClearStar, Inc.

("ClearStar" or the "Company")

Interim Results

ClearStar (AIM: CLSU), a provider of Human Capital Integrity℠ technology-based services specialising in background and medical screening, announces its interim results for the six months ended 30 June 2020.

Financial Summary

• Revenue of $8.9m (H1 2019: $11.6m)
• Gross profit of $4.7m (H1 2019: $6.3m)
• Adj. EBITDA of $541k loss (H1 2019: $191k)*
• Loss before tax of $1.2m (H1 2019: $0.9m loss)
• At 30 June 2020, the Company had gross cash of $2.2m (31 Dec 2019: $1.8m)
• Net debt as at 30 June was $1.4m (31 December 2019: $0.3m)

* Adjusted to exclude certain non-recurring expenses (see Financial Review)

Operational Summary

• Responded rapidly and effectively to the COVID-19 outbreak and continued to be able to service clients with no degradation in quality standards
• Volumes were significantly reduced in March and April due to the widespread job losses and freeze on recruitment as a result of the pandemic, but substantial recovery from the end of May driven by the business outsourcing, financial institutions and home healthcare sectors
• Strong progress in on-boardingpreviously-won customers and continued to generate new business
• Sustained strategic execution throughout the period:

1. Expanded the direct tier 1 client base, including being awarded a contract by a provider of technology testing and industrial automation that has a market value on NASDAQ of over $10bn

1. Entered into a new segment with the appointment by a leading facilities management company, a

sector that offers good growth potential

• 1. Established an integration with a technology solutions provider for home healthcare agencies and community organisations and, post period, achieved Prime Connector status with iCIMS Talent Platform
• Enhanced offering with the launch of Criminal Monitoring and a COVID-19 testing service for employers

Current Trading & Outlook

• Sales for August 2020 reached the same level as for August 2019 following a sustained and significant uptick in run rate from the end of May 2020
• As at 15 September 2020, the Company had reduced net debt to $0.3m with gross cash of $3.3m
• Revenue recovery has been primarily based on new activity with customers with increased requirements because of the pandemic, such as business staffing companies and hospital systems
• The Board is encouraged by the significant revenue recovery and strengthening financial position, however, with the continued uncertainty around the length of the pandemic and its economic impacts, it remains cautious about the near-term outlook

Recommended Offer

It has also been announced today that Hanover Bidco 1 Limited is making an offer for the entire issued and to be issued share capital of the Company at a price of 40 pence per share, valuing the Company at £14.7m ($19m).

Robert Vale, CEO of ClearStar, commented: "With the outbreak of COVID-19 and consequent widespread freeze on recruitment, our volumes were substantially reduced in March and April. However, from the end of May we have achieved a significant uptick in revenues - increasing month-on-month - and in August returned to our run rate of last year. We have continued to be able to service our customers throughout the period as well as win new business and launch new services. This reflects our resilience and ClearStar's strong fundamentals with the necessity of employers taking action to protect the safety of their workforce and customers never being more apparent. However, with ongoing concerns created by the pandemic and its economic impact, there remains continued uncertainty as to the potential impact on short-term revenues for the Company and the Board is therefore cautious about the Company's near-term outlook."

Enquiries:

ClearStar, Inc.	[phone]
Robert Vale, Chief Executive Officer
Jennifer Balleza, Chief Financial Officer
finnCap Ltd.	[phone]
Jonny Franklin-Adams, Marc Milmo, Simon Hicks - Corporate Finance
Andrew Burdis, Tim Harper - ECM
Luther Pendragon Ltd.	[phone]
Harry Chathli, Claire Norbury, Joe Quinlan

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

About ClearStar

ClearStar, Inc. is a leading provider of Human Capital IntegritySM technology-based services specialising in background and medical screening. It provides employment intelligence direct to employers and via channel partners/consumer reporting agencies ("CRAs") to support better recruitment and other decisions affecting employees by increasing the quality, reliability, and visibility of information.

A seven-time Inc. 5000 honoree and founding member of the Professional Background Screening Association (formerly, 'NAPBS'), ClearStar has provided innovative technology solutions to businesses in the human capital management industry from its corporate offices in Alpharetta, Georgia since 1995. For more information about ClearStar, please visit: www.clearstar.net.

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Operational Review

ClearStar entered 2020 with its highest ever order book and was delivering against a healthy pipeline ahead of the COVID-19 outbreak. With the widespread recruitment freezes and job losses as a result of the pandemic, screening volumes were significantly reduced in March and April 2020 across all of the Company's channels and services. From the end of May, ClearStar has experienced a strong and sustained uptick in activity from the lows of March and April 2020. As a result, revenue for the first six months of 2020 was $8.9m (H1 2019: $11.6m).

Notwithstanding the impact on volume as a result of the pandemic, ClearStar's operational performance was robust during the period. ClearStar continued to win new bluechip customers, including expanding into new sectors; onboard previously-won customers; and enhance its offer through establishing further integrations and launching new services. Consequently, the Company made progress with the development of its business during the period.

The Company responded rapidly and effectively to the COVID-19 outbreak. To protect the health and safety of its workforce, all of the Company's employees were transitioned to remote working during March 2020 while continuing to be able to service its clients, with no degradation in quality or security. This capability was strengthened by the investments the Company made during 2019 in its IT infrastructure to enhance its security measures and cloud data management. The Company also acted decisively to implement a number of mitigation measures to support the liquidity of the business and its financial position during the period of reduced trading, which significantly reduced monthly running costs.

Performance by business channel

Sales from direct services were $3.0m for the first half of 2020 (H1 2019: $4.2m), accounting for 34% of total

revenue (H1 2019: 36%) as a result of lower screening volumes due to COVID-19. The largest contributors to revenue for the period were the home healthcare and transportation and logistics industries, while the financial services sector and business staffing companies helped drive the improved revenue from the end of May.

During the first half of 2020, ClearStar made good operational progress with the onboarding of previously- won customers and winning new business. This includes expanding into new verticals and continuing to upscale its client base to larger, higher-volume businesses.

Key new customer wins during the first half include:

• A leading facilities management company - the Company's first direct customer in this sector - which appointed ClearStar to provide background screening of all service providers entering the customer's healthcare facilities. The Company commenced generating revenue from this customer post period
• A provider of technology testing and industrial automation, which has a market value on NASDAQ of over $10bn, with onboarding completing and revenue generation commencing post period
• One of the largest US providers of hand-prepared,home-delivered meals, which often works alongside healthcare or social services to ensure vulnerable populations receive healthy food at home. ClearStar commenced generating revenue from this customer during the period
• A real estate rental company that appointed ClearStar to provide tenant screening, which is expected to commence generating revenue this autumn

Significant progress during the period under previously-won contracts includes being appointed to provide financial institution screening for three further institutions by ClearStar's customer that offers outsourcing

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and staffing primarily for the financial services industry. The improvement in the Company's revenue from the end of May following the COVID-19 challenges of March and April was driven, in particular, by the ramp up in volume of one of these three new financial institutions, which is a sizeable, household name investment bank. Another key development was the ramp in volume for an HR business outsourcing customer, which operates from 70 offices throughout the US and typically fills more than 4,000 recruitment positions per year. The customer appointed ClearStar in H2 2019 and increased in volume throughout H1 2020 and into the second half, which the Company expects to continue as businesses transition to more flexible working.

Channel partners

In the first half of 2020, sales to channel partners - indirect services - were $5.9m (H1 2019: $7.4m) and

accounted for 66% of total revenue (H1 2019: 64%).

Performance by service offering

Medical Information Services

Medical Information Services ("MIS") continued to be the largest single contributor to revenue by product, accounting for 44% of total revenue (H1 2019: 43%), and was $4.0m (H1 2019: $5.0m). Sales to channel partner customers accounted for 89% of MIS revenue (H1 2019: 83%), which was primarily for drug testing services. However, ClearStar experienced improved sales from its occupational health screening and clinical testing, albeit still an immaterial contribution to revenue, as the Company increasingly rolls out these solutions.

Other services

Excluding MIS, revenue from ClearStar's other services - which primarily comprise background screening as well as the wholesale provision of data and global services - was $4.9m (H1 2019: $6.6m).

Enhanced offer

During the first half of 2020, ClearStar enhanced its offer through the launch of new services, securing a further strategic integration and receiving a new comprehensive security standard.

Launch of new services

ClearStar launched a testing service aimed at supporting employers with their COVID-19return-to-work planning and keeping their workforce safe. The new COVID-19 testing programme is provided by the Company's MIS business through Clinical Reference Laboratory, Inc. ("CRL"), one of the largest privately held clinical testing laboratories in the US. The service was launched in May 2020 and, post period, the CRL Rapid Response kit received U.S. Food and Drug Administration Emergency Use Authorization enabling shipments of this test to commence.

Customers are able to order the service using the same process as for their existing ClearStar drug and clinical screening programmes. The CRL Rapid Response™ kit, which is a saliva-based molecular diagnostic test, is shipped either in bulk to the employer or direct to the employees (or job applicants). Samples are self- collected by employees and sent back to the CRL lab for testing. Employees also complete a questionnaire and register the test collection kit online. The results of the tests are reported via the ClearStar platform within 24-48 hours, on average, of the samples being received by the lab and are provided in the same format, based on employer preference, as the customer receives their other drug or background screening reports

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