(MENAFN- ProactiveInvestors - UK) Having turned positive in the second half of 2015 at the underlying earnings (EBITDA) level, ClearStar Inc (LON:CLST) should be positive for all of 2016.
That's despite delays experienced in relation to a significant contract in the software firm's Medical Information Services (MIS) division that is likely to cause full-year revenues to come in some 10% below market expectations.
The background check and medical information specialist is still on course to notch up an increase of 20-25% in revenues over 2015's number, the company revealed at its annual general meeting (AGM) in late May, but the contract slippage is obviously a disappointment.
It is also not unheard of in the software industry, where a client's requirements can change, as happened in the case of the MIS contract, prompting a move back to the drawing board.
This was supposed to be the year the company put the accelerator pedal to the floor, having invested significantly in research & development and in recruiting extra experienced staff in its Direct Services division.
ClearStar chief executive Bob Vale told Proactive Investors that switching focus more to a direct sales model was one of the reasons the company, based in Georgia, USA, floated on Aim in July 2014.
Having previously relied more on what might be a called a wholesale model, selling through channel partners, Vale said the company had rebranded and introduced itself to 'our customers' customers', picking up many new contracts in the process.
While the Direct Services division was the star in 2015, the group actually saw increased sales across all its divisions.
Gross profit increased by 50% to US$9.5mln during the year and the gross margin rose 320 basis points (3.2 percentage points) to 61.2%.
Pre-tax losses widened to about US$2.3mln for 2015, compared with losses of US$1.7mln in the prior year. As alluded to above, however, EBITDA was positive in the second half of 2015.
Net cash fell slightly to US$3.9mln by the end of 2015 from US$4.2mln at the end of June.
The bulk of the group's revenues come from the US but it invested heavily in an international platform in 2015 with a view to selling its services to international companies that operate in the USA, satisfying 'local jurisdiction requirements, compliance requirements, or country requirements specific to the data and the law that allows us to provide access to that data,' Vale explained.
With many of the aspirations for 2016 now pushed back to 2017, the board has appointed a financial adviser to conduct a strategic review that will enable the company to size up its options in terms of accelerating the development and sales of what it considers are market-leading technology and solutions.
'The board has commenced discussions with a number of interested parties, all of which are at a preliminary stage and may or may not lead to an acquisition of a proportion, or all, of the company's securities. The board confirms that it would not entertain any indications of interest that did not represent a significant premium to the current market value of ClearStar,' the AGM statement revealed.
The board said it remains excited about the prospects for its business, but it is also possible to see how the company might be of interest to a bigger player in the software sector.
The group provides technology and services to help background screening companies, employers and staff with recruitment and job application decisions.
Its technology uses data from more than 4,200 sources and 240 countries ranging from resumes to records with local authorities.
The group's Aurora platform has supplied employment intelligence to over 28,000 employers, including many global blue-chip companies.
ClearStar has face recognition technology that was recently adopted by a US-based relocation specialist to speed up the temp recruitment process.
Worth U$500,000 annually and set to run for three years, it is the largest direct services contract to date for the recruitment group, and is an example of how the company's services can be used to run background checks on drivers, sales associates, estimators, packers and casual workers used by the US relocation specialist's van operators and independent agents.
According to Vale, the US jobs market is becoming more decentralised and more aligned with the shared economy; in other words, employers like the flexibility of being able to call on pools of qualified contract workers.
From ClearStar's point of view, of course, this is a good development because of the requirement in such circumstances to run background checks on those prospective employees.
'We're seeing it get much more fluid; the labourer wants more control over their income stream, but we're also seeing that the employer is going to more of an on-demand labour, or on-demand manufacturing model,' Vale said.
ClearStar's role is as a trusted third-party enabler, and it is not just a business-to-business (B2B) model any more, but 'almost a business-to-business-to-consumer model', according to Vale.
'We're trying to get ahead of that curve and take advantage of it'.
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