Executive Summary / Key Takeaways

• Castellum, Inc. (CTM) has achieved a significant milestone, reporting its first-ever quarterly GAAP net income in Q3 2025, signaling a pivotal shift towards sustainable profitability after years of strategic acquisitions and operational restructuring.
• The company's revenue growth, driven by major contract wins like the $103.30 million PMA-290 award, underscores its strong position in the federal government's high-demand cybersecurity, electronic warfare, and IT services markets.
• Aggressive debt reduction and successful equity raises in 2025 have substantially strengthened Castellum's balance sheet and liquidity, providing greater financial flexibility for future growth initiatives.
• Castellum's specialized expertise and strategic partnerships in areas like AI (with Quarrio's TrustworthyAI™) and advanced technology products are enhancing its competitive differentiation and addressing evolving government needs.
• Despite a robust backlog of $220.66 million, the company faces inherent risks from government budgetary uncertainties, customer concentration, and intense competition from larger, more diversified players, necessitating continued operational discipline and strategic agility.

Castellum's Mission and Market Landscape

Castellum, Inc. is strategically building a formidable presence in the critical domains of cybersecurity, information technology (IT), electronic warfare, information warfare, and information operations. The company primarily serves the United States government, including federal civilian, state, and local entities, alongside clients in the financial services and healthcare sectors. Its core mission revolves around securing data and establishing robust policies, delivering services such as intelligence analysis, software development, program management, strategic planning, information assurance, data analytics, and model-based systems engineering (MBSE).

The industry landscape in which Castellum operates is characterized by significant government spending on defense and IT services, albeit with persistent budgetary uncertainties. Trends such as increasing pressure on federal spending, potential delays in appropriations, and the consolidation of contract vehicles present both challenges and opportunities. However, there is sustained and growing demand in areas directly aligned with Castellum's expertise, including cybersecurity, advanced analytics, and technology integration. The broader market is also witnessing a surge in AI adoption and data center growth, which could further fuel demand for Castellum's specialized offerings.

Technological Edge and Strategic Partnerships

Castellum's competitive differentiation stems from its focused expertise in mission-critical technology services. While specific quantifiable metrics for its proprietary technology are not publicly detailed, the company's emphasis on specialized areas like electronic warfare, information warfare, and cybersecurity policy support implies a qualitative advantage in agility and customization for niche government operations. This focused approach allows Castellum to potentially offer more tailored and responsive solutions compared to broader consulting firms.

The company is actively enhancing its technological capabilities through strategic partnerships. Its newly formed product subsidiary, Castellum Advanced Technology Products, Inc., has entered into reseller agreements with companies like Tradewinds Networks, Inc. and AmpliTech Group, Inc. (AMLT), aiming to expand its product offerings to clients. A particularly noteworthy collaboration is with Quarrio Corporation, an agentic AI company, to provide "TrustworthyAI™ that is accurate, consistent, verifiable and secure" for government clients. This partnership highlights Castellum's strategic intent to integrate cutting-edge AI solutions, addressing the government's increasing need for secure and reliable artificial intelligence applications. These initiatives are crucial for strengthening Castellum's competitive moat, potentially leading to enhanced operational efficiency and market positioning in a rapidly evolving technological environment.

A History of Strategic Evolution and Growth

Castellum's current trajectory is a direct result of a deliberate strategic shift initiated in November 2019. The company embarked on an aggressive acquisition strategy, integrating specialized firms such as Corvus Consulting, Merrison Technologies, Specialty Systems, Inc. (SSI), Pax River, Lexington Solutions Group, and Global Technology and Management Resources (GTMR). These acquisitions were instrumental in building out Castellum's service portfolio and expertise in its core technology areas. The divestiture of its subsidiary Mainnerve Federal Services, Inc. (MFSI) in September 2024, while deemed immaterial to overall financials, reflects a continuous refinement of its business focus.

This strategic evolution has culminated in significant operational achievements. In March 2024, Castellum's subsidiary GTMR was awarded a substantial $103.30 million, five-and-a-half-year contract for Special Missions Management of On-Site Services in support of the Naval Air Systems Command (NAVAIR) Program Office 290 (PMA-290 Special Missions). This contract has been a primary driver of recent revenue growth and underscores the company's ability to secure large, impactful government work. More recently, in October 2025, SSI secured a $66.2 million, five-year contract for logistics, engineering, and cyber support services for the Naval Air Warfare Center Aircraft Division (NAWCAD) Lakehurst.

Financial Performance: A Turn Towards Profitability

Castellum's financial performance in 2025 marks a significant inflection point, highlighted by the achievement of its first-ever quarterly GAAP net income for the three months ended September 30, 2025, reaching $415,401. This breakthrough follows a period of substantial investment and restructuring.

Revenue growth has been robust, with total revenue increasing by 26% to $14.62 million for the three months ended September 30, 2025, compared to $11.61 million in the prior year period. For the nine months ended September 30, 2025, total revenue grew by 17% to $40.31 million, up from $34.47 million in the same period of 2024. This growth was primarily fueled by the ramping up of the GTMR PMA-290 contract and additional direct labor growth on existing contracts.

Gross profit also saw an increase, rising 11% to $5.49 million in Q3 2025 and 7% to $15.11 million for the nine-month period. However, the cost of revenues increased by 37% in Q3 2025, reflecting additional labor and subcontractor costs for the PMA-290 award, with subcontractor costs typically yielding lower margins than direct labor.

A key factor in the improved profitability has been disciplined cost management. Total operating expenses decreased by 20% to $5.05 million in Q3 2025 and by 16% to $16.53 million for the nine-month period. This reduction was primarily driven by lower healthcare expenses, achieved through a transition to a fully insured health plan and cost-management strategies, as well as a decrease in non-cash stock-based compensation. Other income also improved significantly due to a reduction in the fair value of derivative liability and a decrease in interest expense from overall debt reduction. The net loss for the nine months ended September 30, 2025, significantly narrowed to $1.16 million, an 84% improvement from the $7.33 million net loss in the comparable 2024 period.

Despite the recent positive quarterly net income, the trailing twelve-month (TTM) profitability ratios still reflect the historical losses, with a TTM Gross Profit Margin of 39.28%, Operating Profit Margin of -10.24%, Net Profit Margin of -11.59%, and EBITDA Margin of -8.22%. The shift to positive net income in Q3 suggests these TTM figures are poised for improvement as the company sustains its profitable trajectory.

Strengthening the Balance Sheet and Liquidity

Castellum has made substantial strides in strengthening its financial foundation. As of September 30, 2025, the company reported a robust cash balance of $17.82 million, a significant increase from $12.01 million at the end of 2024. This enhanced liquidity provides crucial operational flexibility.

The first nine months of 2025 saw aggressive debt reduction efforts. Castellum fully repaid its $2.00 million revolving credit facility in February 2025 and the $2.40 million Buckhout February 2024 Note in June 2025. Subsequent to the quarter-end, prior to the 10-Q filing, the company also fully settled its "Due to Seller" obligation by paying $140,000 plus accrued interest. These actions have significantly de-risked the balance sheet and reduced interest expenses.

Equity financing played a vital role in bolstering liquidity. Public offerings in March and June 2025 generated approximately $4.50 million and $5.00 million in gross proceeds, respectively, primarily for working capital and general corporate purposes. The exercise of warrants associated with these offerings further contributed to cash inflows. Additionally, the company filed a universal shelf registration on Form S-3 in January 2025, allowing it to offer and sell up to $100.00 million of equity and debt securities, providing substantial future capital-raising flexibility.

While net cash used in operating activities for the nine months ended September 30, 2025, was $1.29 million, primarily due to an increase in accounts receivable from the ramping up of the PMA-290 award, the company's TTM operating cash flow stands at a positive $1.12 million, indicating underlying operational cash generation.

Competitive Landscape and Strategic Positioning

Castellum operates within a highly competitive segment of the government contracting market, facing established players such as Booz Allen Hamilton , Leidos , CACI International , and General Dynamics . These larger competitors often possess greater scale, more diversified portfolios, and deeper financial resources.

Castellum's strategic positioning emphasizes its agility and specialized expertise in niche areas of cybersecurity, electronic warfare, and information operations. While it may not compete directly on the sheer scale of contracts with giants like General Dynamics (GD), its focused approach allows for potentially faster innovation cycles and tailored solutions for specific mission-critical requirements. For instance, in areas like information assurance and cybersecurity policy support, Castellum's specialized focus could provide a qualitative edge in performance and responsiveness, potentially leading to stronger customer loyalty and recurring revenue from long-term contracts.

Compared to Booz Allen Hamilton (BAH), which offers a broader consulting approach, Castellum's offerings are more targeted, allowing it to potentially secure niche contracts where specialized defense applications are paramount. Against Leidos (LDOS), which focuses on broader IT infrastructure, Castellum's emphasis on strategic mission planning and warfare-oriented solutions could differentiate it. Similarly, while CACI International (CACI) excels in broader IT and cybersecurity agility, Castellum's deep dive into electronic warfare and information operations might offer superior performance in those specific domains.

However, Castellum's smaller scale and relative dependency on government contracts present vulnerabilities. The industry trend of government agencies awarding contracts on a "technically acceptable-lowest cost basis" poses a risk, as larger competitors might leverage their scale to underbid. Inflationary pressures could also impact Castellum more acutely if costs rise faster than revenues, potentially eroding gross profit margins and making it harder to compete on price. The company's ability to attract and retain personnel with necessary security clearances is also a critical competitive factor, as this is a common challenge across the sector. Despite these challenges, the high regulatory requirements and the need for specialized expertise in its core markets act as significant barriers to entry, helping to protect Castellum's market position.

Outlook and Key Growth Drivers

Castellum's outlook is underpinned by a substantial and growing backlog. As of September 30, 2025, the company reported a total scheduled backlog of $220.66 million, comprising $18.28 million in funded backlog, $28.52 million in unfunded backlog, and $173.86 million in priced options. Management expects to recognize approximately 21% of its remaining performance obligations over the next 12 months and approximately 62% over the next 24 months. This visibility into future revenue provides a strong foundation for continued growth.

The company's strategic focus on organic growth, improving profitability, and operational leverage is expected to drive future performance. Recent contract wins, such as the SSI $66.2 million award, demonstrate continued success in securing new business. Furthermore, Castellum's engagement in strategic partnerships, particularly in the burgeoning field of AI for government applications, positions it to capitalize on evolving technological demands. The company's sustained efforts in debt reduction and capital management are also crucial for supporting its growth trajectory and providing the necessary financial flexibility.

Risks to the Investment Thesis

Despite the positive momentum, several risks could impact Castellum's investment thesis. The company operates in an environment highly susceptible to government budgetary uncertainties, including potential delays or reductions in appropriations, prolonged continuing resolutions, government shutdowns, or a breach of the debt ceiling. A prolonged government shutdown, such as the one that began on October 1, 2025, could negatively affect operations and financial results if it extends beyond December 1, 2025.

Customer concentration also presents a significant risk, with three U.S. government customers accounting for 72% of revenue for the nine months ended September 30, 2025. Any reduction in spending or termination of contracts by these key customers could have a material adverse effect. Intense competition from larger, more diversified government contractors, coupled with the trend of "technically acceptable-lowest cost" contract awards, could pressure Castellum's ability to win new business and maintain margins.

Furthermore, the company's ability to attract, retain, and develop highly qualified personnel with the necessary security clearances remains a critical operational risk. Inflationary pressures, though moderating, could also impact the cost of doing business and potentially reduce customer buying power, making it challenging to pass on higher costs in long-term, fixed-price government contracts. The successful integration of any future acquisitions also carries inherent execution risks.

Conclusion

Castellum, Inc. stands at a compelling juncture, having successfully transitioned from a growth-by-acquisition strategy to demonstrating tangible profitability and a strengthened financial position. The achievement of its first quarterly GAAP net income in Q3 2025, coupled with significant contract wins and a robust backlog, underscores the effectiveness of its focused approach in the critical government technology sector. The company's specialized expertise in cybersecurity and electronic warfare, augmented by strategic AI partnerships, provides a distinct competitive edge against larger, more generalized rivals.

While the inherent risks associated with government spending volatility and customer concentration remain pertinent, Castellum's proactive debt reduction, enhanced liquidity, and disciplined cost management efforts have built a more resilient financial foundation. The company's ability to convert its substantial backlog into revenue, coupled with its strategic embrace of emerging technologies, positions it for continued growth. For discerning investors, Castellum represents a compelling opportunity to participate in a specialized government technology provider that is demonstrating a clear path to sustainable profitability and strategic relevance in a vital market.