Executive Summary / Key Takeaways

• Strategic Transformation Underway: Castellum (CTM) is executing a focused strategy to become a leading technology provider in federal cybersecurity, electronic warfare, and IT services, marked by a history of strategic acquisitions and recent operational streamlining.
• Record Revenue & Improving Profitability: The company reported record quarterly revenue of $14.02 million in Q2 2025, a 22% year-over-year increase, alongside a significant 76% reduction in loss from operations, signaling a positive shift towards profitability.
• Enhanced Technological Moat: CTM is strengthening its offerings through strategic reseller agreements with innovative partners like Quarrio (TrustworthyAI™) and Tradewinds Networks, complementing its CMMI Level 3 appraisal and specialized federal expertise.
• Robust Backlog & Bolstered Liquidity: A substantial $201.99 million total scheduled backlog, with 65% expected to be recognized within 24 months, provides strong revenue visibility, supported by a healthy cash balance of $14.73 million and recent successful equity raises.
• Competitive Positioning and Risk Mitigation: While operating in a highly competitive federal contracting market against larger, diversified players, CTM differentiates through niche specialization and agile technological partnerships, actively managing debt and operational efficiencies to mitigate market risks.

The Federal Frontier: Castellum's Specialized Mission

Castellum, Inc. (NYSE-American: CTM) is carving out a vital role in the complex and critical landscape of U.S. national security. The company operates as a technology solutions provider, deeply embedded in the federal government sector, with a core focus on cybersecurity, information technology (IT), electronic warfare, information warfare, and information operations. Its mission is to leverage advanced IT capabilities to address the nation's most pressing security challenges, extending its services to federal, state, and local governments, as well as select commercial markets like financial services and healthcare that demand robust data security.

The company's journey to its current standing began in November 2019, marked by a deliberate strategy of growth through strategic acquisitions. This period saw Castellum integrate several specialized firms, including Corvus Consulting, Merrison Technologies, Specialty Systems, Lexington Solutions Group, and Global Technology and Management Resources (GTMR). These acquisitions were instrumental in rapidly expanding CTM's service portfolio and client base, transforming it from a nascent entity into a more comprehensive federal contractor. This foundational phase, which included its NYSE American listing in October 2022, laid the groundwork for its current operational scale and strategic direction.

Castellum's service offerings are its primary technological differentiators, encompassing intelligence analysis, software development and engineering, program management, strategic and mission planning, information assurance, cybersecurity and policy support, data analytics, and model-based systems engineering (MBSE). These services are inherently designed to secure data and establish resilient policies, applicable across both legacy and cloud-based infrastructures. The company's subsidiary, GTMR, recently achieved Maturity Level 3 of ISACA's Capability Maturity Model Integration (CMMI®) in March 2025. This appraisal signifies a commitment to process optimization and quality, providing a tangible benefit in government contracting by demonstrating a mature and capable approach to project execution, which can enhance client trust and contract eligibility.

Further bolstering its technological moat, Castellum has strategically entered into reseller agreements through its newly formed product subsidiary, Castellum Advanced Technology Products, Inc. In August 2025, it partnered with Quarrio Corporation to provide "TrustworthyAI™" for government clients, offering an AI solution that is accurate, consistent, verifiable, and secure. This move is critical as it positions CTM at the forefront of AI integration for federal applications, a rapidly growing and high-value segment. Additionally, agreements with Tradewinds Networks, Inc. and AmpliTech Group, Inc. (AMPG) in July and August 2025, respectively, allow CTM to resell their specialized products, expanding its solution suite and enhancing its competitive offering without the heavy R&D investment. These partnerships directly contribute to CTM's competitive advantage by enabling it to offer cutting-edge, secure AI and other advanced products, potentially leading to higher contract wins and improved margins by addressing evolving client needs with agile, specialized solutions.

The competitive landscape for Castellum is intense, characterized by a "very competitive and rapidly changing environment" with "increased competition from other government contractors and market entrants." Larger, more diversified players like Booz Allen Hamilton (BAH), Leidos Holdings (LDOS), CACI International (CACI), and Science Applications International Corporation (SAIC) represent significant rivals. While CTM's TTM Gross Profit Margin of 39.28% is notably higher than CACI (9%) and SAIC (12%), it lags behind BAH (55%) and LDOS (17%), indicating a mixed margin profile relative to its peers. CTM's niche specialization in electronic warfare and information operations provides an edge in targeted missions, offering potentially faster development and response times compared to the broader scale of its larger competitors. However, its smaller scale can lead to relatively higher costs and lower overall profitability compared to the operational efficiencies achieved by industry giants.

Government agencies increasingly award contracts on a "technically acceptable/lowest cost basis," which introduces significant pricing pressure. This dynamic, coupled with an "industry trend towards consolidation," means CTM must continuously demonstrate superior value and efficiency. The company's ability to attract and retain highly qualified personnel with necessary security clearances is also a critical competitive factor, as is its capacity to integrate new acquisitions and develop new products. CTM's strategic partnerships and CMMI Level 3 appraisal are direct responses to these competitive forces, aiming to differentiate its offerings and secure its position in a challenging market.

Financial Momentum and Strategic Capital Management

Castellum's recent financial performance underscores a significant operational turnaround, particularly in the second quarter of 2025. The company reported record quarterly revenue of $14.02 million for the three months ended June 30, 2025, marking a robust 22% increase from $11.52 million in the prior-year period. For the six months ended June 30, 2025, revenue grew 12% to $25.69 million, up from $22.86 million in the same period of 2024. This growth was primarily fueled by a substantial $103.3 million, five-and-a-half-year contract award to its subsidiary GTMR for Special Missions Management of On-Site Services in support of NAVAIR Program Office 290 (PMA-290), complemented by organic direct labor growth on existing contracts.

While cost of revenues increased by 31% to $8.96 million for the quarter, largely in line with revenue growth and additional subcontractor costs for the PMA-290 award (which management noted are "typically at a lower margin than direct labor"), gross profit still expanded by 8% to $5.06 million. More impressively, CTM demonstrated strong operational efficiency, reducing total operating expenses by 13% to $5.44 million for the quarter. This reduction was attributed to "strategic cost-saving initiatives and the enhancement of operational efficiencies across all GA support departments," alongside a decrease in non-cash stock-based compensation.

The impact of these improvements is evident in the significant reduction of loss from operations, which decreased by 76% to $383,523 for the three months ended June 30, 2025, compared to $1.57 million in the prior year. The company also saw a substantial improvement in other income/expense, driven by a reduction in derivative liability fair value, decreased interest expense due to overall debt reduction, and increased interest income from a growing cash balance. This culminated in a net loss of $322,107 for the quarter, a remarkable 81% improvement from the $1.85 million net loss in Q2 2024.

Castellum has also been proactive in strengthening its balance sheet and liquidity. As of June 30, 2025, the company held a healthy cash balance of $14.73 million. This was significantly bolstered by successful equity raises in the first half of 2025, including a $4.5 million public offering in March and a $5.0 million public offering in June, both involving common stock and warrants. Subsequent to the quarter, an additional $2.67 million was raised from warrant exercises.

Concurrently, CTM has aggressively managed its debt, fully repaying the $1.99 million Live Oak Revolver in February 2025 and the Buckhout February 2024 Note in June 2025. A $2 million principal payment was made on the 2024 Eisiminger Note in April 2025, with another $2 million payment agreed to in August 2025, reducing its balance to $2 million and extending its maturity.

These actions demonstrate a clear commitment to financial discipline and provide the necessary working capital for future growth.

Outlook and Risk Considerations

Castellum's future appears promising, underpinned by a substantial total scheduled backlog of $201.99 million as of June 30, 2025. The company anticipates recognizing approximately 22% of these performance obligations over the next 12 months and about 65% over the next 24 months. This backlog provides significant revenue visibility and reflects the strength of its contract wins, particularly in the federal sector. CEO Glen Ives's statement about the CTM team being "laser locked like a missile seeker on its organic growth targets" highlights a clear strategic focus on leveraging existing capabilities and new partnerships for sustained expansion.

However, the federal contracting environment presents inherent risks. The company operates within an "uncertain and evolving political, budgetary, and regulatory environment," with "increasing pressure on the USG to reduce federal spending." This could lead to delays or reductions in funding for existing contracts or new awards, especially given the potential for "a prolonged continuing resolution, government shutdown, or breach of the debt ceiling." Such budgetary uncertainties could directly impact the realization of its backlog and future revenue growth.

Inflationary pressures also pose a challenge, as rising costs for labor and benefits may not be fully passed on to government clients due to competitive pricing and fixed-price contracts. This could compress gross profit margins and make it difficult to retain staff. Furthermore, the company's reliance on highly qualified personnel with security clearances means that any difficulty in attracting or retaining such talent could adversely affect its ability to execute contracts and win new business. While CTM has demonstrated a strong ability to integrate acquisitions, the success of future strategic initiatives, including new product development and partnerships, will be crucial for long-term growth. Notably, the company has removed the risk factor concerning its "lack of a long-term operating history," indicating a maturing business model and increased confidence in its operational execution.

Conclusion

Castellum, Inc. is undergoing a compelling strategic resurgence, transforming itself into a more agile and technologically advanced player in the federal cybersecurity and IT services market. Its recent financial results, marked by record revenue growth and significantly improved operating profitability in Q2 2025, signal a positive inflection point. This operational momentum is directly attributable to key contract wins, such as the $103.3 million NAVAIR award, and a disciplined approach to cost management and capital allocation.

The company's strategic emphasis on technological differentiation, particularly through partnerships that bring secure AI and other advanced products to its federal clients, positions it favorably within a competitive landscape. While facing larger, more diversified rivals and the inherent uncertainties of government spending, CTM's specialized expertise, robust backlog, and strengthened liquidity provide a solid foundation. Investors should view Castellum as a company actively executing a clear strategy to capitalize on critical federal market needs, with a positive trajectory in both operational performance and financial health, making it a compelling consideration for those seeking exposure to the growing national security technology sector.