CTM Q3 2026 earnings call transcript, November 6, 2026

Good morning, and welcome to the Castellum, Inc.'s third quarter, 2026 earnings conference call. An earnings press release was... distributed yesterday, November 5th, after the close of the market. A copy of that release, as well as an earnings presentation, is available on the company's website in the Investor Relations section and should be reviewed in conjunction with the Form 10-Q filed yesterday with the SEC. Please note that this call is being recorded and all participants are in listen-only mode. Following...

management's prepared remarks, we will open the line for a question-and-answer session. If you would like to ask a question at that time, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, you can press star one again. Before we get started, I would like to remind you that today's call may contain forward-looking statements within the meaning of the section... Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Each has amended. These statements represent the company's expectations or beliefs concerning future events, including our expectations for future revenue growth. New customer opportunities, improvements to cost, structure, and profitability. Forward-looking statements are subject to certain risks and uncertainties, which are outside of the company's control. That could cause actual results to differ from those expressed or implied on this call. These include, among others, the company's ability to grow and execute on total backlog and qualified pipeline, ability to integrate and grow acquired companies, ability to identify and close. additional acquisitions and factors affecting U.S. government spending, including budget delays, continuing resolutions, and government shutdowns. Please also note that on this call, we'll reference non-GAAP adjusted EBITDA, which is a non-GAAP financial measure used by management to measure the company's operating performance, as required by SEC rules and regulations.

Non-GAAP financial measure. Non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release issued yesterday afternoon. All forward-looking statements speak only as of today, and the company undertakes no obligation to update them except as required by law. I would now like to turn the call over to Glenn Ives, President and Chief Executive Officer of Castellum. Glenn.

Please go ahead.

Well, thank you, and good morning to everyone on our call. Joining me today are David Bell, our Chief Financial Officer, and Drew Merriman, our Chief Operating Officer, and they'll both be available to answer questions as well during the Q&A period at the end of the call. Follow my opening remarks on the company's performance during our third quarter and first nine months. David, we'll take you to the financials in more detail, and then I'll provide some commentary on our call. our strategic priorities, and also our outlook for the balance of 2026, and then we'll get to the questions during the Q&A period. For the first nine months of 2026, we generated $42.9 million in revenue, up 6% from last year, and as previously announced, we expect record revenue for the four-year period, 2026. Much of that growth reflects the large Navy contracts we won in 2025. Our NAVAIR PMA-290 Special Missions Program contract continues to be a very meaningful contributor, and in August, the ceiling on that contract was increased by $32.8 million to a total of $136.2 million, and we're also seeing revenue from the five-year $66.2 million NOC-AD Naval Air Warfare Center Aircraft Division Lakers program, which is still early in its ramp-up. as we regularly emphasized, we encourage investors to evaluate our performance over the long term, rather than focusing too narrowly or too heavily on any single quarter. Given the nature of government contracting, the timing of the awards, program ramp-ups, revenue recognition, they can all fluctuate significantly from quarter to quarter, and a very common factor in our industry. While those fluctuations are a normal part of our business, our year-over-year growth is what provides a much clearer picture.

of Costellan's overall trajectory in the state progress that we're making. Government services revenue does not move in a straight line, particularly for a company our size with annual revenue between $55 to $60 million. Contracts do wind down, new contracts ramp up, and the crossover quarters can look very flat, even when the underlying trajectory is clearly up. Our focus, our work, our effort, our commitment is always on delivering.

Flawlessly for our existing mission customers and growing and strengthening every opportunity that we can possibly have for sustaining our growth. Turning now to our backlog, we ended the quarter with a total backlog of $254.5 million, including $18.2 million funded and $236.3 million unfunded. This compares to $271.7 million June 30th of this year, 2020. As part of that backlog has moved to work in progress. During the quarter, we refined how we report backlog by including priced contract options in our unfunded backlog. This change provides a much clearer view of our contracted business and aligns our reporting with industry standards. We do expect to recognize approximately 25% of our backlog over the next 12 months and about 51% over the next 24.

The qualified pipeline also grew to a record level of approximately $1.66 billion from $953.5 million on June 30th of this year. The pipeline represents potential future awards and reflects the investments we have made in our business development capacity this year, specifically to increase the volume and quality of the opportunities we do pursue. Our team continues to focus on serving our Army, Navy, and our federal customers. We're pursuing new awards and expanding our work under existing programs. The August modification to the NAVIR PMA 290 special mission contract is a very real example of how strong program execution can create additional opportunities. I think our proven CTM team knows how to execute on contracts, and we know how to grow them. Finally, I'd like to briefly discuss our investments in business development and M&A, which I will expand upon following David's discussion of our financial results. During this year, we purposely increased our investments in these areas in accordance with our current strategy. And the near-term impact on EBITDA, because of these strategic investments, was planned and anticipated. We view these strategic investments as the upfront work that we need to win, grow, and scale Costellum, as these are investments that precede new contract awards and associated revenue that we do expect to generate. We're making these investments from a position of financial strength, funded by our own operations, using that operating income, and we believe they will support and strengthen our sustained growth over the next several years.

Just want to reemphasize that point, that we are making these investments from a position of financial strength, a strong balance sheet, and funded by our own operations using that operating income. With that, let me turn the call over to David to take you through the call.

financial results in more detail.

Thank you, Glenn.

David. And good morning to everyone. I'll go over our financial results for the quarter and the first nine months, then discuss cash flow and our balance sheet. Third quarter revenue came in at $14.7 million compared to $14.6 million a year ago and $13.9 million last quarter. The NAVAIR, PMA290 Special Missions, and NOC-AD Lakehurst MONI contracts continue to contribute. Revenue as work continues to ramp up, although timing of work across our contracts can be affected and can affect individual quarters. Gross profit for the quarter was $5.3 million compared to $5.5 million last year. Gross margin was 36.1% compared to 37.6% a year ago, but improved from approximately 34% in the second quarter of this year. The main factor driving this fluctuation is contract mix. During the third quarter, we carried a higher mix of subcontractor work on larger programs, and that generally carries a lower margin than our own direct labor. As just stated, sequentially gross margin has improved from approximately 34% last quarter. Operating expenses were $5.9 million for the quarter versus $5 million a year ago. The increase reflects the business development team. We've added higher employee-related costs outside. Support for acquisition activities and stock-based compensation. These areas are – these are areas where we made intentional investments as part of our growth plan rather than unexpected expenses, just as Glenn stated a second ago.

Adjusted EBITDA for the quarter was positive at approximately $600,000 compared to $1.1 million last year. The calculation excludes non-cash expenses such as $800,000 for stock-based compensation. and employee stock purchase plan costs, as well as $300,000 in depreciation and amortization. The full non-GAAP reconciliation is available in our earnings press release and presentation. As Glenn mentioned, the decline in adjusted EBITDA was planned and anticipated, as we made a deliberate decision to invest in our business development and acquisition efforts. We have the capacity to spend more, but we're taking a measured approach, investing where we see the strongest potential. Return while protecting our financial flexibility. We reported a net loss of about $500,000 for the quarter versus a net income of $400,000 last year. The majority of this net loss was due to non-cash items such as stock-based compensation and depreciation and amortization. Of course, the growth initiatives I've just discussed had a real cost and impact. Looking at the nine months period puts those results in context. Revenue increased by 6% to $42.9 million from $40.3 million a year ago, driven primarily by the ramp-up of our Navy contracts. Nine-month gross profit was essentially flat at $15.1 million. Gross margin was 35.2% compared to 37.5% last year. Operating expenses were $17.4 million compared to $16.5 million a year ago. Adjusted EBITDA

remained positive at approximately $1 million versus $1.8 million and a net loss of $1.8 million compared to $1.1 million last year. Those figures reflect the contract mix and the investment decisions that both Glenn and I have just discussed. Turning to cash flow, which I think is a highlight of the period, net cash provided by operating activities was $1.1 million for the period compared to a year. Use of $1.3 million in the nine months of the prior year, a positive swing of $2.4 million. That improvement was primarily driven by a smaller increase in accounts receivable in 2026 than in 2025. Importantly, we generated, we continued to generate positive operating cash flow while investing in business development and M&A. Turning to liquidity, we ended September with 15.6 million. $7 million in cash and $8.8 million in net accounts receivable or $24.5 million combined. That combined balance was approximately $23.1 million at the end of 2025. That's an increase of roughly $1.5 million or about $500,000 per quarter on average. Receivables are not the same in cash, but together with that, with these balances provide a useful context for our liquidity and what in capital. We also ended the quarter with no outstanding debt and approximately $36.3 million of stockholders' equity. Finally, an additional word on backlog composition. As Glenn mentioned, total backlog was $254.5 million at quarter in, with $18.2 million funded and $236.3 million unfunded. We expect to recognize approximately 25% of our backlog

over the next 12 months and approximately 51% over the next 24. Importantly, these figures reflect only our existing backlog and do not include potential revenue from new contract awards or other business not currently included in our backlog. As with all government contracting, the timing of funding and option exercises rest with our customers. But this backlog provides a multi-year foundation of revenue visibility. So to summarize our current financial picture. First nine months of revenue is up 6%. Adjusted EBITDA and operating cash flow are positive. And we have $24.5 million in cash and accounts receivable with no outstanding debt. While our investments in business development and M&A have weighed on near-term earnings as expected, we anticipate to begin seeing the benefits of these investments over the next 6 to 12 months. Building on this momentum, we remain on pace. for record full-year revenue for 2026. And with that, I'll turn the call back to Glenn to discuss our strategy and our outlook.

David, thanks very much. Yes, the financial results reflect, you know, the choices that we plan for and that we've been making throughout this year. That has continued to serve and grow our existing mission customers while putting more resources behind the next phase of our growth here at Costello. So let's focus just for a minute. here on how we're positioning Costello for that next very important phase of growth and why we see acquisitions as really our greatest opportunity to achieve the scale that we are driving towards and are absolutely 100% committed to. And that is, again, grow organically and scale inorganically. Organic growth does remain important for us. It is a top priority as we move through the end of 2026 and into 2027. It's disciplined execution. That always remains our priority. And I believe our CTM team over the last year and a half has really proven that and hammered that home. We expect record revenue for 2026, supported by the work we've already won. We've also strengthened our business development team to pursue larger opportunities, and the increase in our qualified pipeline gives us more to compete for. We will also keep delivering flawlessly on our Army and Navy contracts and programs and also our federal civilian contracts. We've already won. Strong execution supports and fortifies our business today and provides that rock-solid business foundation for the right acquisitions that we're looking to make.

please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, you can press star one again. We'll pause just for a moment to compile the roster. And our first question comes from Derek Greenberg with Maxim Group. Your line is open.

Your next question comes from Chip Rui with Rui Asset Management. Your line is open.

Again, if you would like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, you can press star one again.

Again, if you'd like to ask. the question, please press star then the number one on your telephone keypad to raise your hand and enter the queue.

large prime contracts, build a pipeline that keeps growing and kept this company free of debt. I followed it closely and I defended it. I'm here because I wanted to succeed. I also have to tell you what I hear from shareholders every day. Business has been built up for years and stock hasn't followed. People have asked to be patient for a long time and the stock is making new lows. It trades around its book value with no debt, which tells me the market doesn't really believe what you built. So, my first question is, many shareholders are afraid that if the price doesn't recover, the answer will be a reverse split. I understand the math and I know it doesn't change what anyone owns on paper. It would still feel like a betrayal to shareholders who have waited for years and to the employees who are paid in the stock and buy through the stock purchase plan. A reverse split is what people expect from a company in trouble and this company has cash but no debt. So, thank you very much. Reverse split under any consideration and can you rule it out? Thank you. David, you want you want to start with that one? I say that, you know, I wouldn't say we have not. Brewer split is not on the tables for us right now. I can't say what we're going to do not going to do but it's not something that we think is the way to improve the stock price of the company. Glenn has said build the company, execute on our story, execute on our plan. We believe that as we grow through the business development, the ground game and the passing game and the acquisition that the market will start to see it. So we're growing long term. We don't want to take necessarily short term steps, short term impacts. We're looking long term.

So hopefully that answers your question. We're still looking long term and we're growing and we're committed to that. Yeah, I can. I can sort of tag on to Mo. Mo, thanks for, you know, checking on the call and thanks for your question.

Yeah, so, you know, we're here at CTM. We're not unlike our shareholders, right? I think there's certainly, you know, frustration on our part in terms of where our stock price is at. You know, a day doesn't go by that, I don't think, through this. But I would say, Mo, that with many of our shareholders, I know some have been with us for quite some time and some are much newer.

For, you know, for. That joined us, you know, four or five years ago. You know, I can't say enough. My hat's off to you for, you know, believing in us and sticking with us. But the point I would like to make is that we're a very different company since 2024, really over the last two years, than the previous four. The previous four years, you know, the first. Phase of this company from 2020 until 2024. There were a lot of good things done. But the company was in a very tricky place, you know, mid-year 2024, because it had made seven acquisitions, right? Seven events where they brought it down to three companies and did a great job of doing that. But while... Doing it, the company accumulated over $12 million a day. And the companies that we had acquired at the time were all very small businesses. And three of them had done extremely well. But they certainly weren't postured for continued organic growth. So in mid-2024, you know, we realized that, you know, the company really needed to adjust in a big way. And we went from integrating those companies into phase two. And that was, hey, we absolutely have to focus and grow this company organically. And so when you think about the timeframe, you know, we started that process, that phase two process, really towards the tail end of 2024 and into 2025. And in 2025, I'm not sure you can find a company out there that can say that they were able.

to, in that short period of time, develop an organic growth plan and execute it and bring three prime contracts at the value of $220 million, approximately, over five plus years. That is due in large part, you know, to the team that we built here. And that's important to understand because it's one thing to do business in our industry as a large business or a small. It's a completely different science and art to grow. A business from small to large. And that's what we're doing, right? And so the team that we have here at CTM, we understand how to do that. You know, we have a model that we know works. We have a strategy that we're always adjusting. But bottom line is we're going to continue to press organically. We're going to continue to press to make the right acquisitions. And that's how we're going to scale. And that's how we're going to get our stock to where it needs to be. We can talk about buybacks. We can talk. We can talk about reverse splits. We can talk about all those kinds of things. But what I want to do is make sure that we have a healthy, strong company that's going to endure for our shareholders and bring that value that they're looking for. I can't guarantee that in six months. But if you hang in there for a little while here while we execute on our strategy and give us a chance to do that, I think we'll also attract more institutional investors. It has to be a big part of our plan. There needs to be a good balance of our retail investors and obviously our institutional investors as well. All that will come with the kind of growth that we're talking about here. So thanks again, Love. Really appreciate your question.

And with no further questions in queue, I'd like to turn the call back over to Glenn for closing remarks.

Hey, thanks, Colby.

This concludes today's conference call.