Castellum, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Castellum provides technology and government contracting services, primarily to U.S. government customers, and pursues growth through acquisitions. GTMR was acquired in March 2023.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.48 million | $11.06 million | $22.41 million | $21.05 million |
| Gross profit | $5.21 million | $4.69 million | $9.25 million | $8.82 million |
| Gross margin | 41.8% | 42.4% | 41.3% | 41.9% |
| Operating loss | $1.89 million | $2.75 million | $6.56 million | $3.60 million |
| Net loss | $2.10 million | $4.72 million | $6.42 million | $6.12 million |
| Net loss attributable to common shareholders | $2.13 million | $4.75 million | $6.48 million | $6.16 million |
| Basic and diluted loss per share | $0.04 | $0.20 | $0.14 | $0.27 |
- Cash flow: Six-month operating cash use was $1.87 million, investing cash use was $0.43 million, and financing provided $0.64 million. Cash decreased $1.65 million to $2.99 million.
- Liquidity: At June 30, current assets were $10.93 million and current liabilities were $8.85 million. Management said cash, ongoing operations, and available credit should meet working-capital and cash needs for the next 12 months and beyond. Unused revolving-credit capacity was $0.325 million.
- Debt: The balance sheet reported $0.625 million drawn on the revolving facility, $8.278 million of notes payable net of discounts, $1.606 million of related-party convertible notes, and a $0.400 million related-party note. The filing schedules $0.707 million of note principal payments in 2023 and $8.203 million in 2024; variable-rate borrowing costs may rise with prime rates.
- Backlog: Total reported backlog was $109.3 million: $22.6 million funded, $18.9 million unfunded, and $67.8 million in priced options. The company expects to recognize about 31% of remaining performance obligations within 12 months and 54% within 24 months, but funding and option exercise are not assured.
Material changes and notable items
- Q2 revenue increased 13%; first-half revenue increased 6%. Management attributed growth primarily to acquired LSG and GTMR revenue. First-half revenue mix was $12.93 million time-and-materials, $7.84 million cost-plus-fixed-fee, and $1.64 million firm-fixed-price.
- Despite higher gross profit, first-half operating loss widened to $6.56 million from $3.60 million. General and administrative expense rose 62% to $10.29 million, including $4.94 million of noncash stock-based compensation, higher salaries from increased headcount, and GTMR-related legal and audit costs. Q2 operating loss narrowed year over year as indirect costs fell.
- First-half net loss included a $1.24 million income-tax benefit, compared with a $0.74 million tax expense in 2022; the filing attributes the change largely to deferred tax effects associated with GTMR and a valuation-allowance release. A $0.845 million first-half gain from changes in derivative fair value also reduced other expense.
- GTMR acquisition consideration included 4.87 million Castellum shares and cash consideration. The acquisition added $1.86 million of goodwill, subject to measurement-period adjustments. Common shares outstanding increased to 47.37 million from 41.70 million at year-end 2022.
Outlook, risks and other disclosures
No specific revenue or earnings guidance was provided. Management noted that the final 2024 National Defense Authorization Act remained under negotiation and said it did not expect revisions to affect existing contracts, while continuing to monitor the process. Key risks include dependence on government appropriations and contract awards, customer concentration (two customers generated 44% of first-half revenue), competition, staffing and wage inflation, and the possibility that backlog funding or options will not materialize. The company reported its disclosure controls were effective and no legal proceeding it considered material. Its common stock had closed below $1 for more than 30 consecutive trading days; the company said it had not received an NYSE American delisting notice but could receive one.
Important facts for investors to verify
- Whether operating cash use, losses, and scheduled 2024 debt maturities can be managed with available cash, operating cash flow, and credit capacity.
- How much of reported backlog is funded, and the pace at which the company converts backlog into revenue and cash collections.
- GTMR’s contribution to revenue and profitability, and whether acquisition accounting or integration costs change materially.
- The ongoing impact of stock-based compensation, equity issuance, warrants, and other potential dilution on per-share results.
- Whether the stock price and NYSE American listing status improve, and whether government budget or contract changes affect awards and funding.