Marvelous Microcaps
BK Technologies Corporation (BKTI)
INTRO:
At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.” This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.
THE COMPANY:
BK Technologies Corporation (BKTI) is a communication equipment company based in West Melbourne, Florida. The company engages in the design, manufacturing, and marketing of two-way land mobile radios that are either handheld or installed in vehicles. Its primary product line is BKR series of radios which are available in two production lines known as their 5000 and 9000 series. They also manufacture a legacy product line called their KNG series. These radios operate in what is known as P25 digital and analog modes which are used primarily in government, public safety, and military applications.
The company’s products primarily serve government markets, including emergency response, public safety, homeland security, and military customers of federal, state, and municipal agencies as well as some industrial and commercial enterprises. Their primary end markets to date have been in sales into the wildfire management space, where they have carved out a niche market. Within these markets, BK Technologies has become a trusted brand in the critical communications industry.
They also offer a product called InteropONE. InteropONE is a push-to-talk-over-cellular software-as-a-solution, or SaaS, service that provides emergency incident commanders with the ability to establish group communications networks between smartphone users directly from their smartphone. This allows disparate departments that may be coordinating on an emergency response the ability to coordinate their efforts even if their primary communications equipment is not compatible.
WHY WE OWN: THE PERRITT ADVANTAGE
We were originally drawn to BK Technologies following their successful launch of their BKR 5000 series single band radios back in June of 2020. At the time, we were excited about the prospect of them expanding beyond their wildfire vertical and the BKR series seemed like the platform for them to do so. They met with some success in these endeavors, though COVID shutdowns and the subsequent supply chain shortages did have an impact on their ability to ship radios and in some cases the necessitated redesigning of certain products. Unfortunately, while they were successful in dealing with their COVID related issues and getting the 5000 series launched, the company was still losing money.
Their initial success was followed by the launch of their BKR 9000 series multiband radios in April of 2023. These higher priced, higher margin radios feature all band capabilities that enhance their market opportunity across several market verticals expanding their total addressable market for radio sales from $200 million to $2.3 billion. It has been well received by customers from state and federal agencies. These radios were designed to operate on all P25 radio systems in any frequency band including those used in wildfire operations. The multiband capabilities allow agencies to standardize their radios on a single platform using the BKR 9000 because its capabilities can manage all their mission critical needs and it saves money versus having several platforms addressing unique needs. Most importantly, in the three full quarters on record since the 9000 series was launched, the company has been profitable.
More recently, the company announced it has partnered with a contract manufacturer named East West Manufacturing to transition all of their in-house manufacturing to East West. This transition to an asset-light model allows the company to pull a lot of working capital out of their business and cut operating expenses. They believe that transition along with the pickup in sales following the launch of their 9000 series can push their earnings power to $1.50 per share.
We are encouraged by BK Technologies’ efforts in building out their business and believe that the success they have demonstrated thus far is just an introduction to what is to come for the company. They have yet to realize most of the benefits from their transition to using a contract manufacturer, they are investing in new product development to enhance their BKR 9000 product line and they are laser focused on creating shareholder value. We believe they will be able to build upon their success thus far to achieve even greater levels of success for many quarters to come.