Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Chris Colvin!
Chris is the portfolio manager of Breach Inlet Capital, a Charleston, South Carolina-based investment manager that he launched in March 2016. Breach Inlet runs a concentrated portfolio of small cap companies undergoing transformation. Before launching Breach Inlet, Chris was the portfolio manager at a family office, a senior analyst at Highland Capital Management, and an investment banking analyst at Stephens. Breach Inlet owns more than 5% of BK Technologies and about 3% of PROG Holdings, and recently published research on both companies.
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Chris, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Breach Inlet Capital?
Thanks for having me. I need to start with a disclaimer…Nothing here should be construed as investment advice or a recommendation to buy or sell any security. This is not an offer to sell or a solicitation to buy an interest in any fund. Views are as of the date presented and subject to change without notice. Breach Inlet Capital Management, LLC and its affiliates may hold a position in the securities discussed and may buy or sell them at any time without notice.
I grew up near Breach Inlet, which is a waterway in Charleston, SC. Hence, the firm name. I came from a family of entrepreneurs from my great grandfather to my dad, so I’ve wanted to start my own business since I was kid. I really became intrigued with the stock market when I worked for my dad’s stockbroker before my senior year of college (at Wake Forest) in 2004.
The broker gave me a stack of sellside reports and told me to pick one to pitch to his clients. I chose Anthem, which was trying to acquire Wellpoint but the merger was being blocked by one California regulator. It seemed likely Anthem could appease this regulator, so the merger could close and that would transform Anthem into a better business. Downside appeared limited because Anthem traded near its historical multiple. This played out and Anthem’s stock hit all-time highs. This type of investment is similar to our targets today…transformations where downside seems limited.
I enjoyed various forms of investing, but believed that I could compound my capital at the highest rate by focusing on small cap public equities so I started Breach Inlet Capital after a decade of investing for others.
Before Breach Inlet, you worked in investment banking at Stephens, invested in distressed credit at Highland Capital, and ran a public portfolio for a family office. How did those experiences shape your focus on small caps undergoing transformation?
As you mentioned, I started my career working for the Stephens family. I was an investment banking analyst, but I also helped their family office evaluate private equity investments (which is what attracted me to Stephens). I then invested across the capital structure in the public and private markets at an institutional asset manager (Highland Capital) followed by a family office.
When I launched Breach Inlet, I had the most interest and success investing in “transformations” so I decided to mainly target these. Transformations are companies undergoing major change to transition into better businesses. Transformations are often mispriced until their fundamental improvements flow into reported financials and those act as self-fulfilling catalysts.
What do you look for in a potential investment? Can you tell us more about your investment process?
For Longs, we want to invest in companies with high returns on incremental invested capital (EBITDA growth relative to capital deployed), experienced & aligned leadership, fortress balance sheets & significant FCF, undervalued on an unlevered FCF basis, and often transforming into better businesses. For Shorts, we are effectively targeting the opposite…companies that claim to be transforming but face secular headwinds or new competitive threats.
We apply an extensive five-step investment process that includes sourcing, qualitative research, quantitative analysis, positioning, and monitoring. We source ideas from our internal watchlist database, other investors, screens, and general reading. Our qualitative research consists of reading public filings & expert calls; speaking to CEO’s former colleagues, former company employees, competitors, & customers; and using AI tools to diligence. We then utilize our qualitative research to complete our quantitative analysis, which includes creating a detailed forecast with two cases (base & downside), answering our 50+ question checklist, and summarizing our thesis into a four-page tearsheet. Next, we input our base and downside case price targets into an internal positioning model that guides us on position size. Last and most important, we monitor for relevant news and update our price targets accordingly.
You recently published a presentation on BK Technologies (NYSE: BKTI), a maker of radios for first responders, and Breach Inlet now owns more than 5% of the company. When did you first come across BK, and what caught your eye? Why is BK a good investment today?
Hat tip to Brandon Daniel, my former intern and now founder and portfolio manager of Atai Capital, for putting BK Technologies (NYSE: BKTI — $277 million) on my radar. The company produces and sells land mobile radios (“LMRs”) to first responders. Under a new CEO, BK had transformed by launching a new handheld LMR (BKR 9000) to significantly expanded its TAM while shifting its internal production to an outsourced contract manufacturer. As a result, this no-growth and barely profitable business became a high-growth company with 20% EBITDA margins.
That was the first leg of the transformation and the next leg should begin next year. BK will launch a companion in-vehicle LMR (BKR 9500) that already has a built-in sales pipeline from its customers of the BKR 9000 (who need a matching in-vehicle LMR) and customers of BK’s prior in-vehicle model (who want the latest product). In conjunction with this product launch, BK’s proven CEO introduced new long-term targets calling for a doubling of Revenue and tripling of EBITDA by 2030. He also had the Board grant him five-year stock options tied to share prices that are up to ~150% higher.
BK has no debt and trades at only ~18x LTM unlevered FCF (UFCF), which would triple by 2030 if targets are achieved.
Your deck says Motorola has 70%+ share but focuses on the largest cities, while BK is going after smaller, budget-conscious agencies. Who else does BK compete with for those customers and how are BK’s products differentiated?
BK also competes against Kenwood and Tait, but our research indicates their products are often more expensive or inferior to the BKR series. BK’s new radios look like the Motorola, the gold standard, yet cost half as much.
You also published a deck on PROG Holdings (NYSE: PRG), the parent of Progressive Leasing, where Breach Inlet owns about 3% of the company. Can you share your thesis with us?
We view PROG Holdings (NYSE: PRG — $1.21 billion) as another unappreciated transformation with potential catalysts. The company had a challenging first five years as a public company from 2020 to 2025. During most of that time, PRG was primarily just a virtual lease-to-own (“VLTO”) business called Progressive Leasing. Progressive has attractive attributes including: market leader, countercyclical, high Revenue visibility, and stable margins. However, its results were hurt by consumer stimulus fading coupled with high inflation then a retail partner bankruptcy. Starting last quarter, Progressive began growing again as these headwinds faded and its sales team more proactively targeted non-national retailers.
More interesting, PRG just began to disclose financials for its Buy Now, Pay Later company called Four Technologies. No one noticed when PRG paid only $23mm for this small and unprofitable business five years ago. Based on 2026 guidance, Four’s Revenue is now 50x higher at ~$150mm and its EBITDA margins have rapidly expanded to 20%. Four continues to grow ~100% y/y and should have room to expand EBITDA margin much further with its closest peer at ~40% (SEZL).
As part of its transformation, PRG also divested its unprofitable segment (Vive) for $150mm in 4Q25 and acquired Purchasing Power (“Power”) for $420mm in 1Q26. Power is the largest provider of employee purchase programs and growing double-digits. It further high graded PRG’s portfolio, so we believe PRG is now a collection of high-quality assets.
Earlier this year at its inaugural Investor Day, PRG gave a three-year EPS CAGR target of 17-20%. This appears achievable, but we don’t think needs to be achieved to earn a high IRR given PRG trades at only ~7x FY26 UFCF (implied by guide). If PRG’s material mispricing doesn’t correct soon, then we think Four Technologies could be spun off at a much higher valuation given the high multiples of its trading comps.
What are some other interesting ideas on your radar now?
Here are some of our other investments with excerpts from our 3Q26 letter…