Graham Corporation (NYSE:GHM) Q1 2021 Earnings Conference Call - Final Transcript
Jul 30, 2020 • 11:00 am ET
James R. Lines
to 2020. So this strategy is being executed well. And I'm very pleased with our progress there and our ability to extract and realize the margins that we targeted.
Also, we're, of course, focused on strengthening our financial results. A key element here is to push more volume through our roof line and put less into our local supply chain with our fabrication partners. Alan and his team are, along with the HR team, are looking to continue to add to our skilled workforce, welders, machinists, assemblers. I'd like to see us with about 20 to 25 more direct laborers over the next one to two years, probably the next two years. And that will be very, very helpful in lifting our margins. In the naval program, we need to earn our position as a sole source supplier. We have some of that work now, which can come in sole source, but there's more of that through good performance, through strong execution, through program management, risk identification, risk mitigation and cost efficiency. We may be able to secure additional work under sole source bidding. That's earned, that's not given. And Alan and his team are doing a really good job to position us to be into that type of supplier category.
Also, for our naval work, Alan mentioned it in his remarks, we have had some of that work, that's first time articles for us, first time fabrications, and that has an aspect of cost structure that we've carried for that type of order. And that has a little bit of a headwind on the gross margin side, elevated cost of goods sold. However, as we get through those first article fabrications, and Alan and his team focus on workflow improvements, production optimization, reconfigure the operations to flow work more efficiently. Now that we've gone through the first article that will drop down to improved financial performance from that segment of our business. And also, we'll balance our near term realities with the reduction in demand on the order front. With our long-term strategies to grow this business, we've chosen not to right size our costs for what was happening in our first quarter or to an extent, what's happening in our second quarter with where revenue is. Because we believe in the long term and we believe in our strategies and we'll balance decisions we'll make around improving near term quarters that could be to the detriment of long-term value creation. So we will be very mindful of that watch out fiscal 2022 begins to take shape.
With that, I think it's an appropriate time to open the call up for Q&A. Devin, would you please open the line?