Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 20 21 Second Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded Management will make some opening remarks about the Q2 results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com.
Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.
Thank you, Liz, and thank you all for Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company By their nature, forward looking statements speak only as of the date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward looking statements As a result of a variety of factors, such risks, uncertainties and other factors are described in detail in the section entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD and A entitled Safe Harbor Statement in our Annual Report On Form 10 ks for the fiscal year ended October 31, 2020, and subsequent filings with the Securities and Exchange Commission, Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward looking statements Whether as a result of new information, future events, changed circumstances or any other reason. Joining me today on the call are Ara Hovnanian, Chairman, President and CEO Larry Sorsby, Executive Vice President and CFO and Brett O'Connor, Senior Vice President, Chief Accounting Officer and Treasurer.
I'll now turn the call over to Ara. Ara, go ahead.
Thanks, Jeff. I'm going to review our 2nd quarter results and then address the current market environment. As usual, Larry Soresby, our CFO, will follow me with more details and we'll end with Q and A. On Slide 4, we compare our 2nd quarter results to the guidance we gave on our Q1 conference call. Our total revenues, adjusted gross margin, adjusted EBITDA and adjusted pretax income We're all within the guidance range that we gave.
However, SG and A was higher than anticipated. The SG and A miss was related to $17,500,000 of incremental Phantom stock expense related solely to our common stock price Increasing from $51 at the end of the first quarter to $133 at the end of the second quarter. Only one time in our company's history during 2019, Phantom stock was issued for an equity grant, It was because our stock price was very low at the time, and we were concerned about the negative impact that dilution could have on our shareholders. While we certainly have been bullish on our long term stock price, we did not budget for the magnitude of the increase in 1 quarter. Larry will talk more about the Phantom stock expense in just a few moments.
In the 3rd column, we show what our results would have been without Moving on to Slide 5, we show year over year comparisons for the 2nd quarter performance metrics. We begin with total revenues in the upper left hand portion of the slide. Our total revenues for the 2nd quarter increased 31% to $703,000,000 Moving to the upper right hand portion of the slide, you can see that our adjusted gross margin increased 310 basis points year over year. Adjusted gross margin was 21.3% this year compared to 18.2% in last year's Q2. As we've said on previous calls, in anticipation of cost increases And our desire to improve margins, we pivoted to increasing home prices back in June of 2020.
During the first half of 'twenty one, housing demand remained strong, and we saw both labor and material costs, Especially lumber continue to increase. As a result, we continue to both Aggressively increase home prices and limit home sales to a pace similar to our home starts. These actions will help ensure that we stay ahead of future cost increases. We'll talk more about that and the impact of margins in a moment. In the lower left hand quadrant of the slide, you can see that our SG and A was certainly impacted by the incremental Phantom stock expense.
If you were to ignore the incremental stock expense, the SG and A ratio would have improved to 9 point 3%, as shown in the lower blue compared in the lighter blue, excuse me, compared to the 10 point 4% in last year's Q2. We're benefiting from the normal leverage of scale as we grow. In the lower right hand quadrant of the slide, we show that adjusted EBITDA increased 47% From $52,000,000 in last year's Q2 to $76,000,000 this year. While we were within the guidance range for EBITDA, once again, if you ignore the incremental Phantom stock expense, Our adjusted EBITDA would have increased 80% to $94,000,000 above the upper end of our guidance range. On Slide 6, our adjusted pretax income before land charges and gains or losses from the extinguishment of debt improved to a $31,000,000 profit this year from a $5,000,000 profit last year.
Once again, Ignoring the Phantom stock expenses would have resulted in a higher profit of $49,000,000 this year. On Slide 7, we show that our net income for the Q2 of 'twenty one was $489,000,000 Compared to $4,000,000 in the same quarter last year, a huge portion of that year over year increase or $469,000,000 was due to the reduction of our valuation allowance. The profit for the quarter, Combined with the reduction in our valuation allowance resulted in total shareholders' equity increasing sequentially by $489,000,000 On the left hand portion of the slide, we show that our quarterly contracts Increase excuse me, on the left hand portion of Slide 8, we show that our quarterly contracts increased 19% to 771 Homes. Contracts during the Q2 last year were adversely impacted By the early stages of the COVID shutdown, making this year's 2nd quarter comparisons much easier, We achieved a 62% increase to 18.3 contracts per community for the Q2 of this year compared to 11.3 contracts per community for last year's Q2. The strength of the market has been widespread across product types And by geography, during the Q2, Phoenix, Delaware and Dallas Fort Worth had the largest year over year increases in Contracts per community.
Each of these divisions posted year over year increases of more than 135%. Our other markets continue to do well also, but in many of those cases, we have been more focused on slowing down sales Slide 9 shows the number of consolidated contracts on a monthly basis over the past year. As we discussed last quarter, we consciously raised prices significantly in February to slow the sales pace and improve our margins. While we held the sales pace to comparable numbers in the months of March April with steady price adjustments, The contracts are still up over the prior year because the comparisons were much easier. Turning to Slide 10, you can see the contracts per community for the past several months.
This shows a similar pattern of significant increases compared to the same month last year, but even more significant, Again, with particularly easy comparisons for last April March, we spiked at 7 contracts per community in January. Then we saw the intended impact from our aggressive home price increases and the restriction of sales in certain locations. In both February March, contracts per community slowed to 6.1 and in April, it came down further to 5.5 contracts per community. Even at these lower contract paces per community, our annualized paces are the highest they have been For over a decade, a sales pace of 6 to 7 per month per community is difficult to match in production today, and we pivoted harder to a greater focus on margin. As I mentioned earlier, we'd like to As we stated on our analyst call last quarter, We expected the year over year sales comparison for March April to be much easier due to the COVID shutdown last year.
We also stated that the comparisons would be more difficult in May and over the summer months due to the surge in COVID housing demand last year. Further, over the past several quarters, we were particularly aggressive regarding raising sales prices to both increase margins and slow sales to a more rational pace. During the recent months, we've significantly metered Sales and temporarily stopped sales in certain communities in order to better match our sales pace with our ability to start homes. As a result, compared to intrinsic demand, we believe our May sales pace is artificially low. You can see the start of these more difficult comparisons on Slide 11.
During the month of May, due to restricting sales, An especially difficult comparison to a very strong May last year and a lower community count, Our contracts per community declined 19% and our contract dollars decreased 23% And total contracts declined by 266 homes year over year. However, we achieved our objectives And our May contracts had the highest gross margin percentage at the point of contract for any month in over a decade. As we intended, the slowing of our sales pace has kicked in. The difficult comparison to last year's sales pace will continue over the summer months. This was the last this was a time last year when the market was absolutely on fire, and we and the homebuilding industry Had not begun to aggressively throttle back contract paces.
However, like the month of May, we expect Significantly higher gross margins in our new contracts compared to last summer's contracts. The broad strength in the housing market continues to be driven by the same factors that have been in place over the past year: Solid demographic trends, limited supply of new and existing homes, historically low mortgage rates In an ever improving economy, the potential for an infrastructure bill can only improve the economic conditions. We plan to continue to raise prices in order to keep up with rising material and labor costs, align our sales pace with our ability to are expected to be dramatically better than last year. I'll now turn it over to Larry Sorsby, our Chief Financial Officer.
Thanks, Ara. I'm going to start with a discussion about the $17,500,000 of incremental phantom stock that we booked in the Q2 of fiscal 2021. In 2019, for the only time in our history, Phantom stock was used in lieu of actual equity for our long term incentive plan or LTIP grant. This was done in the best interest of shareholders to avoid dilution concerns associated with the low stock price of $14.50 At the time of the grant, we determined that granting Phantom shares eliminated the significantly higher than normal EPS dilution that would have resulted from granting actual shares at the $14.5 stock price. When actual shares are used for an equity grant, There are no GAAP expenses related to stock price movements from 1 quarter to the next.
However, non cash GAAP expenses for Phantom Stock varies depending upon changes in common stock price each quarter during the performance period, which began in 2019. Cash payments for the 2019 Phantom Stock LTIP grant will occur beginning in fiscal 2022. Since 2019, when we granted our Phantom stock LTIP, our operating performance has significantly improved. As a result, our stock price has materially increased, especially after we reported our strong first quarter results and guidance for fiscal 2021 in early March. The run up in our stock price from $51.16 to $132.59 during the 2nd quarter resulted in a $17,500,000 Of SG and A expense that would not have occurred had we granted our 2019 LTIP utilizing actual shares instead of phantom stock.
While we were not surprised that the stock price went up, we were surprised by how much it went up in a single quarter. On Slide 12, we show our total mothballed lots as of the end of the Q2 of fiscal 2021. During the Q2 of fiscal 2021, we un mothballed 864 total lots, including 732 lots A large master planned community in Northern California, a 99 lot community in Southern California In a 33 lot community in Virginia, that leaves us with 1514 mothballed lots In 8 communities with a book value of $4,000,000 705 of those lots are in the same large master plan Community in Northern California, but remain mothballed because of the long development time of the later phases. We believe the value of these remaining mothballed lots greater than our current book value. We will continue to monitor the remaining 1514 lots and get those communities reopened when Makes good sense to do so.
We remain focused on growing our land position. On Slide 13, We added 2,920 newly controlled consolidated lots during the Q2. During that same quarter, We had 1625 deliveries and lot sales, resulting in a net increase of 12 95 consolidated controlled lots. And for the 9 month period ended April 30, 2021, we added 7,082 newly controlled lots, Delivered 4,753 homes and lots, resulting in a net increase of 2,329 lots. On the left hand portion of Slide 14, we show what our community count was at the end Of every quarter over the past 12 months, as you can see, primarily due to selling through communities at a significantly higher than normal pace, Our community count has been declining and we ended the Q2 of April 2021 with 117 communities, including domestic As we said on our last few calls, our community count is likely to fluctuate from quarter to quarter.
Throughout the remainder of fiscal 2021, we plan to open more new communities. Given no material changes in current market conditions, We expect our community count, including communities from domestic unconsolidated joint ventures to grow to approximately 130 communities At the end of 20 21's fiscal year, our teams are busy trying to help us get to that goal and beyond. On the right hand portion of this slide, we show the lot count at the end of the same 4 quarters. In each quarter, our lot count has significantly Excuse me. In each quarter, our lot count has increased sequentially.
Over this period of time, we've been steadily increasing our lot position. Keep in mind, there's a lag between when we control the lots and when we can open a community. Our ability to increase our lot supply clearly indicates The progress we've made towards a growing community count in future periods. Virtually all of the land and communities necessary to achieve further growth and profits During both fiscal 2021 and fiscal 2022 are already under contract. Today, our land acquisition teams are primarily focused on obtaining control of land and communities for home deliveries in fiscal Spend was $175,000,000 a 53% increase over the same quarter a year ago.
This followed a similar increase of 51% in the Q1 of 2021 and before that a 41% increase in the 4th These increases demonstrate that we're investing the money needed to grow our community count. Unfortunately, there is a lag Between optioning the properties, developing the land and opening the communities for sale. However, given our increasing land controlled position over the last year and the significant increase in land and land development spend over the recent quarters, we remain confident that after this lag period, We will soon see our community count rise once again. We are continuing to find land opportunities that make sense in today's environment. While we are using current home prices and current construction costs, we have typically been underwriting with more conservative Contract pace assumptions.
Turning to Slide 16. Even with that significant increase in land spend, We ended the Q2 with $353,000,000 of liquidity, well above the high end of our liquidity targets. Some of this liquidity will be used in the Q3 of 2021 to pay down the debt that comes due in July 2022. After accounting for that, we will still have excess capital to invest in land. We're busy contracting additional land parcels across the country today.
Turning to Slide 17. This was another strong quarter for our Financial Services division, driven by historically low rates And strong home demand, which led to increased closing volumes, our Financial Services 2nd quarter pretax Increased 119 percent year over year to $10,000,000 Turning to Slide 18. Compared to our peers, you can see that we still have one of the highest percentages of land controlled via options. We continue to use land options whenever possible In order to achieve high inventory turns, enhance our returns on capital and to reduce risk, We are pleased to control 63% of our land through options, which is up from 60% in the same quarter a year ago. Looking at our consolidated communities in the aggregate, including the $125,000,000 of inventory not owned, we have an Inventory book value of $1,300,000,000 net of $162,000,000 of impairments.
Turning now to Slide 19. Compared to our peers, you can see that we had the 2nd highest inventory turnover rate for the trailing 12 month period. Our inventory turns were 29% higher than the next highest tier below us. High inventory turns are a key component of our overall strategy. Another area of discussion is related to our deferred tax asset.
During the Q2, we reduced our valuation allowance by $469,000,000 We reduced all of the federal valuation allowance in A portion of the state valuation allowance. As of April 30, 2021, the remaining state portion of the valuation allowance was $103,000,000 and our deferred tax asset net of this valuation allowance was $459,000,000 We've taken numerous steps to protect our deferred tax asset. Even though we will still be using GAAP taxes on our income Statement, we will not have to use cash to pay federal income taxes on approximately $1,800,000,000 of future pre tax earnings. This helps Turning now to Slide 20. On this slide, we show our debt maturity ladder at the end of the second quarter.
On June 2, 2021, we sent a redemption notice to call in full on July 31, 2021, $111,000,000 of our 10% senior secured notes due July 2022. Additionally, We still intend to further improve our balance sheet by using cash to pay off the remaining $70,000,000 principal amount of our 10.5% senior Assured notes due July 2024 in advance of their maturity. On Slide 21, We show the key metric targets we established in June 2018. In the middle column on this slide, you can see the progress we've made In achieving our key metric targets for the trailing 12 months ended April 2021, revenue was just shy of achieving the target And gross margins of 20% was above our 19.5% target. Our SG and A ratio was slightly above target.
However, if you ignore the $17,500,000 of incremental phantom stock expense, our SG and A ratio would have been We're better than target. On the far right column, we show the further improvements we expect to report by year end on each component of our key metric targets. As a matter of fact, we expect adjusted EBITDA and adjusted pretax earnings to be significantly above the key metric targets. Turning to Slide 22. I want to spend a few moments talking about the goals of deleveraging and enhancing our debt structure.
Looking at the bullets on the left hand portion of the slide, achieving higher levels of profitability has allowed us to make progress Towards our deleveraging goals. Given our dramatically improved results, we believe our current debt is too expensive. Our goals for comprehensive refinancing of our debt structure include the following components: 1st, ensure a multiyear well laddered debt maturity 2nd, refinance our high cost of debt with lower cost of capital that's more in line with our industry peers. 3rd, Issue no tranche sizes that would achieve high yield index inclusion, secondary market liquidity and price transparency. Finally, we would want to reduce our reliance on secured debt, ultimately resulting in an unencumbered balance sheet.
As we continue to post strong results, we believe we can refinance our entire debt structure with significantly improved turns. As always, we will analyze and evaluate our capital structure and explore transactions to further strengthen our balance sheet and our financial performance. On Slide 23, we show that our total backlog, including domestic unconsolidated joint ventures at the end of the second quarter Increased 63 percent to 4,373 Homes. You can also see that the dollar value of this backlog increased 80% to $2,040,000,000 The strength of this backlog, including solid expected gross margin, sets us up nicely 2021 assumes no adverse changes in current market conditions and excludes further impact The SG and A expense from phantom stock expense related solely to stock price movements from the $132.59 stock price at the end of our fiscal 2021 Q2. However, our guidance for the quarter and for the year There is approximately $1,000,000 increase or decrease, respectively, of incremental phantom stock expense.
At yesterday's closing price of $136.81 that would create roughly $1,000,000 of incremental phantom stock Expense, ironically, if the stock price falls from that level, we actually create income. On Slide 24, We provide guidance for the Q3 of fiscal 2021. We expect to report total revenues For the Q3 of fiscal 2021, between $700,000,000 $750,000,000 We also expect gross margins to be in the range of 20.5% to 21.5%, up substantially Compared to the 17.5% in last year's Q3 and SG and A as a percentage of total revenues to be between 10.5% 11.5% compared with 9.5% last year. Excluding land related charges And gains or losses on extinguishment of debt, we expect adjusted EBITDA to be between $80,000,000 $90,000,000 up between 24% and 39% compared to the same quarter last year. Finally, we expect the full year, we expect to report total revenues between $2,650,000,000 $2,800,000,000 From $2,340,000,000 last year.
We also expect gross margins to be in the range of 20.5% to 21.5% 10.3% in the prior year. This includes the $17,500,000 of incremental phantom expense discussed earlier. Excluding land related charges and gains and losses on extinguishes debt, we expect adjusted EBITDA to be between $310,000,000 $350,000,000 up between 32% 49% compared to last year. Finally, we expect our adjusted pre tax profit for fiscal 2021 to grow to between $150,000,000 $170,000,000 Up 195% to 2 34% compared to $51,000,000 in pre tax earnings last year. This is a $10,000,000 increase from our previous guidance of $140,000,000 to $160,000,000 Were it not For the $17,500,000 of incremental phantom stock expense in the second quarter, our guidance would have increased by $27,500,000 Given our pre tax profit guidance for the second half of the year, our shareholders' equity should double from today's level By October 31, 2021, assuming no changes in current market conditions, our expected earnings growth in fiscal 20 22 from fiscal 2021 levels should also significantly further enhance shareholders' equity by the end of 20 22's Turning now to Slide 26.
Here we illustrate the growth we've seen in adjusted EBITDA. On the left hand portion of the slide, you can see that our Q3 for estimated for adjusted EBITDA is 31 From the year before that, you can see a similar trend on the right hand portion of the slide where we show adjusted EBITDA for 2020 and our expectation for 2021. In 2020, we achieved a 35% growth in adjusted EBITDA And in 2021, we now expect to achieve an additional 41% growth in EBITDA. These increases are representative of the progress we've made in materially improving our operating results. We've taken numerous steps to achieve our improved results.
On Slide 27, we show some of the strategies we're utilizing This slide shows the growth oriented strategies on the top of the slide with the actions undertaken listed below the individual strategies. Beginning on the far left hand portion of the slide, we start with grow revenues to improve scale and enhance margin profile. In order to achieve this strategy, we have focused on higher inventory turns to allow for growth. Regarding margins, we've actively managed the sales pace home price increases and limiting the number of homes for sale in each community. Longer term, we're focused on reducing cost Further and streamlining our organization.
Moving to the right, we show risk adverse land strategy. Our preferred method of controlling lots is through the use of options, which only require minimal cash deposits. Ideally, we'd like to have less than 18 months of owned land And then control as much land as practical through option contracts. We remain extremely focused on utilizing high inventory turnover to be more efficient and to increase our returns on capital. And finally, by achieving significantly improved operating results, we generate excess cash flow, which helps Significantly improve our balance sheet flexibility.
The combination of our expected improved financial performance this year And the deferred tax asset valuation allowance reversal will meaningfully increase our year end book value per share. Those increases to book value combined with executing on our debt reduction strategy this year should significantly Our balance sheet at year end. Assuming no changes in current market conditions, our expected earnings growth And fiscal 2022 from fiscal 2021 levels should also significantly further enhance shareholders' equity by the end of fiscal 2022. That concludes our prepared remarks, and I'll be happy now to turn it over for Q and A.
The company will now answer questions. So that everyone has an opportunity to ask questions, participants will be limited to one question and a follow-up, Afterwards, we will have to get back in the queue to ask another question. Our first question comes from Alan Ratner with Zelman.
Hey guys, good morning. Thanks for taking my questions. So, first one I'd love to Digging on, you guys mentioned several times this notion of kind of match your sales to starts pace, which think a lot of builders in the industry are doing right now. So if we look at your absorption rate going from 7 a month, a few months ago down to 4 Plus here in May, what is your production pace running at currently? And at what point do you think you can maybe open up the spigot a little bit more and perhaps Let that absorption rate run a bit hotter than it is today or is 4 kind of the new normal that you're kind of solving for at this point?
I'd say, Alan, part of that is dependent on when we can get our new Communities on pace, on the market. We're being cautious. We don't want to gap out, so to position is growing a lot, our land spend positions are growing a lot. We've just got to get those communities open. As we get them open, then we can feel a little more comfortable letting the absorption pace grow more rapidly and Go to a higher pace than the 4.5%.
Got it. Okay, that's helpful. Second question, just in terms of the margin On homes you sold in May, you mentioned it's the highest level in a decade. I was a bit surprised just looking at your margin guidance for the back half of the year, it doesn't really imply Much improvement from the 2nd quarter level. So can you talk a little bit about what the absolute margins are on homes you're selling today and Presumably when that would begin to filter through to the P and L?
Yes. First, the homes that we're selling today are not really going to be delivering this Again, the CDs higher margins from our current contracts in next fiscal year beginning with our Q1. Obviously, we haven't started all of those just at this moment. So we are still subject to potential cost increases. But the margins in our current contracts are substantially higher.
So we feel pretty confident
I appreciate that, Eira. I guess what I was thinking, You didn't just start raising prices in May. You've been raising prices for several months. And I think you even mentioned starting January, February is where you really started to get aggressive there. So presumably, of those homes would deliver before the end of the year, so that's where I was referring to being a little bit surprised.
Some of them will. We're obviously being fairly Pauseous on margin guidance, given that it's a very challenging environment with cost increases in general. You know what's happened with lumber up and down and other material costs and labor costs. So we're trying to be on the conservative side on our guidance.
Understood. Okay. Thanks a lot. Appreciate it. Good luck.
Thanks.
Our next question comes from Alex Barron with Housing Research Center.
Yes, thanks guys. I wanted to ask about the deferred tax asset. What drove the fact that you didn't get the whole Thing on the state side, and is that expected to get done later in the year? Or how does that work?
When you evaluate The valuation allowance for states, you have to look to each state individually, and states all have different rules in terms of how long you Carrie, if I were net operating losses, we also have states that since those NOLs were generated, we're no longer operating in or we've We've reduced our operations. And as an example, we're winding our business down in Chicago. Currently, we're not operating in Pennsylvania. So we've got markets that we've left and therefore are unlikely to, at least at the moment, to we're unable to forecast that we would use those NOLs in Time before they would expire is something we would continue to evaluate, but I wouldn't anticipate that valuation We're currently on our books at $103,000,000 to change dramatically in the coming certainly the rest of this year and maybe not Much going forward, it will depend on changes in our operations in those states where we currently can't forecast using those NOLs.
Got it. And for modeling purposes, what kind of tax rate do you suggest using going forward?
I would say, high at the moment, high 20 8%, 29%, something in that range For federal entities.
Okay. Great. And then, on the Phantom stock
Just to emphasize something Larry said, while that will be our tax expense, we won't be paying Taxes, especially the federal taxes because of our deferred tax assets, I just want to make sure that was clear.
Correct, yes. And then on the Phantom stock issue, Zulu, is that it seems like it's going to be an ongoing issue based on your stock price, but Is there a certain amount of stock that was issued and that's it? Or is there going to be more issuances coming down the road?
No. It was a onetime event. And just keep in mind, it does go up And down. Today, our stock price is down as all homebuilders are down, and it Would actually result in a lowering of expense and an increase of profit of about $2,500,000 at the moment. So it goes in both directions.
Got it. If I could ask one last one. I think you said your contracts for May were $413,000,000 because you're raising prices and maximizing margins. Is that roughly you think the run rate For the remainder of the year? Or is this likely to go up from here based on other factors?
Yes. Go ahead, Brad. Well, I think, as Laird mentioned during the prepared remarks and even previous on one of the responses, As our additional communities open later this year that we've talked about, we should obviously get additional contracts and then be at a faster pace than currently running in May. And we also mentioned right now, we're intentionally restricting sales because of our ability to produce Get caught up on our existing backlog. So I think as that frees up and we get those SKUs open, you might see us increase sales pace even on the existing communities at that point.
Our next question comes from Jordan Chaimowicz with Philadelphia Financial.
Thanks guys. Couple of questions on the debt Refinancing and pay down. What is the earliest, first of all, you could pay down the 2024s?
Well, it's dependent upon us achieving certain secured debt leverage ratio Results. And so we are not there yet, and we're monitoring that each quarter end, Look, we're not projecting that at the moment. But if you look in the indentures, you probably could get a pretty good estimate on that yourself.
But it looks like around the September, October time period. And I guess would your goal to be to refinance those as soon as possible?
I don't think we've made any decisions on precisely when we're going to do that. We certainly intend To do it in advance of maturity and hopefully well in advance of maturity, but I don't think we've put a fine point on precisely
And in addition, at the current moment, our plan is not to refinance, but rather just have a reduction in our the amount of our debt.
Paid off.
Perfect. And are you once that occurs, I assume the ratings agencies would take a look at upgrading The rating for your company overall?
You would assume that and we hope that, that is true And we intend to meet with the rating agencies in the not too distant future just to further update them on our improved performance.
Okay. A different topic. Why doesn't the adjusted EBITDA add back the $17,000,000 of SG and A expense?
Because it's not taxes or interest, depreciation or amortization.
I mean, it's an SG and A expense.
I know you're trying to do it as a non cash item, so you theoretically can do that on your own. But from a definition of EBITDA, it's not Any of those items.
But adjusted EBITDA by nature is a non cash definition, and it's a non cash item.
Feel free to add it back.
Okay. And final question is, what do you think current coupons are Olin, if you were able to refinance the 2026s?
That's a difficult question to answer given the lack of liquidity in our current bonds and you really just don't Trade, but you look at what similarly rated homebuilders to us are trading at yield wise, it's Dramatically lower than our current coupon. But the fact that that is Recurring versus us, our ability to actually refinance our whole structure, We've got some work to do to reeducate the high yield market on our improved performance and I'm very optimistic as we do that that The coupons that we can refinance at are materially lower and much closer to what our similarly situated peers have.
And what are your similarly situated peers have for those of us that are less familiar with the debt markets?
Yes, they're less than 6%.
Okay. Thank you.
Our next question comes from Alex Barron with Housing Research Center.
Yes, thanks. I was wondering if you could talk about build times. Have those been extended to Various supply chain disruptions? And if so, by how much, roughly?
They have been Pressures on labor. Many builders are experiencing what we're experiencing, most builders, with dramatically We improved sales, which means a lot of strain on labor capacity. I'd say depending on the Geography in the moment, we've seen delays of 30 to 60 days in many Locations and product types, and we factored those delays into our guidance.
Got it. And in terms of your spec strategy, given the rise in costs And delays and so forth, how has that shifted, if anything, when you guys are how many specs you're starting versus at what point In the construction cycle, you guys are selling the homes.
Yes. I know the strategy varies Quite a bit by builder. Some builders are almost 100% specs. Some builders are still almost 100% build to order. We are somewhere in between.
At the moment, frankly, sales have been so robust that all of our capabilities are going into starting the The sold homes we have, which leaves a little less capacity for starting specs, we're Just extremely active right now. So I'd say, in general, we're starting fewer specs Than we did a year or 2 ago.
Okay. Thanks a lot and best of luck.
Thank you.
I'm showing no further questions in queue. I'd like to turn the call back to Eero Hovnanian for closing remarks.
Great. Well, thank you very much. We're pleased with our results overall, and We're excited about what we're going to be reporting in future quarters. So we look forward to sharing some good news in upcoming quarters. Thank you.