Daqo New Energy Corp ADR

Good day, and welcome to the DocuNew Energy third quarter 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Ho, Investor Relations. Please go ahead.

Hello, everyone. This is Kevin, the Investor Relations of DaQ New Energy. Thank you for joining our conference call today. DaQ New Energy just issued its financial results for the third quarter of 2022, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call, we have Mr. Min Yang, our Chief Financial Officer, and myself. Our CEO, Mr. Long Gen Zhang, is on his way from the U.S. to China and is not able to attend today's meeting in person. So today I will read his comments on market and operations and then Mr. Yang will discuss the company's financial performance for the quarter and after that we will open the floor to Q&A from the audience. Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Dedication Reform Act of 1995. These statements involve inherent risks and uncertainties, a number of facts A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and a preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's conference call is as of today and we undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. And now I will read the commentary from our CEO, Mr. Longbin Zhang. We are pleased to announce that the company continued to deliver an excellent performance. In the third quarter of 2022, revenue reached $1.22 billion for the quarter, with gross profits of $979 million, net income attributable to Dark Union Energy shareholders of $323.4 million, and adjusted net income attributable to Dark Union Energy shareholders of $590 million. Operating cash flow was $1.7 billion for the first nine months of this year. We ended the quarter with a very strong balance sheet as our cash position, combined with bank note receivables, which are redeemable for cash, reached $4.6 billion at the end of Q3, and we had no financial debt or bank loans. We kept producing above our main plate capacity with polysilicon production volume of $3,300 33,401 metric tons despite our scheduled annual maintenance. Sales volume reached 33,126 metric tons. and we ended the quarter with a very low polysilicon inventory level. Driven by the rising global energy prices and the urgency to address climate change, both demand and pricing for solar PV products increased during the quarter, with particularly strong demand from markets such as China, Europe, Southeast Asia, and Brazil. As a result, market demand for polysilicon remained very strong throughout the quarter. and our ASP increased 14% in RMB terms compared to the previous quarter. With higher ASP and lower production costs, Q3 gross margin continued to improve and reached 80% as compared to 76% in Q2 this year. In particular, after further process improvements, our monograde polysilicon reached 99.9% of our production in September, which was record-breaking for the company. Furthermore, DaQ remains one of the most important producers of ultra-high-purity anti-polysilicon, which is positioned to become the fastest-growing product segment for next year. In June, our board of directors authorized the company to repurchase up to $120 million worth of its issued share on the open market We have completed the share repurchase program and spent $119.9 million to repurchase approximately 1.88 million ADRs. We will consider another share repurchase program when Xinjiang Daqiu determines its dividend plan for the fiscal year 2022, as we believe our current ADR price is seriously undervalued and not reflective with our position as a technology and cost leader with strong profitability and operating cash flow. Despite a more than 50% volume increase in polysilicon supply in the first three quarters of this year, compared to the same period of last year, the profitability of polysilicon continued to improve, which was driven by stronger than expected solar PV demand and relatively faster capacity expansions in downstream sectors, particularly in the wafer segment. According to China National Energy Administration, China installed 52.6 gigawatts of solar PV projects in the first three quarters of this year, a 106% increase as compared to the same period of last year. The fourth quarter is typically a busy season for China's solar PV market. Current Polysilicon ASPs remain high at approximately $36 to $38 USD per kg VAT excluded, and the inventory of Polysilicon is low across the value chain. We expect that module price will be well supported in the range of RMB 1.85 to 1.95 which will provide a very strong support for polycycline ASPs. Solar PV demand has been increasing significantly beyond market expectations for almost two years, and we believe that it is just the beginning of a new era in which renewable energy will eventually displace fossil fuels to become the biggest source of energy for the world. Solar PV has already reached greater parity in most of the important economies in the world, and this creates great value to address carbon emission, tackle climate change challenges, and further secure energy security and sustainability. We believe we will continue to greatly benefit from this long-term trend as one of the most competitive low-cost and high-quality polysilicon providers in the world. Now I will provide the outlook and the guidance. The company expects to produce approximately 30,000 metric tons to 32,000 metric tons of polysilicon in the fourth quarter of 2022, and approximately 130,000 metric tons to 132,000 metric tons of polysilicon in the full year of 2022, inclusive of the impact of the company's annual facility maintenance. This outlook only reflects our current and the preliminary view as of the date of this conference call and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties. Now I would like to turn the call to our CFO, Mr. Min Yang, please.

Thank you, Kevin, and hello, everyone. Thank you for joining our call today. Now I will discuss our financial performance for the third quarter of 2022. Revenues were $1.22 billion compared to $1.24 billion in the second quarter of 2022 and $586 million in the third quarter of 2021. All silicon sils volume was 33,126 metric tons in Q3 2022. compared to 37,545 metric tons in Q2. Despite an 11.8% decline in Polysilicon sales volume as compared to the previous quarter, we achieved similar revenues supported by a 10% increase in Polysilicon ASP. Gross profit was $979 million compared to $947 million in the second quarter of 2022. and $435 million in the third quarter of 2021. Growth margin was 80.2% compared to 76.1% in the second quarter of 2022 and 74.3% in the third quarter of 2021. The increase in growth profit and growth margin compared to Q2 was primarily due to lower production costs and higher ASPs. We further reduced polysilicon production costs for Q3 to $6.82 per kilogram, a decline of 6% compared to $7.26 per kilogram in Q2 2022. SG&A expenses were $280 million compared to $14.4 million in the second quarter of 2022 and $11.4 million in the third quarter of 2021. SG&A expenses during the quarter included $263 million in non-cash share-based compensation costs related to the company's 2022 Share Incentive Plan. For future periods, the company expects to recognize approximately $7.3 million of non-cash share-based compensation expenses every month from October 2022 through September 2025. related to the company's 2022 sharing incentive plan. Research and development expenses were $2.5 million compared to $2.7 million in the second quarter of 2022 and $1.9 million in the third quarter of 2021. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. Income from operations was $693 million compared to $928 million in the second quarter of 2022 and $421 million in the third quarter of 2021. Operating margin was 56.8% compared to 74.6% in the second quarter of 2022 and 72% in the third quarter of 2021. Net income attributable to DACO New Energy shareholders was $323 million compared to $628 million in the second quarter of 2022 and $2.92 million in the third quarter of 2021. Earnings per basic ADS was $4.28 compared to $8.36 in the second quarter of 2022 and $3.95 in the third quarter of 2021. Adjusted net income attributable to DACO New Energy shareholders excluding non-cash share-based compensation costs were $590.4 million compared to $630.3 million in the second quarter of 2022 and $294.7 million in the third quarter of 2021. Adjusted earnings per basic ADS was $7.81 compared to $8.39 in the second quarter of 2022 and $3.98 in the third quarter of 2021. EBITDA was $720 million compared to $955 million in the second quarter of 2022 and $442 million in the third quarter of 2021, even though margin was 59% compared to 76.8% in the second quarter of 2022 and 75.4% in the third quarter of 2021. And now on the company's financial condition. As of September 30th, 2022, the company had $3.05 billion in cash, cash equivalents, and restricted cash compared to $3.28 billion as of June 30, 2022. And as of September 30, 2022, the company's banknote receivable balance was $1.57 billion compared to $1.27 billion as of June 30, 2022. Banknote receivables are issued and guaranteed by domestic Chinese banks and can be redeemed for cash. Combined cash and bank note receivable balance was $4.62 billion at the end of Q3. Now on the company's cash flows. For the nine months ended September 30, 2022, net cash provided by operating activities was $1.7 billion compared to $653 million in the same period of 2021. The increase was primarily due to higher revenues and gross margins. For the nine months ended September 30, 2022, net cash used in investing activities was 605 million compared to 856 million in the same period of 2021. The net cash used in investing activities in the first nine months of 2022 was primarily related to the capital expenditures on the company's 100,000 metric ton polysilicon project in Balto City, Inner Mongolia, which was partially offset by $272.7 million in the redemption of short-term investments. And total capital expenditures in the first nine months of 2022 were $841 million, the majority of which was related to the company's Inner Mongolia Balto Polish Silicon Project. The company currently expects approximately $650 million million of additional capital expenditures related to the VALTO project, of which $250 million is expected to be in the fourth quarter of this year, and the remainder will be in 2023. For the nine months ended September 30, 2022, net cash provided by financing activities was $1.48 billion, compared to $742 million in the same period of 2021. The net cash provided by financing activities in the first nine months of 2022 was primarily related to the net proceeds of the company's $1.63 billion from Xinjiang Daco's private offering in China. And that concludes our prepared remarks. Now we will open the call to questions from the audience. Operator, please begin.