Daqo New Energy Corp ADR

Good day, and welcome to the DACU New Energy Third Quarter 2024 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Anita Xu. Please go ahead.

Hello, everyone. I'm Anita Xu, the Deputy Chief Executive Officer of Docco New Energy. Thank you for joining our conference call today. Docco New Energy just issued its financial results for the third quarter of 2024, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our CFO, Mr. Ming Yang, and myself. Given the time conflict, Mr. Zhu will not be able to attend today's meeting in person. I'll first begin the call by reading Mr. Zhu's comment on market conditions and company operations, and then Mr. Yang will discuss the company's financial performance for the quarter and the year. After that, we'll 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 Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. 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 the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and 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 call is as of today, and we undertake no duty to update such information, except as required under applicable . Also during the call, we'll occasionally reference monetary amounts in U.S. dollar terms, Please keep in mind that our functional currency is a Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience. So without further ado, let me begin with our management remarks. So entering the third quarter, China's solar industry's market conditions remain challenging, exacerbated by the overall oversupply in the industry. market selling prices continue to be below production costs for the majority of industry players throughout the entire value chain. Although this caused Darko New Energy to sustain quarterly operating and net losses, our losses narrowed compared to the second quarter, and we continue to maintain a strong and healthy balance sheet with no financial debt. At the end of the third quarter, we had a cash balance of $8.53 million U.S. dollars, and short-term investments of $245 million, bank note receivables of $83 million, and a fixed-term bank deposit balance of $1.2 billion. To capitalize on higher interest rates compared to those of bank savings, we purchased short-term investments and fixed-term bank deposits during the past two quarters. Overall, the company maintains strong liquidity with a balance of quick assets of $2.4 billion. These mainly consist of bank deposits or bank financial products that can be quickly converted to cash when necessary. On the operational front, during the third quarter, we started maintenance of our facilities and adjusted our production utilization rate to 50% in light of weak market demand and to reduce our cash burn. The total production volume at our true polysilicon facility for the quarter was 53,592 metric tons. Through continued investments in R&D and dedication to purity improvements at both facilities, our overall end-type product mix reached 75% during the quarter. Our Phase 5B, which started initial production in May and is still ramping up, reached 70% end-type in its product mix, strengthening our confidence in achieving 100% end-type by the end of next year. Despite lower utilization levels, we further reduced our cash costs to 5.34 US dollars per kilogram, compared to 5.39 per kilogram in the second quarter. However, unit production costs trended up 7% sequentially to an average of 6.61 per kilogram, as a result of reduced production level, which led to facility idle costs of approximately .55 US dollars per kilogram. Regarding SME-grade polysilicon, We started initial production in the second quarter and have since then worked toward qualification by downstream customers. Recently, we passed qualification with certain customers and anticipated commercial delivery early next year. In light of the current market conditions, we expect our Q4 2024 total polysilicon production volume to be approximately 31,000 metric tons to 34,000 metric tons. As a result, we anticipate our full year 2024 production volume to be in the range of 200,000 metric tons to 210,000 metric tons. During the third quarter, challenging market conditions forced more industry players to reduce production utilization rates and begin maintenance. Based on industry statistics, polycycline supply in China decreased by 15% and 6% month over month in July and August, respectively, with the total polycycline production volume falling below 130,000 metric tons in August. the lowest yield to date. This reduction eased inventory pressure with prices bottoming in the range of approximately 35 to 40 RMB per kilogram. Despite relatively weak downstream wafer demand during the quarter, poly prices stabilized after reaching their lowest level and stopped declining. This price level was below the cash cost of even the Tier 1 players, and four consecutive months of cash losses have led all manufacturers to reassess their future strategies. In August and September, due to downstream customers' efforts to take advantage of low prices amid production cuts, polysilicon prices rebounded to approximately 38 to 43 RMB per kilogram. However, industry polysilicon inventories remained significant at the end of the quarter. One month into the fourth quarter, the polysilicon industry is still rebalancing supply and demand and needs further production costs and stronger market demand to sustain a price recovery. The fourth quarter has historically seen strong musical installations in China, and the aggressive stimulus packages unveiled in September and October to support the domestic economy might encourage investment from state-owned enterprises. In the medium to long term, we believe the current low prices and market downturn will eventually result in a healthier market, as poor profitability losses and cash burn will lead to many industry players exiting the business. ultimately eliminating overcapacity and bringing the solar PV industry back to normal profitability and better margins. This year is challenging for China's solar PV industry. At this point, we may have reached a cyclical bottom, but have yet to see a surge. As the price wars have undermined the healthy development of the industry, on October 14th, the China Photovoltaic Industry Association convened a special conference attended by senior executives from major manufacturers in the industry, calling to strengthen self-discipline and reduce unbridled competition. While further details on promoting the sustainability of the industry still need to be discussed, we believe this is a positive signal toward market consolidation with higher cost and inefficient manufacturers gradually phasing out capacity and exiting the business. On another positive note, On October 18, CPRA announced a reference price of 68 RMB cents per watt for modules, setting a floor for winning bids. On the demand side, new solar PV installations in China in the first nine months of 2024 reached 160.888 gigawatts, growing 24.8% year over year. Overall, in the long run, solar PV is expected to be one of the most competitive forms of power generation globally, and the continuous cost reductions in solar PV products and the resulting reductions in solar energy generation costs are expected to create substantial additional demand for solar PV. We are optimistic that we'll capture the long-term benefits of the growing global solar PV market and maintain our competitive advantage by enhancing our higher efficiency N-type technology and optimizing our cost structure through digital transformation and AI adoption. As one of the world's lowest cost producers with the highest quality in-tech product, a strong balance sheet, and no financial debt, we believe we're well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth. Now I'll turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead.

Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Darko New Energy. We appreciate you joining our earnings conference call today. I will now go over the company's third quarter 2024 financial performance. Revenues were $198.5 million compared to $219.9 million in the second quarter of 2024 and $484.8 million in the third quarter of 2023. The decrease in revenue compared to the previous quarter is primarily due to a decrease in ASP as well as a decrease in sales volume. Gross loss was $60.6 million compared to $169.2 million in the second quarter of 2024 and gross profit of $67.8 million in the third quarter of 2023. Gross margin was negative 30.5% compared to negative 72% in the second quarter of 2024 and 14% in the third quarter of 2023. For the third quarter, the company recorded $80.9 million in inventory impairment expenses compared to $108 million in the second quarter. The increase in gross margin was primarily due to the inventory subject to larger amount of inventory write-downs in the second quarter that were subsequently sold in the third quarter of 2024. SG&A expenses were $37.7 million compared to $37.5 million in the third quarter of 2024 and $89.7 million in the third quarter of 2023. HG&A expenses during the third quarter included $18.9 million in non-cash share-based compensation costs related to the company's Share Incentive Plan, compared to $19.6 million in the second quarter of 2024 and $46.3 million in the third quarter of 2023. R&D expenses were $0.8 million compared to $1.8 million in the second quarter of 2024 and $2.8 million in the third quarter of 2023. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. Loss from operations was $98 million compared to $195.6 million in the second quarter of 2024 and income from operations of $22.5 million in the third quarter of 2023. Operating margin was negative 49% compared to negative 89% in the second quarter of 2024 and 4.6% in the third quarter of 2023. Net loss attributable to DACA New Energy shareholders was $60.7 million compared to a loss of $120 million in the second quarter of 2024 and $6.3 million in the third quarter of 2023. Loss per basic ADS was $0.92. compared to loss of $1.81 in the second quarter of 2024 and $0.09 in the third quarter of 2023. Adjusted net loss attributable to DACA New Energy shareholders excluding non-cash share-based compensation costs was $39.4 million compared to $98.8 million in the second quarter of 2024 and adjusted net income of $44 million in the third quarter of 2023. Adjusted loss per basic ABS was $0.69 compared to $1.50 in the second quarter of 2024, and adjusted earnings per basic ADS of $0.59 in the third quarter of 2023. EBITDA was negative $34 million compared to negative $145 million in the second quarter of 2024, and $70.2 million in the third quarter of 2023. EBITDA margin was negative 17% compared to negative 66% in the second quarter of 2024, and 14.5% in the third quarter of 2023. Now on the company's financial condition. As of September 30th, 2024, the company has $853.4 million in cash, cash equivalent and restricted cash, compared to $997.5 million as of June 30th, 2024, and $3.3 billion as of September 30th, 2023. And as of September 30th, 2024, Notes receivable balance was $83 million, compared to $80.7 million as of June 30, 2024, and $276 million as of September 30, 2023. Notes receivable represent bank notes with maturity within six months. Now for the company's cash flow. The nine months ended September 30, 2024. Net cash used in operating activities was $376.5 million, compared to net cash provided by operating activities of $1.5 billion in the same period of 2023. And for the nine months ended September 30, 2024, net cash used in investing activity was $1.75 billion, compared to net cash used in investing activities of $954.3 million in the same period of 2023. Net cash used in investing activities in the three quarters of 2024 was primarily related to the purchase of short-term investments and fixed-term deposits, which amounted to $1.4 billion. And for the first nine months of the year, purchases of property, land, equipment, and land-use rights were approximately $336 million. For the full year, we currently anticipate our total capital expenditure cost to be approximately $426 million. And for the nine months ended September 30, 2024, net cash used in finance activities was $48.5 million compared to net cash using finance activities of $602 million in the same period of 2023. The net cash using finance activities in the three quarters of 2024 was primarily due to dividend payments and shares purchased by our A-share subsidiaries. And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.