Daqo New Energy Corp ADR

Good day and welcome to the DecoNew Energy first quarter 2025 results conference call. All participants will be in a 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 1 on a touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Darko New Energy. Thank you for joining our conference call today. Darko New Energy just issued its financial results for the first quarter of 2025, which can be found on our website at www.darkonewenergy.com. Today, attending the conference call, we have our Chairman and CEO, Mr. Jiang Xu, our Deputy CEO, Mr. Nita Xu, our CFO, Mr. Ming Yang, and myself. Today's call will begin with an update from Mr. Xu on market conditions and company operations, followed by a translation from Mr. Xu for Mr. Xu And then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to journey 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 the industry growth, were thorough-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 this and other risks is included in the report 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 will undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in US 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. Now I will turn the call to our Chairman and CEO, Mr. Jiang Xu.

Mr. Xu, please go ahead. Hello, everyone.

This is Anita. So, thank you for joining our conference today, and I'll now deliver the management remarks on behalf of Mr. Xu. So, in the first quarter of 2025, the solar PV industry continues to face significant challenges. Overcapacity persisted, and policy income prices stayed below cash cost levels. Although this caused the same quarterly operating and net losses, Our losses narrowed sequentially, and we continue to maintain a strong and healthy balance of financial debt. As of March 31, 2025, the company had a cash balance of $792 million, short-term investment of $168 million, bank notes receivable of $63 million, and a fixed-term bank deposit balance of $1.1 billion. In total, our quick assets readily convertible into cash as needed stood at $2.15 billion USD. providing us with end-fall liquidity. With no financial debt, our solid financial position gives us the confidence that we'll remain strategically resilient and well-positioned to overcome the current market downturn. On the operational front, the company operated at a reduced utilization rate of approximately 33% of our nameplate capacity in response to challenging market conditions and weak selling prices. Total production volume out of two post-income facilities for the quarter was 24,810 metric tons, slightly below our guidance range of 25,000 metric tons to 28,000. However, sales volume reached 28,008 metric tons, exceeding production and enabling us to reduce inventory to a healthier level. As a result of lower utilization across our factories, idle facility-related costs for the quarter was approximately $1.58 per kilogram. which was primarily related to non-cash depreciation expenses. Overall, polysilicon unit production costs increased by 11% sequentially to an average of $7.57 per kilogram, primarily due to higher unit depreciation costs as a result of lower production. Our cash costs increased by 5% to $5.31 per kilogram quarter over quarter, primarily due to maintenance and facilities-related costs during the quarter. In light of the current market conditions, we expect our total production volume in the second quarter of 2025 to be in the range of 25,000 to 28,000 metric tons. As a result, we anticipate our full year 2025 production volume to be in the range of 11,000 and 10,000 to 140,000 metric tons. During the first quarter, Paul Silicon produces implemented self-discipline measures to mitigate the impact of irrational competition amid falling prices. resulting in industry-wide capacity utilization of approximately 50%. According to industry data, domestic policy income production volume came in at 105,500 metric tons in March and below 100,000 metric tons for both January and February. Consequently, supply in the first quarter fell short of demand, gradually reducing industry inventory levels. On February 9th, Chinese authorities introduced a market-based reform policy for new energy on-grid tariffs to promote the high quality development of the renewable energy sector. All on-grid electricity generated from renewable energy, such as wind and solar power, will be traded through market mechanisms with prices determined by supply and demand. This policy aims to balance grid load more effectively. As mandated in the policy, the cutoff date that distinguishes new projects from existing projects, May 31st, 2025, and new energy projects that commence operations on and after June 1st, 2025, will be subject to a provincial level competitive bidding process. As a fixed care structure for renewable energy electricity transitions to a market-based pricing mechanism, uncertainties around future electricity prices and revenue generations have emerged. In response, project developers and investors are accelerating project completions ahead of the June 1st deadline in order to secure current policy benefits, which have led to a surge in downstream installations. Fueled by this front-loading, market price of solar products have trended upward, narrowing losses across the value chain, particularly for end products. However, given the relatively high level of policy inventory held by wafer manufacturers, price increases have yet to fully materialize in the policy footprint segment. Policy footprint prices remain stable throughout the quarter at approximately 37 to 42 RMB per kilogram. In the medium to long term, however, we believe current low prices and market downturn will eventually result in a healthier and more sustainable industry. As ongoing losses, poor profitability, and cash flow, For less competitive players to exit the market, we expect overcapacity to be ultimately eliminated, bringing the solar PV industry back to normal, improved profitability and healthier margins. The solar PV industry continues to show promising prospects. China's new solar PV installations reached 59.71 gigawatt in the first quarter, a robust 30.5% year-over-year growth. In the long run, as one of the most cost-effective and sustainable energy resources worldwide, solar power is expected to remain a key driver of the global energy transition and sustainable development. Looking ahead, Daku New Energy is well-positioned to capitalize on the long-term growth in the global solar PV market and strengthening its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest cost producers with the highest quality anti-product, a strong balance sheet with no financial debt, we're confident in our ability to weather the current market downturn and emerge as a leader in the industry ready to capture future growth. So now I will 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 Dr. New Energy. We appreciate you joining our earnings conference call today. I will now go over the company's first quarter of 2025 financial performance. Revenues were 123.9 million compared to 195.4 million in the fourth quarter of 2024 and 415 million in the first quarter of 2024. The decrease in revenue compared to the fourth quarter of 2024 was primarily due to a decrease in sales volume. The gross loss was $81.5 million compared to $65.3 million in the fourth quarter of 2024 and gross profit of $72 million in the first quarter of 2024. Gross margin was negative 66% compared to negative 33% in the fourth quarter of 2024 and 17.4% in the first quarter of 2024. The decrease in gross margin compared to the fourth quarter of 2024 was primarily due to a lower average selling price higher production costs. SG&A expenses were $35.1 million compared to $29.4 million in the fourth quarter of 2024 and $38 million in the first quarter of 2024. SG&A expenses during the first quarter included $18.6 million in non-cash share-based compensation costs related to the company's sharing incentive plans compared to $14.9 million in the fourth quarter of 2024. R&D expenses for the quarter were $0.5 million compared to $0.4 million in the fourth quarter of 2024 and $1.5 million in the first quarter of 2024. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. And as a result of the foregoing, loss from operations was $114 million compared to loss of $300 million in the fourth quarter of 2024 and income from operations of $30 million in the first quarter of 2024. The decrease of loss from operations in the first quarter of 2024 compared to the fourth quarter of 2025 was also attributable to the low asset impairment of $125.6 million, assets and allowance for expected credit loss of $18 million recorded in the fourth quarter of 2024. Operating margin was negative 92% compared to negative 154% in the fourth quarter of 2024 and 7.3% in the first quarter of 2024. Net loss attributable to DACA New Energy shareholders was $71.8 million compared to $180 million in the fourth quarter of 2024 and net income of $15.5 million in the first quarter of 2024. Loss per basic ADS was $1.07 compared to $2.71 in the fourth quarter of 2024, and earnings per basic ADS of $0.24 in the first quarter of 2024. Non-GAAP-adjusted net loss attributed to documentary shareholders excluding non-cashier-based compensation costs was $53 million compared to $170.6 million in the fourth quarter of 2024, and adjusted net income of $36 million in the first quarter of 2024. Adjusted loss per basic ADS was $0.80 compared to $2.56 in the fourth quarter of 2024, and adjusted earnings per basic ADS of $0.55 in the first quarter of 2024. EBITDA was negative $48 million compared to negative 236 million in the fourth quarter of 2024 and 76.9 million in the first quarter of 2024. If the margin was negative 39 percent compared to negative 121 percent in the fourth quarter of 2024 and 18.5 percent in the first quarter of 2024. Now on the company's financial condition. As of March 31st, 2025, The company had $792 million in cash, cash equivalent interest in cash, compared to $1.04 billion as of December 31st, 2024, and $2.7 billion as of March 31st, 2024. And as of March 31st, 2025, the note receivable balance was $62.7 million compared to $55 million as of December 31st, 2024. and $194 million as of March 31, 2024. Notes receivable represents bank notes with maturity within six months. And as of March 31, 2025, the balance of fixed-term deposits within one year was $1.12 billion, compared to $1.09 billion as of December 31, 2024, and nil as of March 31, 2024. and now on the company's cash flows. For the three months ended March 31, 2025, net cash used in operating activities was $38.9 million compared to $116 million in the same period of 2024. And for the three months ended March 31, 2025, net cash used in investing activities was $211 million compared to $198.5 million in the same period of 2024. The net cash used in investing activities in the first quarter of 2025 was primarily related to the purchase of short-term investments and fixed-term deposits. And for the three months ended March 31, 2025, net cash used in financing activities was new, compared to $6 million in the same period of 2024. And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Phil Shen with Roth Capital Partners. Please go ahead.

Hi, everyone. Thank you for taking my questions. In your prepared remarks, you talked about overcapacity ultimately being eliminated. I was wondering if you could talk through when you think that could happen. And you also mentioned less competitive players will exit the market. Who have you seen exit thus far? And then which exits do you think might be near term? Thanks.

Thank you, Phil. So in terms of the rebalancing of supply and demand, to give a quick recap, so back in 2024, the total policy production volume is around 1.82 million metric tons. And the name plate capacity production capacity of polysilicon of all completed projects, regardless of whether it's completed or temporary shutdown, exceeded 1,400 gigawatts, which is roughly 3.2 million metric tons. That's more than double of demand. And what we've seen in this cycle compared to the previous cycle is that the incumbents and even some of the new players They either have a very solid shareholder base that, in the worst case, can they inject asset or have other sources of financing. For instance, recently, we've seen Tongwei announcing $10 billion in R&D and fundraising at its Yonsei subsidiary. So I think that's just one case that signals the rebalancing of supply and demand will take longer than expected compared to the previous cycles. And we've seen that the overall industry utilization rate is currently at around 40 to 50%. And we actually haven't seen any companies completely exiting the market. Most of them are either lowering their utilization rate or undergoing this temporary shutdown. So it's hard to say when exactly we would see the players exiting, but as we are still transacting at prices below most of the company's cash costs, it will be relatively difficult for some of the companies to sustain the current situation.

Thank you, Anita. That's helpful. So you mentioned the industry utilization rate is between 40% and 50%. Can you tell us what you expect that to trend or how you expect it to trend? by quarter through this year? Do you think it goes above 50% by Q4? Or do you think we're well below 50% even in Q4? Thanks.

Yeah, sure. So in the first quarter, the monthly domestic production actually came in to around 90,000 to 100,000 metric tons per month. And we've seen a slight shortage. in supply compared to the monthly demand. And the inventory depletion of polysilicon is actually happening at a very slow pace. However, because of the high level of inventory in polysilicon, we've seen almost, I would say, 400,000 metric tons in total of poly at the poly manufacturer and at the ingot manufacturer. Now, that would cross the value chain. We think the inventory depletion will take at least four months, assuming the most extreme case of zero production per month and also a monthly production of 950,000 metric tons. And because of that, the poly prices actually remained relatively stable during the first quarter, trading at 38 to 42 RMB per kilogram, with untied from the top players actually coming in at 41 to 42. And if we're looking at the second quarter and maybe going forward, We believe the prices will be supported at the current level because of the policy that was rolled out in February. So we expect price level to sustain at the current range before the policy cutoff date of May 31st, especially because we expect strong April and May demand at around 55 to 65 gigawatts. which will translate to a common demand of around 125,000. But we do see potential downside risks both coming from the policy change, also coming from the external tension, especially from the Trump administration's trade war 2.0. So after the Russia installation, we see demand would trend down slightly. And that's why we maintain cautious and expect pricing to be relatively suppressed at the low price range of 35 to 40 RMB per kilogram throughout the remaining of 2025. Okay.

Great. So again, a lot of information there. Thank you. So you said demand in China after May would be down slightly, but I think you mentioned 55 gigawatts for those April, May. What's your expectation for after May 31st? How much lower could demand be on a monthly basis in China? Thanks.

I think overall, the whole year of 2025, we believe China demand will still come and relatively strong in the range of 250 to 300 gigawatts, which would be roughly equivalent to 1.4 to 1.6 million metric ton of poly demand. Although compared to 2024, it may seem more stagnant, primarily because of the potentially deteriorating solar project returns, which was impacted by the new policy in February, primarily because of the uncertainty in calculating But in the long run, we are encouraged to see that renewable energy is actually transitioning to a more market-driven and heading into a more sustainable and high-quality development compared to being subsidized by the government with more guaranteed on-grid volume price for all incremental renewable energy projects. So, yeah, I think overall this year in China, it would still be relatively supported, 250 to 300 gigawatts.

Okay, great. I appreciate the time and taking my questions. Thanks. I'll pass it on.

Thank you, Phil.

Once again, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Alan Hahn with JPMorgan. Please go ahead.

Hi, management. Thank you for taking my questions. My first question is regarding ADR delisting risk. I mean, what is the strategy? I mean, you're looking to employ or what do you think, like how should we encounter the ADR delisting risk?

Thank you, Alan. So first of all, we fully understand our investor concern over the risk of forcing the ADR to delist from the U.S. amidst the heightened U.S.-China trade war. although we personally although I think that we would remain vigilant and consider the delisting of all ADRs a relatively low probability I do acknowledge that the Trump administration is putting all options on the table and because that this will be a key stake for negotiation as decoupling from the two largest economies spread to the financial sectors and We actually considered a potential dual listing of returning to the Hong Kong Exchange back in 2022 as some background information because of the risk arising from the Holding Foreign Companies Accountable Act. But that issue was effectively resolved in the same year after PCAOB determined at the end of 2022 that it was able to inspect and investigate all the firms in China and Hong Kong completely. So it vacated at one determination. And this is why our listing in Hong Kong was held off. And we decided to keep our ADRs because the treating volume is much higher for the ADRs compared to the Hong Kong listing. And based on my understanding, I think for a Hong Kong listing, would take maybe around six months, depending on regulatory approvals of the market conditions and our internal readiness. And to be fully transparent to our investors, while we have no immediate plan in place amidst the current situation, we are definitely closely monitoring the market and the regulatory development. And we want to assure you that we remain fully committed to driving the long-term value for our stakeholders and also executing our long-term growth vision. And it's very unfortunate for us to see tensions escalating. But if circumstances do exacerbate to the most extreme case of a forced delisting, our management team will definitely evaluate all strategic options to protect the interests of our shareholders, such as a listing in Hong Kong, or seek other means to return capital to our shareholders.

Thank you very much. And my next question is regarding cash cost. I know that like the cash production cost in first quarter has edged up a little bit from fourth quarter last year. And there you mentioned about like a maintenance cost. Just want to like get a feeling about like the outlook on cash cost. I mean, in the subsequent quarters in the year.

Okay, Alan, thanks for your question. So cash cost did trend up slightly This quarter, I guess about 5% to 6% compared to the previous quarter. It's primarily due to two primary reasons. Okay, the first reason is that I think since December of last year, our Inner Mongolia Phase II was shut down completely and then went into what's called in Chinese or maintenance. and of the facilities for a longer term. So it's incurring equivalent to roughly 20 cents per kilogram of cost this quarter. Even though there's no production, there's no cost related to, for example, the electricity, the air, and the people. employee that's necessary to maintaining facilities. So that actually adds up roughly 20 cents in cash costs. Because if you look at the way that we record cash costs, it's actually all of the cash costs that occur for the facilities. So not just for production, but also for the maintenance. And then we subtract out the depreciation and the non-cashier-based compensation to arrive at the cash cost. Okay, so there's that $0.20 additional impact because of the maintenance related to the facility that's now being shut down. And then there's another roughly $0.10 of cost related to the maintenance facility. In Mongolia, I went to maintenance in roughly the second half of March. Okay, so as you can see, it had some impact on production for the quarter. For example, if you compare to the Previous quarter, we produced around 34,000 metric tons. For this quarter, we only produced roughly 24,800 metric tons, but we incurred a relatively similar level of employees in terms of staffing costs. I think that's the part that has to be amortized over a fewer amount of production. impact of cost that we have. I think if we remove these impacts, I think we would have roughly $5. I think going forward for Q2, I think, again, I think depending on production level, but I think based on current guidance, we should probably have similar to slightly lower cash cost compared to the current quarter.

Got it. Thank you. And I'll pass it on.

As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. Once again, that's star then 1 to ask a question. This concludes our question and answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

Thank you everyone again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and have an awesome day. Goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.