Daqo New Energy Corp ADR

Hello and welcome to the DACO New Energy third quarter 2025 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Stockholm New Energy. Thank you for joining our conference call today. Stockholm New Energy just issued its financial results for the third quarter of 2025, which can be found on our website at www.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Xu, our CFO, Ms. Ming Yang, and myself. Our Chairman and CEO, Mr. Xiang Xu, is on a business trip now, so Ms. Anita Xu will deliver our management remarks on behalf of Mr. Xu. Today's call will begin with an update from Ms. Xu on market conditions and company operations and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to Q&A from the audience. Before we begin with the formal remarks, I want to remind you that certain statements on today's call, including expected future operational and financial performance and the industrial growth are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Security 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 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 rules. 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. Now, I will turn the call to our Deputy CEO, Ms. Anita Xu. Ms. Xu, please go ahead.

Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. Xu. So with the recovery of market prices across the solar PV value chain, the third quarter of 2025, we believe the industry is gradually recovering from its cyclical downturn. In particular, the polysolar contractor reached an inflection point during the quarter, with prices rebounding significantly. As a result, we're pleased to report that for the third quarter, back on new energy recorded positive EBITDA of 45.8 million U.S. dollar, as well as adjusted net income of $3.7 million. Moreover, our strong balance sheet was further reinforced. As of September 30, 2025, the company had cash balance of $552 million, short-term investments of $431 million, bank notes receivables balance of $157 million, and total fixed-term bank deposit balance of $1.1 billion. In total, our bank deposit and financial investment assets readily convertible into cash if needed at $2.21 billion, representing an increase of $148 million compared to the end of the second quarter. Our solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capture long-term opportunities. Operationally, the company implemented proactive measures to counteract the continued market oversupply. maintaining a nameplate capacity utilization rate of 40%. Total polysilicon production for the quarter was 30,650 metric tons, slightly above our guidance range of 27 to 30,000 metric tons. We also capitalized on favorable pricing conditions to sell not only our current quarter's output, but also a significant portion of our existing inventory, leading to a sharp rise in our sales volume to 42,406 metric tons from 18,126 metric tons in the previous quarter. The strong increase in sales volume reflects both our customers' confidence in DACO's product quality and their continued preference for our product in the new pricing environment. As a result, our sales volume far exceeded production, bringing our inventory down to a healthy level. On another positive note, production costs declined significantly during the third quarter, extending our ongoing cost reduction trend. Total production costs declined by 12% to $6.38 per kilogram in Q3 2025, from $7.26 per kilogram in the second quarter of 2025. Total idle facility-related costs, primarily non-cash depreciation expenses, also fell to $1.18 in Q3 from $1.38 in Q2, driven by higher production levels. In particular, our cash cost decreased by 11% from 5.12 USD per kilogram in Q2 to 4.54 USD per kilogram in Q3, the lowest in the company's history. Cash cost includes approximately 0.16 USD per kilogram of idle facility maintenance-related costs. In light of the current market conditions, we expect our total polysilicon production volume in the first quarter of 2025 to be approximately 39,500 metric tons to 42,500 metric tons. As a result, we anticipate our full year 2025 production volume to be in the range of 121 to 124,000 metric tons. At the industry level, according to industry statistics, monthly supply of polysilicon in Q3 remain in the range of approximately 100,000 to 130,000 metric tons. On September 24th, President Xi announced China's new 2035 environmental targets at the UN Climate Summit. These targets include increasing the share of non-fossil fuels in total energy consumption to over 30% and expanding the installed capacity of wind and solar power to over six times the 2020 level, aiming to reach an accumulative capacity to 3,600 gigawatts by 2035. The official announcement re-informed China's ambitious strategy to transition toward a new low-carbon energy structure, with solar PV playing a pivotal role in the process. Entering the third quarter, China's anti-involution initiative to restrict low-price competition in the polysilicon sector continued to impact the industry. Market expectations of consolidation, tighter supply, have improved overall industry fundamentals. In particular, on August 19, the Ministry of Industry and Information Technology, the Central Ministry of Social Work, the NDRC, the State Council State Owned Assets Administration Commission, the General Administration of Market Supervision, and the National Energy Administration jointly held a symposium on the photovoltaic industry. The meeting emphasized the need to strengthen industrial regulation, curb disorderly low-price competition, standardize product quality, and promote industry self-discipline. On September 16, the Standardization Administration of China released a draft of a new mandatory national standard setting energy consumption limits per unit of polycycone production. Once implemented, poly manufacturers with unit energy consumption higher than 6.4 kilograms must implement corrective improvements within a specified period. Those failing to comply or meet the entry threshold after rectification will be ordered to cease operations. According to China's Silicon Industry Association, China's effective capacity in power silicon production is expected to climb to 2.4 million metric tons per year, a decrease of 16.4% from the end of 2024, and of 31.4% from total installed production capacity. We expect the implementation of this new energy consumption standard will subsidentially ease the issue of energy overcapacity. As a result of these more fossil measures, PULSA comprised roadsharp P2 45 to 49 RMB per kilogram in July, from 32 to 35 RMB per kilogram in June. A further climb to 49 to 55, RMB per kilogram at the end of the quarter. The solar PV industry continues to demonstrate strong long-term growth prospects. In the medium term, we believe that the combination of industry self-discipline and government anti-involution regulations will help foster a healthier and more sustainable industry. In the long run, as one of the most cost-effective and sustainable energy sources globally, solar power is expected to remain a key driver of the global energy transition and sustainable development. Looking ahead, DOTCO New Energy is well positioned to capture the long-term growth in the global solar PV market and further strengthen its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through its digital transformation and AI adoption. As one of the world's lowest cost producers of the highest quality and tight product, and with a strong balance sheet and no bank loan, we're confident in our ability to capitalize on the market recovery and emerge as an industry leader, well-positioned to seize future growth opportunities. So now I'll turn the call to our CFO, Mr. Ming Ye, 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 DocuNew Energy. We appreciate you joining our earnings conference call today. I will now go over the company's third quarter 2025 financial performance. Revenues were $244.6 million compared to $75.2 million in the second quarter of 2025 and $198.5 million in the third quarter of 2024. The increase in revenue compared to second quarter of 2025 was primarily due to an increase in both sales volume and average selling price. Gross profit was $9.7 million compared to gross loss of $81 million in the second quarter of 2025 and gross loss of $60.6 million in the third quarter of 2024. Gross margin was 3.9% compared to negative 108% in the second quarter of 2025, and negative 30% in the third quarter of 2024. The increase in gross margin compared to the second quarter of 2025 was primarily due to the increase in the average selling prices of polysilicon, a decrease in our production costs, as well as write-off of provision for inventory impairment. Selling general and administrative expenses were $32.3 million, compared to $32.1 million in the second quarter of 2025 and $37.7 million in the third quarter of 2024. HG&A expenses during the third quarter included $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan, compared to $18.6 million in the second quarter of 2025. R&D expenses were $0.6 million compared to $0.8 million in the second quarter of 2025 and $0.8 million in the third quarter of 2024. R&D expenses vary from period to period to reflect R&D activities that take place during the quarter. As a result, the foregoing loss from operations was $20.3 million, compared to $115 million in the second quarter of 2025 and $98 million in the third quarter of 2024. Operating margin was negative 8%, compared to negative 153% in the second quarter of 2025 and negative 49% in the third quarter of 2024. Net loss attributable to DACA New Energy shareholders was $14.9 million, compared to $76.5 million in the second quarter of 2025 and $60.7 million in the third quarter of 2024. Loss per basic ADS was $0.22, compared to $1.14 in the second quarter of 2025 and $0.92 in the third quarter of 2024. Adjusted net income attributable to DACA New Energy shareholders excluding non-cashier-based compensation costs was $3.7 million compared to adjusted net loss attributable to DACA New Energy shareholders of $57.9 million in the second quarter of 2025. and 39.4 million in the third quarter of 2024. Adjusted earnings per basic ADS was 5 cents per share compared to adjusted loss per basic ADS of 86 cents in the second quarter of 2025 and 59 cents in the third quarter of 2024. EBITDA was 45.8 million compared to negative 48 million in the second quarter of 2025 and negative 34 million in the third quarter of 2024. Avidon margin was 18.7% compared to negative 64% in the second quarter of 2025 and negative 17% in the third quarter of 2024. Now on the company's financial condition. As of September 30th, 2025, The company had $551.6 million in cash, cash equivalents, and restricted cash, compared to $598.6 million as of June 30, 2025, and $853 million as of September 30, 2024. And as of September 30, 2025, short-term investment was $431 million, compared to $418.8 million as of June 30, 2025, and $245 million as of September 30, 2025. As of September 30, 2025, bank notes receivable balance was $157 million compared to $49 million as of June 30, 2025 and $83 million as of September 30, 2024. No receivable balance to present bank notes with maturity within six months. And as of September 30, 2025, the balance of fixed-term deposits within one year was $1.03 billion, compared to $960.7 million as of June 30, 2025, and $1.2 billion as of September 30, 2024. Now on the company's cash flows. For the nine months ended September 30, 2025, net cash used in operating activities was $50 million, compared to $356 million in the same period of 2024. And for the nine months ended September 30th, 2025, net cash used in investing activities was $448.9 million compared to $1.7 billion in the same period of 2024. The net cash used in investing activities in 2025 includes $120.3 million for the purchase of PP&E and $328.6 million the net purchase of short-term investments and fixed-term deposits. For the nine months ended September 2025, net cash using financial activities was $32,000 compared to $48.5 million in the same period of last year. 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 telephone keypad. If you're 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 comes from Philip Shen with Roth Capital Partners. Please go ahead.

Hi, everyone. Thank you for taking my questions. First one is on the gross margins. It looks like you guys had positive gross margins for the first time in a while, maybe supported by the impairment. wanted to get a feel for what kind of, could we see positive gross margins in Q3 and or Q4, and how would you expect that to trend in 2026? Thanks.

Hello, Phil. This is Ming Yang, the CFO. Thanks for your question. And we're very pleased to report that we were able to record a positive gross margin for the third quarter. A lot of it is driven by the increase in selling prices, the quite significant increase that we saw in Q3, and as well as a significant reduction in our per unit cost, and also helped by some of the benefits from an earlier rate down to inventory. But we do expect that our Q4 gross margin, as of today, It should be positive as well. It should be positive. I think based on our current expectation for trends for both ASP as well as for our continued cost reduction as well.

Great. Thanks, Bing. And so maybe Q3 remains negative, Q4 flips positive, and then through 26, do you see potential for the year to be positive as well?

Okay, great.

Shifting over to some bigger picture questions, last week we hosted a couple of webinars, one with Clean Energy Associates and the other one with the CREW group, the Commodities Research Unit that acquired Exawatt based out of London. In any case, they were talking about a lot of the overhaul efforts. and the anti-involution efforts in China for polysilicon and downstream. But they were saying that even after the overhaul in the polysilicon segment, there could still be, instead of maybe 3x overcapacity for poly, now just 2x. So still substantial overcapacity. How do you guys continue to work to better match capacity with the lower levels of demand? What other actions can you and the industry take? And then how much capacity might you and the industry acquire over time and then shut down? Thanks.

Thank you, Phil. So regarding the overall capacity, first of all, I think it's correct that even with the exit of subcapacity, there would still be a relative oversupply compared to demand. However, I think how it's going to work is that although you still have more supply in terms of the nameplate capacity, they'll try to balance it with demand in terms of the production volume, meaning none of the companies will be operating at full utilization rate until demand climbs up again. I think that's what's going to happen at least in the short term to the to the midterm.

Okay. Got it. Thank you. And do we or you guys expect any additional actions from the government or from the industry that maybe we're not all aware of that could also serve as a positive catalyst in addition to the lower utilization rate? What else can you and the industry and the government do? Thanks.

I think the overall conversation on the consolidation in terms of the SPVI, I bet that all investors have seen a lot of news around that. And I would say the anti-involution initiatives are still ongoing conversations. All the companies are taking the initiative to participate and are actively engaging in these conversations so that we would see a healthier and more sustainable industry going forward. I think that's the key focus right now, at least in the near term. I would say aside from the NT evolution in terms of the consolidation, the other one that might be worthy to mention is the draft on the new mandatory national standard rate. I think that would work as another positive catalyst. While the consolidation conversation is still ongoing, the government is also pushing out the national standard on energy consumption, and that would serve as a hard cutoff point for some of the companies in the industry.

Okay, great. Thank you for the color. Anita, I'll pass it on.

The next question comes from Alan Lau with Jefferies. Please go ahead.

Thanks a lot for taking my question, Andy. First question would like to follow up on Bill's question on the self-discipline in the industry. We'd like to know when do you expect the whole consolidation agreement among the remaining players will be signed and what exactly in terms of mechanisms to make sure the players to obey the quota or the volumes that are agreed upon by the parties. Is there any performance bond or some kind of mechanism like that?

Thank you, Alan. So, of course, like I just mentioned, the conversations are still ongoing, so we're waiting for more details before we can unveil it to to the investors, but I would say we're pushing toward median or having a consensus in terms of the consolidation. It's difficult for us to say exactly when that's going to turn out or when we can see an agreement signed, but of course from our perspective, the sooner the better so that Of course, we've seen a price recovery in the third quarter already, but suppose we can get a consolidation done soon, we might see further uptake in the prices. Of course, because there are many parties involved in working out the consolidation, including the government entities and the companies in the industry, so it's taking some time, but of course, we are working very diligently. working very hard toward having a consensus.

Thank you. So my second question is to follow up on the company's specific matters. So I have noticed that actually the ASP achieved by the company is quite high relative to peers. I would like to know what's your expectation on the prices, especially if the consolidation initiative is implemented? And then secondly, also look at from the cost perspective, both the production cost and the test cost went down. So how do you see the trend in 4Q or in 2006 as well?

Can you hear me? I'll address the cost transfers and then Anita will talk about the ASP, especially what our expectation is after the consolidation initiative. We did see a significant reduction in cost for this quarter. It's actually a bit better than what we had originally anticipated. So cost went down about 12% quarter over quarter overall cost, and especially cash cost declined by more than 11% quarter over quarter. And a significant portion of that is actually the reduction in energy usage around efficiency. So we did a lot of efforts in terms including our process and for further optimization, and I would say that a lot of those efforts actually begin to materialize, especially in the third quarter, and as well as the usage of slick and powder in terms of per-unit reduction. And also this quarter, we benefited additionally from a decline in slick metal pricing, and Also because of the increase in production, so this quarter production is more than 10% higher than the previous quarter, so there's also a per unit reduction in terms of relatively fixed costs of, for example, labor and benefits, so the combination of these helped us to reduce our cost. And we actually expect, currently expect a Q4 cost to continue to decline compared to Q3, I think, in the low single-digit range. So we should continue to see a low single-digit percentage range. So we should continue to see benefits from our cost reduction efforts.

And in terms of the ASPs, so first of all, for the fourth quarter, as we're still undergoing the conversation to make the consolidation happen, we think the price change will remain relatively stable at the current level because prices have already picked up in the third quarter. Near the end of the quarter, it's already in the range of $0.40. 9 to 55 RMB per kilogram, so we think that's going to sustain in the fourth quarter. However, after the consolidation is completed, of course the consolidation will be done in phases, so it's more likely going to be capacities exiting in different phases. We should expect prices to tick up after the consolidation happens to rise around 60 RMB per kilogram first and perhaps ticking up further as we see more main plate capacities exiting the industry. So perhaps in the range of 60 to 80 as we foresee it.

Thank you. That's very clear. I think my last question is on the buyback because the company has announced the buyback program a couple of months back. We'd like to know the progress of buyback since then and also combining the consideration of potential cap picks or acquisition spending. We'd like to know what is the pace of buyback and besides by the company. Thanks.

Thank you, Alan. So in terms of the share repurchase, after we announced the program, share prices actually increased to the highest, to 31 U.S. dollars, which was about 35% higher than what was near the end of August. And because we wanted to purchase more shares, so we were waiting and monitoring the market closely, And another thing is that we were waiting to see what would be the initial investment for the consolidation, right? So suppose the initial investment is around 30 billion RMB versus like 10 billion RMB. It means a huge difference to what we have to put in the consolidation. Hence, we're still waiting. to see how that's going to unfold before we can confidently start the share repurchase again.

OK. So assume the consolidation effort will materialize in 4Q, then probably there will be more clarity on the amount that CQ has to spend in that platform. And then probably the company will start probably in 4Q or in 1Q, right? Is it their expectation?

Sorry, so what's the question?

So assuming, yeah. It's on the timing, so if the consolidation effort is going to be in 4Q or 1Q, then DQ will start buyback right after that, so which is, a couple of months from now.

In terms of the timing of the share repurchase? Yep. I think that after we have a more clear picture of what the consolidation looks like, we can start the share repurchase.

Thank you. That's very clear. I'll pass on. Thanks a lot.

Yeah. Thank you. Thank you, Alan.

The next question comes from Mengwen Wang with Goldman Sachs. Please go ahead.

Yes, thanks for taking my question, Anita and Yang. My first question is regarding to the production cost. Mingyu just mentioned the lower cash cost is mainly due to our capacity upgrade, therefore less energy usage now. I was wondering what's our unit electricity consumption per kilogram of the poly right now?

Okay, so this is actually different for our two facilities, but generally it's in the range of 52 to 55 kilowatt hour per kilogram per hour.

Sure, that's clear. And my second question is regarding to the production. So we raised our production plan by 30% plus in 4Q from 3Q's level. So the direction is really going against with our peers. So I was wondering how we fit our production left to current an industry-wide production quota narrative, and also what drives our more positive demand outlook into 4Q. I think that's supposed to be a traditional weak demand season.

Thank you, Mulan. I would say that we were among the first to start lowering our utilization rate to around 30% initially. I would say we have been very aggressive in doing that. However, as prices have recovered in the third quarter, we do foresee a more optimistic outlook going forward with the consolidation and also the proposal on energy consumption. We do see a direction to curb the vicious competition in the industry. We are more confident in the future outlook. And we have weighed our own current plan as well as in terms of the cost. If we increase our production volume now, we can further reduce our production costs. So I think that's the logic behind raising our production plan in the fourth quarter.

So can we use the over 50% utilization as the guidance of the production plan in 2026 and going forward?

Yeah, I think that would be a reasonable assumption for 2026.

Sure. That's very clear. That's all my question. I will pass the question to the next investors. Thanks.

Okay. Thank you, Maureen.

The next question comes from Gordon Johnson with GLJ Research. Please go ahead.

Hey, guys. Thanks for taking the question. So just, I guess, number one, focusing on your current production cost, 638, I'm looking at what PB Insights is reporting for polysilicon prices in Q4 so far, 653. That would suggest a margin of 2%. But when I look at the Guangzhou Stock, I'm sorry, Futures Exchange, it has polysilicon prices right now, futures, at like around 840. So when we look at your your Q4 gross margin, are we looking at a margin similar to what you reported in the 2% range or something higher? And then I have a follow-up.

Thanks.

I think for the poly futures market, you have to subtract by a 13% VAT. I think once you subtract that, I think you get maybe a ballpark, mid to high single digits. kind of gross margin, something like that. So let me just say just kind of a range of gross margins, maybe low to mid single-digit kind of gross margins, I think based on the current market environment.

Okay, that's helpful. You guys mentioned that you sold a lot out of inventory. Is that done or will you continue that? And then my last question is, given the new five-year plan that's coming through in China, what is your expectation for installations, solar installations writ large in China in 2026 versus 2025? Thanks again for the questions.

Okay, so I think in terms of sales, I think it is still a little bit early, so we're at the end of October. There's two more months to go, but I think based on our latest customer orders and order trends, at this point we do anticipate that the overall sales volume for the quarter It should be similar to our expected production volume. I think that's the baseline for our sales. But we do also look for opportunities to sell down additional inventory. So that's what the current market condition looks like.

Okay, and then on total installs in China for next year versus this year. Thanks.

And for installation, we think it will be relatively stable or low single digit compared to this year. Because this year, the forecast is in the range of around, I would say, 220 to 250 gigawatts for additional installations in China. So I think for next year, would be more likely at a range, and perhaps for growth to around, I would say, 270 to 280 gigawatts.

Thank you.

Great. Thanks, Borna.

This concludes our question and answer session. I would like to turn the conference back over to Jesse 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.