Good day, and welcome to the Daqo New Energy Third Quarter 2024 Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I’d now like to turn the conference over to Anita Chu. Please go ahead.

Hello, everyone. I'm Anita Chu, the Deputy Chief Executive Officer of Daqo New Energy. Thank you for joining our conference call today. Daqo 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. Xu will not be able to attend today's meeting in person. I'll first begin the call by reading Mr. Xu's comment on market conditions and company operations. 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 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 law. Also, during the call, we'll 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. So without further ado, let me begin with our management remarks. 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 Daqo 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 $53 million 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 two polysilicon facilities for the quarter was 43,592 metric tons. Through continued investments in R&D and dedication to purity improvements at both facilities, our overall N-type product mix reached 75% during the quarter. Our Phase 5B, which started initial production in May and is still ramping up, reached 70% N-type in its product mix, strengthening our confidence in achieving 100% N-type by the end of next year. Despite lower utilization levels, we further reduced our cash cost to $5.34 per kilogram, compared to $5.39 per kilogram in the second quarter. However, unit production cost trended up 7% sequentially to an average of $6.61 per kilogram, as a result of reduced production level which led to facility idle cost of approximately $0.55 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 anticipate 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, polysilicon supply in China decreased by 15% and 6% month-over-month in July and August, respectively, with the total polysilicon production volume falling below 130,000 metric tons in August, the lowest year-to-date. This reduction eased inventory pressure with prices bottoming in the range of approximately RMB35 to RMB40 per kilogram. Despite relatively weak downstream wafer demand during the quarter, poly prices stabilized after reaching their lowest level and have stopped declining. This price level was below the cash costs of even the Tier 1 players, and four consecutive months of cash losses have led all manufacturers to reassess their future strategy. In August and September, due to downstream customers' effort to take advantage of low prices amid production cuts, polysilicon prices rebounded to approximately RMB38 to RMB43 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 cuts and stronger market demand to sustain a price recovery. The fourth quarter has historically seen strong new solar installations in China, and the aggressive stimulus packages unveiled in September and October to support the domestic economy might encourage investments 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 recovery. As the price wars have undermined the healthy development of the industry, on October 14, 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, CPIA announced a reference price of RMB 0.68 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 160.88 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 will 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 N-type product, a strong balance sheet and no financial debt, we believe we are 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 Daqo 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 $159.2 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 amounts 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. SG&A expenses during the third quarter include $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 with 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. Income from operations was $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 Daqo 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 a loss of $1.81 in the second quarter of 2024 and $0.09 in the third quarter of 2023. Adjusted net loss attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation cost 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 ADS was $0.59 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 had $853.4 million in cash, cash equivalents, and restricted cash compared to $997.5 million as of June 30, 2024, and $3.3 billion as of September 30, 2023. As of September 30, 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. For 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. 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. For the first nine months of the year, purchases of property, plant, 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. For the nine months ended September 30, 2024, net cash used in finance activities was $48.5 million compared to net cash used in finance activities of $602 million in the same period of 2023. The net cash used in finance activities in the three quarters of 2024 was primarily related to dividend payments and share repurchase by our subsidiaries.

We will now begin the question-and-answer session. And the first question comes from Philip Shen with ROTH Capital Partners.

Hi, everyone. Thank you for taking my questions. I wanted to check in with where you think the government might be in terms of cutting off capacity based on energy intensity. So when do you think that policy could become effective? Is it near term, before the end of the year, or do you think we need to wait for a much longer time? Thanks.

Phil, are you referring to the government policy about reduction in production?

Yes, that's right. And so, I think the government is looking to reduce production based on energy intensity. And so, if you have a 55 kilowatt hour per kilogram cutoff, then producers above that energy intensity would no longer be able to sell to the market or produce at least. So just curious when you think that could become effective and then also how much of the market in terms of percentage or capacity in metric tons could exit if that's the case. Thanks.

Hi, Phil. Thank you for the question. There have been discussions in the industry from both the CPIA and various government entities about potentially reducing the production level or utilization rate to 50% across all players. Manufacturers have reached a consensus to promote healthier industry development through self-discipline. Currently, the inventory level exceeds 350,000 metric tons, with approximately 250,000 metric tons at the poly level and another 100,000 at the wafer level. On the demand side, the current monthly wafer demand is less than 50 gigawatts, indicating a need for only about 100,000 metric tons of poly demand monthly, suggesting an oversupply. Regarding structural reform in the market, discussions are ongoing about energy consumption or a certain percentage of main capacity for production volume. While details on energy consumption are limited, companies with energy intensity below 55 kilowatt hours represent only the top four to five players.

So, quickly, just to add Anita's comments, our understanding is the NDRC and National Energy Administration is looking at this and there could be some kind of enforcement and allocation in terms of how much energy usage is allocated to the various manufacturers to restrict production. We don't know what the actual policy might look like, right? Or what the ultimate rules are. But looking at China in history, I know China has done a lot of the supply-side reform, especially for industries like aluminum, glass, and steel. Historically, the government has had a lot of success in the supply-side reform to stabilize the market and pricing. So we think the government is looking at this as a practical approach to fix the issues that the solar industry is currently facing.

Great. Thank you, Anita and Ming. As a follow-up, I know I asked this earlier, but I'm going to ask again from a timing perspective. Do you think this is already having a positive impact on prices? Do you continue to expect pricing to be supported in the near term, or do you believe the policy needs to be implemented first before we see a more significant pricing shift? Thanks.

I think realistically with regard to timing we really don't know. In terms of what we've heard or understand is that the government and various government agencies are studying this. They're also talking with the industry players and the industry association with the top manufacturers. Policies like this probably will take one to two months to formulate. So we're looking at maybe end of November or December or maybe even later. We really don't have any real insight on timing. Regarding pricing, it is actually very complicated. Pricing is a function of supply, demand, market pricing, utilization, and future expectations of pricing. For the industry, we do believe pricing has bottomed for now and is likely to go up further in the future, but we don't know what the timing looks like or how much it could go up.

Okay, great. I think I'll leave it there. Thank you very much and best of luck.

Okay, great. Thanks, Phil.

And the next question comes from Rangier Coparate, a private investor. Please go ahead.

Yes. My question focuses less on the operational aspects of the business and more on the potential for using buybacks to address the price difference between Shanghai and New York. As investors, we anticipate that the lockup period will end in January 2015, and the volume from July should be released. What are the plans for selling some of the Shanghai shares, considering they are currently valued at $7 billion, which represents 72% of the total shares? It would make sense for everyone to help reduce this price discrepancy, which stands at 4.3 times. What can we expect to happen after January 15, especially with the upcoming quarterly report?

Hi, thank you for the question. We have considered the proposal of potentially selling down the A-shares and then use that to repurchase ADRs to close down the gap, but back in July it was due to regulatory difficulties because there were new regulations launched in May. If the stock price was trading below the IPO issue price, then we are not able to sell down, which is why we also voluntarily disclosed we wanted to extend the period until January. As of now, it's difficult for us to say what's the plan next, because it would also be contingent upon the stock price by January, but it's definitely something that we would consider to potentially close down the gap between the A-shares and the ADRs.

Could you provide a bit more color to investors? Even if it would be available, the option, the letter of undertaking of the intent to reduce shareholding which I see on the Security Exchange Commission. Could you provide more color? IPO price wasn't at RMB21.49 from what I see in 2021. Aren't we trading currently above IPO prices in Shanghai?

Back then when we were at the expiration of the lockup period, the share price was also very low, which is why…

Yes, that's correct.

So currently, are there any other clauses? I see three or four clauses here. Are there any clauses that we need to be aware of, even though January is not right now and it's actually October 30? Are there any clauses that are unapproved or not functioning?

We do have a voluntary lockup that will expire in January. If the board of Daqo does decide to sell its A-share holding, then we would need to file a plan to reduce our A-share ownership in the open market with the Shanghai Stock Exchange. Yes, we would sell the shares under that plan.

But there are no other clauses which are preventing that from happening if the conditions continue to be the same as they are currently?

As long as share price is above RMB21.49, based on the rules, we are allowed to sell down the shares.

It's just 10% in 2025.

Right now the rules state that we could sell roughly 1% to 2% per quarter, per 90 days.

Okay. Thank you for that. And the last question, again, it's not relevant operations, but the difference is huge. I would capitalize on this huge difference between the two share prices. It's 4.3 times or 4.5 times the difference. My other question is, I think in the previous quarter we reported the share count only decreased by 0.5% from last quarter. It decreased to $66.3 million from $66 million. Sorry, the other way around. But it's just a small decrease, so buybacks were not that much used in this quarter. I was expecting more buybacks.

In terms of the share repurchase, after we announced the share repurchase program, our management team was also waiting to see when would be a good timing. Based on the poly cycle this round, we were expecting if there's no structural reform or any sort of policies done to accelerate the balance of supply and demand, that it might last two to three years, given that the players in this round are very strong financially. For instance, some of them have already raised a lot of capital in the financial market, while others have other business lines supporting their poly business. If we let it rebalance, it might take a slightly longer time. We were waiting for the turning point to be clearer before we could buy more aggressively. That was the rationale behind it.

Regulatory changes in China should help the most the polysilicon producers, which are the lowest average selling cost and the producers, which are the most efficient, which Daqo is one. Will the regulatory changes focus on helping the large players the most and the ones with the lowest average cost?

I think it's the other way around. If you have the economy of scales and more advanced technologies, the larger players have smaller energy consumption, which is why they have a lower cost. The policy would not necessarily be helping the big guys to survive and force the smaller or less efficient players to exit the market, but rather they would want advanced capacity to remain in the market. The less advanced players, which have higher energy and silicon consumption, might gradually phase out.

Congratulations on your promotion to CEO! Please consider after January 15 because if the company does not capitalize on this difference, I think there's a possibility that this difference will just be raised by a fund or somebody else. This will be accretive for everyone, the investors and the Chairman, the CEOs, and the Directors, who own 29% of the company shares in New York.

Thank you.

Thank you. We appreciate it.

And the next question comes from Ji Hu Wu of CICC. At this time, this does conclude the question-and-answer session. So I would like to return the floor to Ms. Chu for any closing comments.

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.

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