Daqo New Energy Corp. Q2 FY2025 Earnings Call

Good day and welcome to the Daqo New Energy Corp. Second Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Director of Investor Relations. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Daqo New Energy Corp. Thank you for joining our conference call today. Daqo New Energy Corp. just issued its financial results for 2025Q2, which can be found on our website. Today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu, our Deputy CEO, Ms. Anita 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 Q&A from the audience. Before we begin the formal remarks, I want 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 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. Now I will turn the call to our Chairman and CEO, Mr. Xiang Xu. Mr. Xu, please go ahead.

Thank you, Mr. Xu. Hello, everyone. This is Anita, and I'll now deliver our CEO, Mr. Xu's remarks. So the solar PV industry faced continuous challenges in 2025 with market prices across the solar value chain declining due to industry overcapacity and high inventory levels, remaining below cash cost levels. As a result, Daqo New Energy Corp. recorded quarterly operating and net losses. Nevertheless, we maintained a strong and healthy balance sheet with no financial debt. As of June 30, 2025, the company had a cash balance of CNY599 million, short-term investments of CNY490 million, bank notes receivable of $49 million, and a total fixed-term bank deposit balance of $994 million. In total, our financial bank deposits and investment assets readily convertible into cash as needed stood at $2.06 billion, providing us with ample financial liquidity. With no financial debt, our solid financial position brings us confidence and strategic resilience to navigate conditions and weak selling prices. Total production volume at our two hot water facilities for the quarter was 29,012 metric tons, within our guidance range of 25,000 metric tons to 28,000 metric tons. Towards the end of the quarter, our Chinese authorities intensified efforts to curb disorderly competition. We proactively scaled back new sales orders in anticipation of future price recovery. Accordingly, our sales volume for the quarter decreased to 18,126 metric tons from 28,008 metric tons in the first quarter. Due to lower utilization across our factories, idle facility-related costs for the quarter were approximately $1.3 per kilogram, primarily reflecting non-cash depreciation expenses. On a positive note, a decline in the cost of silicon metal and reduced energy consumption drove our cash cost lower by 4% to $5.12 per kilogram sequentially, including approximately $0.18 per kilogram related to idle facility maintenance. Overall, polysilicon unit production cost decreased by 4% sequentially to an average of $7.26 per kilogram, with lower unit depreciation costs resulting from higher production. In light of the current market conditions, we expect our total polysilicon production volume in 2025 to be approximately 27,000 to 30,000 metric tons. As a result, we anticipate our full-year 2025 production volume to be in a range of 110,000 metric tons to 130,000 metric tons. During the second quarter, the solar PV industry remained in a cyclical trough, although proactive initiatives started to emerge towards the end of the quarter. On the demand side, China experienced a surge in installations under market-based reform policies and set a new global record with a staggering 93 gigawatts of new solar power capacity added in May. However, installations plummeted to 14 gigawatts in June, following front-loading earlier this month, ahead of the May 31, 2025 cutoff date for new projects. Poly market prices trended downward during the quarter, falling from RMB39 to RMB45 per kilogram in April to RMB32 to RMB35 per kilogram by June. According to industry statistics, overall industry poly production for 2025 year-to-date has been running below overall demand and consumption, with monthly supply of approximately 100,000 to 110,000 metric tons. As a result, energy inventory decreased by approximately 30,000 to 40,000 tons between January and July, leaving overall industry polysilicon inventory lower than at the beginning of the year. Heading into the third quarter, Chinese authorities have demonstrated increased determination to address irrational competition and energy overcapacity, with the anti-evolution initiative taking a lead role in sectors such as solar PV. On June 29, an article from China's official newspaper People's Daily highlighted the issue of oversupply and disruptive competition in the solar PV industry, calling for measures to curb business competition and promote high-quality development. On June 1, President Xi emphasized the need to regulate disorderly low-price competition and phase out outdated capacity at the Central Financial and Economic Affairs Commission meeting. The following day, the Ministry of Industry and Information Technology convened a symposium with four key solar PV companies to accelerate the industry's transition toward high-quality growth. Most recently, on July 24, government authorities released a draft amendment to the price law, representing a significant step towards strengthening market supervision and deterring unfair pricing practices. The draft clarifies criteria for identifying unfair pricing behavior, such as low-price dumping, and strengthens legal accountability for price-related violations. As a result, polysilicon sales prices have rebounded in July, and polysilicon future prices surged significantly, supported by favorable factors such as expected higher spot pool and simultaneous increases in downstream product prices. For reference, the 2,500 six-nine contract rose sharply from a low of RMB30 per kilogram in June 2025 to a record high of RMB55 per kilogram in July 2025, the strongest level since 2020. The solar PV industry continues to show strong long-term prospects. In the medium term, we believe that the combined effect of industry self-discipline and government anti-evolution regulations will foster a healthier and more sustainable industry. In the long run, as one of the most 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, Daqo New Energy Corp. is well-positioned to capitalize on the long-term growth in the global solar PV industry and strengthen its competitive edge by enhancing its higher efficiency in touch 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 in touch products, a strong balance sheet with no financial debt, we are confident in our ability to weather the current market downturn, capitalize on market recovery, and emerge as a leader in the industry positioned to capture further growth. So 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 Corp. We appreciate you joining our earnings conference call today. I will now go over the company's second quarter 2025 financial performance. Revenues were $75.2 million compared to $123.9 million in the first quarter of 2025 and $219.9 million in the same quarter of 2024. The decrease in revenue compared to the first quarter of 2025 was primarily due to a decrease in sales volume. Gross loss was $81.4 million compared to $81.5 million in the first quarter of 2025 and $159 million in the second quarter of 2024. Gross margin was negative 108% compared to negative 65.8% in the first quarter of 2025 and negative 72% in the same quarter of 2024. The decrease in gross margin compared to the first quarter of 2025 was primarily because sales volume decreased while idle facility costs remained relatively fixed. SG&A expenses were $32.1 million compared to $35.1 million in the first quarter of 2025 and $37.5 million in the second quarter of 2024. SG&A expenses during the second 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 first quarter of 2025. The decline in SG&A expenses in the second quarter compared to the first quarter is a result of lower staffing costs as well as lower sales expenses. R&D expenses were $800,000 compared to $500,000 in the first quarter of 2025 and $1.8 million in the same quarter of 2024. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. As a result, the foregoing loss from operations was $115 million compared to $114 million in the first quarter of 2025 and $195.6 million in the same quarter of 2024. Operating margin was negative 153% compared to negative 92% in the first quarter of 2025 and negative 89% in the same quarter of 2024. Net loss attributable to Daqo New Energy Corp. shareholders was $76.5 million compared to $71.8 million in the first quarter of 2025 and $119.8 million in the second quarter of 2024. Loss per basic ADS was $1.14 compared to $1.07 in the first quarter of 2025 and $1.81 in the second quarter of 2024. Adjusted net loss attributable to Daqo New Energy Corp. shareholders, excluding non-cash share-based compensation costs, was $57.9 million compared to $53.2 million in the first quarter of 2025 and $98.8 million in the same quarter of 2024. Adjusted loss per basic ADS was $0.86 compared to $0.80 in the first quarter of 2025 and $0.50 in the same quarter of 2024. EBITDA was negative $48 million compared to negative $48.4 million in the first quarter of 2025 and negative $145 million in the second quarter of 2024. EBITDA margin was negative 64% compared to negative 39% in the first quarter of 2025 and negative 66% in the second quarter of 2024. Now on the company's financial condition. As of June 30, 2025, the company had $599 million in cash, cash equivalents, and restricted cash compared to $792 million as of March 31, 2025, and $998 million as of June 30, 2024. As of June 30, 2025, short-term investments were $418.8 million compared to $168 million as of March 31, 2025, and $219.5 million as of June 30, 2024. And as of June 30, 2025, notes receivable balance was $49 million compared to $62.7 million as of March 31, 2025, and $80.7 million as of June 30, 2024. Notes receivable balance represents bank notes with maturity within six months. And as of June 30, 2025, the balance of fixed-term deposits within one year was $960.7 million compared to $1.12 billion as of March 31, 2025, and $1.17 billion as of June 30, 2024. Now on the company's cash flows. For the six months ended June 30, 2025, net cash used in operating activities was $105.4 million compared to $278.6 million in the same period of 2024. And for the six months ended June 30, 2025, net cash used in investing activities was $342.7 million compared to $1.7 billion in the same period of 2024. The net cash used in investing activities in the first half of 2025 includes $87.8 million in the purchase of GP&E and $255 million related to the purchase of short-term investments and fixed-term deposits. And for the six months ended June 30, 2025, net cash used in financing activities was $32,000 compared to $43 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.

Thank you. We will now begin the question and answer session. Our first question today will come from Alan Hon of JPMorgan. Please go ahead.

Thank you for letting me ask questions, management. I have two questions. The first one is on the policy development. Can you share some color on the latest developments on the discussions on the consolidation fund or other policy development right now? And number two is on product prices. I understand that due to the pricing law, the product prices increased towards the 45 to 50% level. But at the same time, the sequential demand supply and channel inventory is also increasing. So how should we think about the product price in the next three months? Thank you.

So regarding the latest development in the industry, on August 19, the Ministry of Industry and Technology, also the National Development and Reform Commission, along with the Ministry of Social Affairs and State Administration for Market Regulation and National Energy Administration, jointly held a symposium on the solar PV industry. During that meeting, a number of government officials together with various solar PV manufacturers and power companies as well as the relevant local industrial and information technologies departments attended the meeting. Basically, during the meeting, they reinforced that we have to curb the irrational competition of selling below cost. First, we need to strengthen industry regulation through managing the investment in PV projects and promote the gradual phasing out of outdated production capacity through market-oriented and law-based approaches. Second, they aim to curb low prices in quarterly competition by improving the price monitoring systems and product pricing mechanism to track down irregular practices such as selling below cost. Lastly, to standardize product quality, combat practices such as reducing quality control or infringing IP rights. During the meeting, the essence was to support industry self-regulation and to gradually work towards forming a buyout SPV for acquiring outdated capacity in the industry. Regarding prices, it will really depend on how this buyout of SPV rolls out because we're still working out the details. So it's hard for us right now to say exactly how prices will develop in the coming months. However, it is evident that prices have increased, especially in the futures market, with the expectation of rising prices. If we look at the latest solar projects that could work as a sign of industry development, the China Huadian Corporation had a 20-gigawatt project, with the module price between RMB71 to RMB75 per watt. That has markedly increased, well above the floor prices for modules currently. We believe that this has passed through to the upstream poly sector. So I hope that answers your question.

Our next question today will come from Philip Shen of ROTH Capital Partners. Please go ahead.

Hi, this is Matt Ingraham on for Phil. Thank you for taking our questions. Following up on the previous question, how sustainable do you think that higher pricing can be with the anti-involution initiatives? And secondly, what's your outlook for industry production volumes? When do you expect to see inventory levels be healthy again?

Give us a minute. We're going to translate for Mr. Xu.

Okay. So first of all, I think one thing that's clear is that there is consensus that selling below cash cost is unsustainable and very detrimental to the overall industry development. In our view, that's disruptive to the healthy development of the industry and poses legal risks. Hence, we will be enforcing the regulations and the laws, and we believe that all industry players are on the same page regarding that. In terms of production volume, I think going forward in the next couple of months, it will be around 100,000 metric tons to around 110,000 metric tons, relatively balanced with demand.

Okay. You kind of talked about potentially in the past, like acquiring surplus production capacity. Is there an update on that strategy? Do you think we could see anything in the near term?

Yes. I think we're still progressing on the SPV. The full picture will become clearer in the coming weeks or months. However, all the energy players and relevant regulators are working diligently towards coming to a consensus. This could be very significant for the industry and could set the tone for similar industries in China, such as EV and lithium batteries. They are starting with solar PV, which is why it was referenced in the news article by People's Daily on June 30. We are optimistic about this effort because that is what the industry should aim for, which is beneficial for overall development. Currently, selling below cash cost means none of the companies is making a profit. Additionally, internationally they have been accusing China of anti-dumping, and that's not something we want to see as a whole.

Our next question today will come from Allen Yong of Jefferies. Please go ahead.

Thanks a lot for taking my question. My question is about the buyback the company just announced. I saw that the company has approved a $100 million share repurchase program. What’s the thinking behind that? Also, what’s the timeline for the buyback?

Yes. Thank you, Allen. We actually authorized this new share repurchase program today in the amount of $100 million until the end of next year. The logic behind this is that we are optimistic about the future of the industry, and we believe we could see a turning point soon. I believe previously, our valuable shareholders have been wondering when we would start the share repurchase. The reason for our hesitance was that we believed the market would take a relatively long time to balance supply and demand. However, we are now more optimistic about the outlook of the industry and believe we want to strengthen the confidence of our shareholders as well, aligning with our overall strategy. The pace of the share repurchase program will also depend on market development, but this is definitely the first move we are working towards to strengthen confidence in the market.

Given that the stock price of Asia is actually up off the IPO price already. Will share price or shareholding reduction on the Asia to fund further buyback in USD be back on the table again?

Yes. I think that's definitely a consideration given that we have been trading above the IPO issue price, which should be around €30. That's definitely on the table, and we'll consider that. However, we want to start with this allocation first before we consider selling on Asia to repurchase on the U.S.

That's very clear. Following the question from Alan and also Philip regarding the consolidation initiative. How do you see yourself in terms of the endgame, like the amount of volume you will be able to produce? For example, now your guidance is around 110,000 to 130,000 metric tons for this year’s production volume. If the consolidation effort is successful, what do you think will be your production volume going forward?

I think that depends on a couple of factors. If we calculate the overall capacity that's built or in the process of being built, that will be around 3,500,000 metric tons at least. The production volume of how much we produced per year will really depend on how much capacity remains in the market and the overall demand each year, right? Because the idea is for supply to meet demand. So I believe that going forward, all companies will reduce their utilization rates to align with demand.

So it won’t be 100%, at least in the coming years.

Our next question today will come from Mengwen Wang of Goldman Sachs. Please go ahead.

Hi. Thank you, management, for taking my question. I have two questions mainly related to the Polyprice outlook. First, do we have any color on the benchmark production costs to derive the policy-regulated pricing? There's a lot of news talking about selling prices should not be under the production cost, but do we have any more clarity on the definition of the production cost? Secondly, as we mentioned, we've been doing well in sustaining the poly price hike. As a result, our shipment volume declined a bit. Going forward, how do we balance the price and inventory dynamic? Yes, that's my question. Thanks.

Thanks, Mengwen, for your question. Our view is that the industry needs to sell at a price above the industry production costs. We believe the average production cost industry-wide is probably in the mid-forty range. Our understanding is that due to the Chinese law and government policy, that will be the minimum poly pricing that industry players will be required to sell to their customers. Regarding recent transactional pricing as well as futures pricing, in the high 40s to low 50s, that reflects this new government policy requiring players to sell above production costs. So that is our poly price outlook going forward.

Yes. To follow-up, if the poly price stays at around RMB50 per kilo and our product doesn't sell, and we keep piling up our inventory, what’s our strategy in this situation?

I think there will be industry policies, and perhaps government policies supported by the government that will require industry supply to balance with industry demand. Let's say, if industry demand is 1,200,000 tons per year, then the industry sales and annual production will need to match that demand level. This dynamic will be adjusted to maintain poly pricing above production costs.

To follow up on your question regarding inventory, the big picture is that people want to manage their inventory. The direction is to adjust utilization rates of the company to not be over-demand going forward. For us, we need to wait to see how the regulation unfolds in the coming weeks or months before we decide on our strategy. Additionally, I know there are companies participating in the futures market. We've also engaged meaningfully in the futures market as part of our strategy to hedge against risk and arbitrage.

To sum up, we expect some policy to help the industry cut production into September. We have been actively engaged in the polysilicon futures market to mitigate the volatility of the polysilicon price, correct?

We were registered as the first batch of the companies allowed to sell in the futures market. But strategy-wise, it will depend on the regulations that will come out and how the spot prices will move.

How about the policy timeline? Should we expect any meaningful policies to kick in in September?

We are working on outcomes from the continuous meetings with all related parties, including the CPRA, manufacturers, and relevant regulators, but we cannot guarantee, yet we believe everyone is on the same page and is working towards a proposal.

The next question today will come from Shiwa Xu of CICC. Please go ahead with your question.

Thanks, management. This is Shiwa Xu from CICC. My first question is, you mentioned lowering the sales volume for the second quarter. How is the plan on it? What’s the plan for utilization rates in the future? My second question is, I've seen you keep reducing the production cost. Besides reduced cash costs, what other ways are there to reduce the cost? Thank you.

Thank you, Shiwa. For your first question, the reason for the significant discrepancy between sales volume and production volume is because prices are trading at very low levels, below cash costs. As we work on proposals since the first meeting hosted by the MIT and NDRC in the second quarter, we are waiting to see how policies will shift and how much capacity will phase out in the future to adjust our sales strategy accordingly. We believe once regulations come out, we will work to maintain inventory at a healthy level.

Regarding utilization rates, we're maintaining a 30% to 35% utilization rate. This will depend on the demand environment, pricing, and industry consensus to ensure balance. Currently, we're monitoring the industry status closely. As for production costs, it's slightly lower than Q1, helped by improvements in manufacturing efficiency and lower energy usage and metal costs. We expect the cost trend to continue improving for Q3 as well.

Thank you.

Okay. Thank you. Goodbye.

Our next question will come from Gordon Johnson of GLJ Research. Please go ahead.

Hey, guys. Thanks for taking the questions. It seems you explicitly stated you held back polysilicon sales in the second quarter. Can we interpret that to mean you'll sell more in the third quarter? Based on calculations, your guidance indicates production will increase from 26,000 metric tons in Q2 to 28,500 in Q3 and then 40,700 in Q4. Should we assume that's a significant increase in polysilicon sales in Q4? I have a follow-up.

Thank you, Gordon. The reason for lower sales relative to production was selling at below cash cost. We didn't want to disrupt the industry dynamics. We’ve adjusted our sales strategy accordingly. In Q3, prices have ticked up. We hope to start selling more if they don’t cut below our costs, but that depends on when regulations come out. We'll adjust strategies accordingly.

Understood. So given you indicated transactions in the futures market are around high 40s, low 50s, that suggests a price of around $7.7 per polysilicon USD. However, your ASP in Q2 was $4.19. You don’t seem to have visibility on Q3 sales until policies are decided. Are you currently transacting at the high 40s, low 50s levels?

There are two specific goals we're trying to achieve. One is based on government policies requiring sales above production costs. The levels you noted represent the current transactional cost in the market. Another goal is to reduce inventory on hand given the current environment. We will strive to achieve this. Also, regarding pricing, the RMB price includes a 13% VAT, so it should be divided by 1.13 to get the actual selling price ex-VAT, which would be around 5.8.

So that means you expect to be gross margin positive in Q3, correct?

We expect to generate cash from our sales as there are non-cash depreciation costs related to our idle facilities. Operating at one-third utilization affects this. However, if you exclude the non-cash depreciation, we expect to see a positive cash margin from sales.

Thank you.

Okay. Good. Thanks, Gordon. Thank you.

This will conclude our question-and-answer session. At this time, I'd 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 has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.