Daqo New Energy Corp. Q1 FY2026 Earnings Call

Good day, and welcome to the Daqo New Energy First Quarter 2026 Results Conference Call. 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. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the first quarter of 2026, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Zhu; our CFO, Mr. Ming Yang; and myself. Our Chairman and CEO, Mr. Xiang Xu, is on the business stream now. So Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xiang Xu. Today's call will begin with an update from Ms. Zhu 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 the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding 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 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 Deputy CEO, Ms. Anita Zhu. Ms. Zhu, please go ahead.

Thank you, Jessie. Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. Xu. In the first quarter of 2026, market sentiment across the solar PV industry remained cautious amid seasonal softness and elevated inventory levels. It was further exacerbated by rising module prices driven by higher silver, aluminum, and glass costs, which led to a market slowdown in China. Geopolitical tensions in the Middle East also weighed on end market demand in the region. Against this backdrop, persistent industry overcapacity continued to exert downward pressure on polysilicon prices, resulting in quarterly operating and net losses. Notwithstanding these headwinds, we continue to maintain a robust and healthy balance sheet with 0 debt. As of March 31, 2026, we held a cash balance of USD 559.4 million, short-term investments of USD 288.3 million, bank notes receivable of $20.8 million, held-to-maturity investment of $50.3 million, and a fixed-term bank deposit balance of USD 1.1 billion. In total, these assets that can be converted into cash stood at USD 2 billion, providing us with ample liquidity. This solid financial position gives us the confidence and strategic flexibility to navigate the current market downturn. On the operational front, we continue to take proactive measures to navigate challenging market conditions and weak selling prices with nameplate capacity utilization rate operating at approximately 57%. Total production volume at our 2 polysilicon facilities was 43,402 metric tons for the quarter, exceeding our guidance range of 35,000 metric tons to 40,000 metric tons. With market prices for polysilicon experiencing a notable decline to be below production cost during the quarter, we adhered to the Chinese authorities' self-regulation guidelines by declining to engage in below-cost sales. We adopted a disciplined wait-and-see approach, pending further implementation of the national anti-involution policies we highlighted last quarter. As a result, our sales volume dropped to 4,482 metric tons, while average selling price increased 2.3% sequentially to USD 5.96 per kilogram. On the cost side, total production and cash costs increased marginally by 2% and 3% respectively on a sequential basis, primarily driven by exchange rate movements. However, despite higher silicon metal costs, manufacturing costs in RMB terms actually declined slightly on a sequential basis, reflecting our continued improvements in manufacturing efficiency. In light of the current market dynamics, we expect total polysilicon production volume in the second quarter of 2026 to be approximately 35,000 metric tons to 40,000 metric tons. For the full year of 2026, we expect production volume to remain in the range of 140,000 to 170,000 metric tons. With the solar market impacted by seasonality surrounding the Chinese New Year holidays and the absence of concrete updates on capacity rationalization policies, polysilicon transactions and shipment volumes remained low during the quarter. N-type polysilicon prices dropped from RMB 48 to RMB 55 per kilogram at the end of 2025 to RMB 35 to RMB 37 per kilogram by the end of the first quarter. However, polysilicon prices heading into the second quarter are showing signs of bottoming out with weekly declines gradually easing. While producers await clear guidelines from authorities to tackle overcapacity, a weak demand outlook, industry inventory buildup and financial pressure forced several peers to adjust their production pricing strategies toward a more market-oriented approach. As a result, industry-level polysilicon monthly supply fell to approximately 93,000 metric tons during the quarter, representing an industry average utilization rate of just 39%. Looking ahead, we expect government authorities to strengthen the anti-involution policies necessary to address these industry-wide overcapacity issues. As an encouraging move on April 17, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the State Administration for Market Regulation, the National Energy Administration and other key national departments jointly had a symposium on regulating market competition within the solar PV sector, reinforcing the urgent need to address irrational competition and curb destructive revolution. Additionally, all relevant authorities are now required to deploy concerted measures to strengthen industry governance and promote the high-quality development of the solar PV industry, including in respect of capacity regulations, standards guidance, innovation-driven development, price law enforcement, quality supervision, mergers and acquisitions, intellectual property rights protection, and other areas.

Pardon me ladies and gentlemen, it appears we've lost connection to our speakers.

Sorry. Apologies, my line got disconnected. So continuing with the April 17 symposium. All relevant authorities are now required to deploy concerted measures to strengthen industry governance and promote the high-quality development of the solar PV industry, including in respect of capacity regulations, standards guidance, innovation-driven development, price law enforcement, quality supervision, mergers and acquisitions, and intellectual property rights protection. More broadly, the solar PV industry continues to exhibit compelling long-term growth prospects. Growing vulnerabilities in global energy markets have sparked widespread concerns about national energy security, in which the solar PV and renewable energy sectors can play a crucial role. As one of the world's lowest cost producers of the highest quality N-type polysilicon backed by a robust balance sheet and 0 debt, we remain optimistic about the sector and are well positioned to capitalize on anticipated market recovery and long-term growth opportunities. We'll continue to strengthen our competitive edge through advancements in high-efficiency N-type technology and cost optimization via digital transformation and AI adoption. As the world accelerates the transition to clean energy, we are confident in our ability to play a leading role in shaping that future. 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. We appreciate you joining our earnings conference call today. I will now go over the company's first quarter 2026 financial performance. Revenues were $26.7 million compared to $221.7 million in the fourth quarter of 2025 and $124 million in the first quarter of 2025. The decrease in revenue compared to the fourth quarter of 2025 was primarily due to a decrease in sales volume as the company reduced sales in light of the relatively low selling prices. Gross loss was $139.4 million compared to a gross profit of $15.4 million in the fourth quarter of 2025 and gross loss of $81.5 million in the first quarter of 2025. Gross margin was negative 521% compared to 7% in the fourth quarter of 2025 and negative 65.8% in the first quarter of 2025. The decrease in gross margin compared to the fourth quarter of 2025 was primarily due to an increase in provision for inventory impairment. Cost of revenue for the first quarter of 2026 includes $98.4 million of provisions for inventory impairment due to end of quarter market polysilicon pricing that is below production cost. Selling, general and administrative expenses were $12.2 million compared to $18.7 million in the fourth quarter of 2025 and $35 million in the first quarter of 2025. The sequential decrease of SG&A expenses was primarily due to lower sales volume in the first quarter of 2026. The year-over-year decrease was also due to the company recognizing $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan in the first quarter of 2025. R&D expenses were $0.8 million compared to $0.7 million in the fourth quarter of 2025 and $0.5 million in the first quarter of 2025. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. Loss from operations was $150.8 million compared to $20.9 million in the fourth quarter of 2025 and $114 million in the first quarter of 2025. Operating margin was negative 564% compared to negative 9.4% in the fourth quarter of 2025 and negative 92% in the first quarter of 2025. Net loss attributable to Daqo New Energy shareholders was $88.4 million compared to $7.3 million in the fourth quarter of 2025 and $71.8 million in the first quarter of 2025. Loss per basic ADS was $1.31 compared to $0.11 in the fourth quarter of 2025 and $1.07 in the first quarter of 2025. Adjusted net loss attributable to Daqo New Energy shareholders, excluding noncash share-based compensation costs, was $88.4 million compared to $7.3 million in the fourth quarter of 2025 and $53.2 million in the first quarter of 2025. Adjusted loss per basic ADS was $1.31 compared to $0.11 in the fourth quarter of 2025 and $0.80 in the first quarter of 2025. EBITDA was a negative $83 million compared to $52.5 million in the fourth quarter of 2025 and negative $48 million in the first quarter of 2025. EBITDA margin was negative 311% compared to 23.7% in the fourth quarter of 2025 and negative 39% in the first quarter of 2025. Now on the company's financial condition. As of March 31, 2026, the company had $559.4 million in cash, cash equivalents and restricted cash compared to $980 million as of December 31, 2025, and $792 million as of March 31, 2025. And as of March 31, 2026, short-term investments was $288 million compared to $114 million as of December 31, 2025, and $168 million as of March 31, 2025. As of March 31, 2026, the notes receivable balance was $20.8 million compared to $135.5 million as of December 31, 2025, and $62.7 million as of March 31, 2025. Note receivables represent bank notes with maturity within 6 months. And as of March 31, 2026, held-to-maturity investment was $50.3 million compared to 0 as of December 31, 2025, and 0 as of March 31, 2025. As of March 31, 2026, the balance of fixed term deposit within 1 year was $1 billion compared to $972 million as of December 31, 2025, and $1.1 billion as of March 31, 2025. Now the company's cash flow. For the 3 months ended March 31, 2026, net cash used in operating activities was $147.5 million compared to $38.9 million in the same period of 2025. And for 3 months ended March 31, 2026, net cash used in investing activities was $275.8 million compared to $211 million in the same period of 2025. Net cash used in investing activities in 2026 was primarily due to the purchase of short-term investments and fixed term deposits. And for the 3 months ended March 31, 2026, net cash used in financing activities was $7.8 million compared to 0 in the same period of 2025. Net cash used in financing activities in 2026 was primarily related to $7.8 million of share repurchases made by the company's subsidiary, Xinjiang Daqo, from its minority shareholders. That concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

Our first question comes from Philip Shen with ROTH Capital Partners.

First one is on the state administration for market regulation. Tier 1 manufacturers submitted formal correction proposals. Can you walk us through how these specific proposals are practically shifting or may practically shift competitive dynamics on the ground today? Ultimately, do these commitments accelerate or delay the necessary industry consolidation needed to stabilize ASPs?

So you're kind of breaking up on our end. Can you repeat your question?

Yes, sure. So just wanted to understand what the submissions to the state administration for market regulation, those proposals, how could they practically improve the competitive dynamics to accelerate or delay the necessary industry consolidation needed to stabilize ASPs?

Anita, do you want to start first, and I can add to that? Or let me just start by saying our understanding is that the government, especially at the most recent industry meeting with the Ministry of Industry and Information Technology, the NDRC, the NEA and the Market Regulation Agency, has reached a consensus that, at a minimum, while maintaining some market competition, there is a need to enforce the price law. There are still details to be determined, for example how to measure cost for the different manufacturers. Our understanding is they are doing a new round of cost determination, which should come out in the next two months or so, around midyear. Once that new cost determination is done, there will be renewed guidance on where the minimum price should be. At the same time, we are monitoring how enforcement will be carried out. There may be enforcement actions being discussed, but they have not taken place yet. For us, we are in observation mode regarding whether enforcement happens. If there is no enforcement, then we may need to sell wherever the market is. Right now, we are enforcing the price only in our sales efforts, which is having a negative impact on our sales volume. We are waiting for enforcement to happen. Our expectation is that once the new cost determination is released and manufacturers are required to sell above production costs, the market price should recover. So that's at least our view.

In terms of enforcement actions, what could that look like and what kind of timing could that be? Do you think the probability of enforcement action is higher or lower or like greater than 50% or less than 50%?

Okay. Our understanding is rather than depending on the company's own reported cost, right, so the government is trying to have a cost model that is consistent across all the manufacturers in terms of like material cost, depreciation, labor and things like that, right? So once that is done, then we don't know if it's going to be one general price or there could be a different price for manufacturers. So that's to be determined. And then once that is done, then I think there will be enforcement or at least they will communicate how enforcement will be done. Previously, right, this would be in the form of a fairly significant penalty or in a worst-case scenario, you could revoke your manufacturing license or shut down your electricity. So there are many ways that the government could enforce, but we're yet to see that right now.

Got it. And then final question from me. So given all that and with the reality that you still need to operate and participate in the market, what do you think is a practical outlook for ASPs for Q2 and Q3? And what do you think your utilization rate might be in those quarters?

Okay. I mean, for Q2, then it will be optimistic, right? I mean, cash price is kind of in the RMB 35 to RMB 37 range. I think some producers, if they have cash issues, they might sell a little bit discount to that. And then there are opportunities in the futures market, for example, where you might be able to sell a little bit higher, maybe in the RMB 38 to RMB 41 per range depending on the contract period. So we're looking at that as well. So let's say, if there is no price guidance and enforcement action, I think then the price range is maybe RMB 35 to RMB 40. Honestly, if price guidance does come out, it should be in the range of RMB 40 to RMB 45 or maybe even higher. And these are inclusive of VATs.

The utilization rate, do you have a sense for Q2 and Q3 yet?

For us or for the industry?

For you.

For us, it will be roughly 50% to 55%. We're maintaining utilization for now because we're at a fairly optimal operating condition in terms of quality, cost, and production volume. In our experience, adjustments generally bring short-term volatility to both quality and cost, so at least in the short term we're maintaining the current production level. Obviously, either new price guidance or enforcement, if it comes in below expectations and prices remain low, would prompt us to make further adjustments in the second half. This is also subject to the demand environment; Q1 was a fairly negative demand environment overall.

Our next question comes from Alan Lau with Jefferies.

In terms of the sales volume and the revenue in first quarter is a bit of a surprise. I would like to know if I do the math and back the ASP in the first quarter, it seems to be at around RMB 41 or RMB 42, ex VAT. So does it mean that the company didn't sell anything maybe after February?

I think that is the right way to look at this. Yes, we did sell volume in January at the high 40s, inclusive of VAT. I think actually our Q1 recognized ASP is higher than Q4, while if you look at market ASP on average it is much lower than Q4. The big change was really around Chinese New Year, especially after Chinese New Year, when the new policy from the State Administration for Market Regulation disrupted the previous anti-evolution policy that had been used to reduce capacity and enforce price. That's when we started to see prices come down fairly quickly and significantly. Once price fell below production cost, we stopped selling to the market. The market in the first quarter was characterized by fairly high uncertainty. There were a number of things happening: the war in the Middle East and high silver prices, which led to a lot of uncertainty for the downstream. They were seeing a significant increase in their production costs, and at the same time it was difficult for them to pass through all of that increase, which had a fairly negative impact on the Chinese end market as well. These factors combined to lead to a fairly low industry transaction volume for polysilicon in the first quarter.

I recall...

Let me add a little bit more to that. So in terms of the industry-level inventory, it has accumulated to a relatively high level. So I would say in the first quarter has been above 500,000 metric tons, and it's now nearly 600,000 metric tons. So I would say Tier 1 manufacturers held roughly at least 3 months of stock. So that's why that led to a wait-and-see attitude from the downstream buyers. And for us, especially, we wanted to adhere to the Chinese authority self-regulation guidelines. So we were relatively reluctant to engage in below-cost sales. So we took this wait-and-see approach to see further implementation from the national policies level.

Yes.

Understood. Sorry, how much did the Tier 1 producers are holding in terms of inventory? Is it 500,000?

Like in total?

That total is 500,000.

Yes, around that.

I think there was fairly strong demand for modules, especially in the European market, but integrated manufacturers were largely selling from their existing module inventory and using their own supplies while producing. They had some inventory of polysilicon and other materials, and uncertainty over costs after Chinese New Year led them to hold off or delay buying more polysilicon, particularly because of doubts about demand after April 1; the war made that situation a bit worse. The market saw a reasonable number of transactions in January, but activity fell in February and March. Expectations of falling prices, especially for polysilicon because of inventory issues, made things worse, since customers tend to buy when prices are rising but delay purchases when prices are falling.

Understood. So in terms of the price outlook, I think I just want to have a follow-up on Phil's question. So approximately, when do you think there will be a guideline coming from the authority, like do you think it is within a month or a quarter that price will start to rebound? Or what is the timeline there? And are there regular meetings with the authority to discuss the details on the enforcement? Or what is the status now?

Our understanding should be around June. And then right now, they're redoing the cost model for all the different producers and then trying to make an alignment. So once that cost is done and then the next step would be an updated price guidance.

So, to my understanding, that will be more like enforcement of the price law, which means everyone should sell above their cost. But regarding the previous acquisition incentives, are they basically rejected or are they still in place? Is it still aligned, and are there any updates on that?

There's no update to that as of now. There's no new guidance or development.

I would say we're open to different kinds of proposals, but we're not 100% sure how that might unfold. But we're engaging in conversations now to discover or to test different sorts of solutions. So anything that would benefit the industry as a whole and for manufacturers as well, we're willing to try out or at least try to come to a solution with concerted efforts towards that.

I would say that the general policy of the government is positive and promoting mergers and acquisition to, call it, for more consolidation, right? But in terms of how that might lead to actual policies or action, that's still yet to be seen.

So I wonder if you are seeing any uptick of demand recently because demand, I think, was quite poor in the past couple of months. But wondering if you are seeing any recovery in demand.

I would say on the module side and end market, certainly right now, Q2 is actually trending to look better than Q1. So we shall see. And then definitely, I think downstream inventory is coming down. So that's also a good sign.

Poly prices are also bottoming. I would like to know if the company, because sales were very low in the first quarter, plans to use the same strategy in the second quarter. If so, has the company considered maintaining an even lower utilization rate? The company was running at more than 50%, but I recall it used to run at 30%. Is there any consideration behind keeping the utilization rate relatively high?

I would say the general framework for the company is that we're monitoring developments around the price law. If companies are required to sell above production cost, we're fairly confident in our industry positioning and should regain market share. It will also depend on demand. If that occurs, we might maintain the current utilization level. However, if the situation becomes more negative, especially if prices remain at their current level, we would consider lowering the utilization rate.

Our next question comes from Mengwen Wang with Goldman Sachs.

My question is about utilization as well. So my understanding now is that our current strategy is to maintain over 50% utilization and stop selling to external customers at below cost pricing. So this is based on the assumption of potential further regulation to drive poly price higher to RMB 40 per kilo and above. Is that correct?

That's generally the right thinking. So it's kind of a scenario, right? So the 2 major scenarios where if the government does what it says, right, enforce price law, right, penalties and all that and then have the manufacturer sell above cost, then we would maintain at the current utilization. On the other hand, if unfortunately, price laws have been forced for whatever reason, right, and the manufacturers continue to sell below cost, then we will lower our utilization.

So if we assume a scenario like no policy kicking and the pricing is likely to stay at the current level, then what's our sales strategy and production strategy in 2Q and in the second half? Say, is there any guidance on the utilization rate in this scenario? And on top of the utilization guidance, will we follow the rest of the industry to sell product at below-cost pricing or will we continue to stop selling at the lower pricing level and continue to tie up the inventory and then wait for the sector turnaround?

Okay. So if we assume the government, despite all the rhetoric, does nothing, I think that's unlikely because there is a lot of pressure on my team right now as well. But let's assume that happens. We would lower our utilization and start to sell at close to market pricing, whatever it takes to move volume. We would compete with our peers. We have a strong balance sheet, so we expect to be one of the last providers, if not the last. In two or three years we would likely see a significant exit from the industry and a market-based capacity consolidation, and the company would do fairly well after that. So it's a trade-off.

Yes. That's clear. So I recall you just mentioned like you expect the policy will kick in, in June, and that's the month where we would expect a potential price hike. So if to reconcile your expectations, can we assume like we will keep utilization at 50% above to June and then start selling at close to market pricing if no policy kick in?

I think that's the right assumption, yes. So there is no policy, right? If price remain low, then we would be at a reduced utilization. And if the government does enforce price law, then we would maintain at least the current utilization.

So June is the month we are waiting for any policy to kick in, right? And if not, they will switch our strategy.

In terms of communication with government, go ahead Mengwen.

No worries, it's fine.

Yes. I understand June is the time line of the new government policy.

My final question is about cash cost. Is there any guidance about our cash cost in second quarter and in the second half of 2026?

I think based on our current utilization production level and the current silicon metal costs and material costs, for example, we're expecting our cash cost to be in line with Q2 in terms of RMB terms and trending slightly lower over the next quarters. So a fairly steady cost structure.

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 has now concluded. Thank you for attending today's presentation. You may now disconnect.