Daqo New Energy Corp. (DQ) Q2 FY2025 Earnings Call Transcript & Summary

Good day, and welcome to the Daqo New Energy Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 second quarter of 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu; our Deputy CEO, Ms. Anita Zhu; 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 Ms.Zhu 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 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 statements. 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 Chairman and CEO, Mr. Xiang Xu. Mr. Xu, please go ahead.

[Foreign Language].

Thank you, Mr. Xu. So 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 the second quarter of 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 recorded quarterly operating and net losses. Nevertheless, we maintain a strong and healthy balance sheet with no financial debt. As of June 30, 2025, the company had a cash balance of $599 million, short-term investments of $419 million, bank notes receivables of $49 million and total fixed term bank deposit balance of $994 million. In total, our financial bank deposit and investment assets, readily convertible into cash if 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 the current market downturn and remain well positioned for long-term opportunities. On the operational front, the company operated at a reduced utilization rate of approximately 34% of its nameplate capacity in response to challenging market conditions and weak selling prices. Total production volume at our two polysilicon facilities for the quarter was 26,012 metric tonnes, within our guidance range of 25,000 metric tonnes to 28,000 metric tonnes. Towards the end of the quarter, as 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 tonnes from 28,008 metric tonnes in first quarter. Due to lower utilization across our factories, idle facility related cost for the quarter was approximately $1.38/kg, primarily reflecting non-cash depreciation expenses. On a positive note, decline in the cost of silicon metal and reduced energy consumption drove our cash cost lower by 4% to $5.12/kg sequentially, including approximately $0.18/kg related to idle facility maintenance. Overall, polysilicon unit production cost decreased by 4% sequentially to an average of $7.26/kg, with lower unit depreciation costs resulting from higher production. In light of the current market conditions, we expect our total polysilicon production volume in the third quarter of 2025 to be approximately 27,000 metric tonnes to 30,000 metric tonnes. As a result, we anticipate our full year 2025 production volume to be in the range of 110,000 metric tonnes to 130,000 metric tonnes. During the second quarter, the solar PV industry remained in a cyclical trough, although proactive initiatives started to emerge toward 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 giga watt of new solar power capacity added in May. However, installations plummeted to 14 giga watt in June following front-loading in earlier months ahead of the May 31, 2025, cutoff date for new projects. Polysilicon market prices trended downward during the quarter, falling from RMB 39 to RMB 45 per kg in April to RMB 32 to RMB 35 per kg by the end of June. According to industry statistics, overall industry polysilicon production for 2025 year-to-date has been running below overall demand and consumption, with monthly supply at approximately 100,000 metric tonnes to 110,000 metric tonnes. As a result, industry inventory decreased by approximately 30,000 tonnes to 40,000 tonnes between January and July, leaving overall industry polysilicon inventory lower than at the beginning of the year. Heading into third quarter, Chinese authorities have demonstrated increased determination to address irrational competition and industry overcapacity, with the anti-involution initiative taking a leading 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 vicious competition and promote high-quality development. On July 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 14 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 toward 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 spot sales prices rebounded in July and polysilicon futures prices surged significantly, supported by favorable factors such as expected higher spot quotes and simultaneous increases in downstream product prices. For reference, the [ 2506 ] 2509 contract rose sharply from a low of RMB 30 per kg in June 2025 to a record high of RMB 55 per kg in July 2025, the strongest level since its listing. The solar PV industry continues to show strong long-term prospects. In the medium term, we believe that the combined effects of industry self-discipline and government anti-involution regulations will 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, Daqo New Energy 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 N-type technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest-cost producers with the highest-quality N-type product, 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. We appreciate you joining our earnings conference call. 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. G&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 noncash share-based compensation costs related to company's share incentive compared to $18.6 million. The decline in SG&A expenses in the second quarter compared to the first quarter as a result of lower staffing costs as well as lower sales expenses. R&D expenses were $0.8 million compared to $0.5 million in the first quarter of 2025 and $1.8 million in the second 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 of foregoing, loss from operations was compared to $115 million, compared to $114 in the first quarter of 2025 and $195 million in the second quarter of 2024. Operating margin was negative 153% compared to negative 92% in the first quarter of 2025 and negative 89% in the second 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 noncash share-based 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 $1.50 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 was $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 represent bank notes with maturity within 6 months and as of June 30, 2025, the balance of fixed term deposits within 1 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 6 months ended June 30, 2025, net cash used in operating activities was $105.4 million compared to $278.6 million in the first -- in the same period of 2024. And for the 6 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 PP&E and $255 million related to purchase of short-term investments and fixed term deposits. And for the 6 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.

[Operator Instructions] Our first question today will come from Alan Hon of JPMorgan.

I have two questions. The first one is on the policy development. Can you share some color on the latest development on the discussions on the consolidation front or other policy development right now? And number two is on poly prices. I understand like due to the pricing law, I mean the poly prices increased towards the 45 to 50 level. But at the same time, I mean, the sequential demand supply and channel inventory is also increasing. So how should we think about like the poly price in the next 3 months?

[Foreign Language]

Thank you, Alan. So regarding the latest development in industry, so on August 19, the MIT, also the NDRC, along with the Ministry of Social Affairs and State Administration for Market Regulation and National Energy Administration, we have jointly held a symposium on the solar PV industry. So during that meeting, a number of government officials together with a number of solar PV manufacturers and a lot of the power companies as well as the CPIA and relevant local industrial and information technology department, they all attended the meeting. And basically, during the meeting, they have again reinforced that we have to curb the irrational composition of selling below cost. So first, we have to strengthen the industry regulation through strengthening the management of investment in the PV project and promote the gradual phasing out of outdated production capacity through market-oriented and law based approaches. And second of all, they aim to curb low prices in the quarterly competition. So through improving the price monitoring and also the product pricing mechanism to crack down on irregular practices such as selling the low cost. And lastly, to standardize the products -- the product quality to combat practices such as reducing the quality control or things like infringing IP rights. And I think during the meeting, the essence is to support the industry self-regulation and to gradually work towards forming this buyout SPV for acquiring outdated capacity in the industry. And regarding prices, it will really depend on how this buyout SPV will roll out because we're still under the progress of working out the details of such SPV. So it's hard for us right now to say exactly how prices will develop in the coming months. But I think as we can see recently, prices have increased, especially in the future market and the expectation of rising prices. Also, if we look at the latest solar projects that could work as a sign of the industry development, the China Huadian Corporation, they had a 20 gigawatt project. And from that, the module prices was around RMB 71 per watt to RMB 75 per watt. So it has really increased and it's way above the floor prices for modules right now. And we believe that has passed through to the upstream poly sector. I hope that answers your question.

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

This is Matt Ingraham on for Phil. Kind of following up on the past question is how sustainable do you think that higher pricing can be when -- with the anti-involution initiatives? And secondly, what's your outlook for industry production volumes? And when would you expect to see the inventory levels be healthy again?

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

[Foreign Language].

Okay. So first of all, I think one thing that's clear is that there has been consensus that selling below cash cost is unsustainable and very detrimental to the overall industry development. And in our view, that's disruptive to the healthy development of the industry and hence, pose legal risks and hence, we won't be -- we would be enforcing the regulations and the laws, and we think that all the industries -- the industry players are on the same page regarding that. And in terms of production volume, I think going forward in the next couple of months, it will be around 100,000 metric tonnes to around 110,000 metric tonnes, relatively balanced with demand per month.

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

Yes. I think we're still -- first of all, we're still on the progress for the NPV. And I think the whole picture will become more clear in the coming weeks or the coming months. But all the industry players as well as the power companies and the relevant regulators are all working hard towards coming to a consensus because that would be very remarkable for the industry and could set the tone for similar industries in China, such as EV and also lithium batteries. I think they're starting with solar PV, which is why they have mentioned about solar PV in the news article by People's Daily on June 30. So we're all working very hard towards coming to a result. And we are quite optimistic about that because that's what the industry should be and that's good for the overall development of the industry because right now, selling low cash, first of all, no -- none of the company is making a profit. And second of all, internationally, they have been viewing China or accusing China of antidumping, and that's not something that we want to see as a whole.

Our next question today will come from Alan Lau of Jefferies.

Question is about the buyback the company just announced. So I saw that the company has approved $100 million of share repurchase program. I wonder if -- what's the thinking behind that? And also what's the time line in the buyback?

Yes. Thank you, Alan. So we actually just authorized this new share repurchase program today in the amount of USD 100 million until the end of next year. And 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 want to start the share repurchase. And the reason why we were hesitant about it is because we believe we just rely on the market to rebalance supply and demand. It will take a relatively long time of approximately 2 to 3 years given how strong and all the companies who have expanded their capacity this round are. However, we believe that because we are on the same pace towards promoting the healthy development of the industry and hence, we are more optimistic about the future or the outlook of the entire industry. And we believe that we want to strengthen the confidence of our shareholders as well, and that's aligned with our overall strategy. And in terms of the overall pace of the share repurchase program, I think that would also be contingent upon the market development, but that's definitely the first move we're working towards strengthening the confidence in the market.

I see. That's very clear. Given that the stock price of the A share is actually above the IPO price already, so will share price or shareholding reduction on the A share to fund further buyback in U.S. 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 right now, it should be around RMB 30. And yes, that's definitely on the table, and we'll consider that. But I think how we want to start this program versus the remaining cash on our list go right now because previously, we still have a meaningful amount on the list. So we will start with that allocation first. But selling our A share to repurchase on the U.S. is definitely back on the table.

That's right. And following the question from Alan and also Philip on the consolidation initiative. So how do you see yourself in terms of the end game, like the amount of volume you will be able to produce. For example, now your guidance is around 110,000 metric tonnes and 130,000 metric tonnes for the volume of this year. 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 things. So if we calculate the amount of overall capacity that's built or in the process of being built, that will be around 3.5 million metric tonnes at least. And the production volume of how much we can produce per year will really depend on how much capacity are still remaining in the market and the overall demand per year, right? Because I think the fundamentals behind this action is that supply would meet the demand per year from now on. So I believe that going forward, all the companies will reduce their utilization rate or operate at a utilization rate that would match the 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.

I have two questions mainly related to the poly price outlook. So first, like do we have any color on the benchmark production cost to derive the policy regulated pricing? Because I know there's a lot of news coming in to talk about the selling price should not be under the production cost. But do we have any more colors on the definition of the production cost? And secondly, as you mentioned, like the -- we have been doing well in terms of to sustain the poly price hike. And as a result, our shipment volume declined a bit. So going forward, how do we see -- how do we balance the price and inventory, the dynamic? Yes, that's my question.

[Foreign Language]

Okay. Thanks for your question. So our view is that the industry will need to sell at a price above the industry production cost. And our understanding is the industry overall, I would say the average production cost probably in the mid-40-ish range. So our view is that because of the Chinese laws and the government policy is that, that's kind of -- that will be the minimum poly pricing that the industry players will be required to sell to its customers. And I think if you look at the most recent, I think both transactional pricing as well as futures pricing, right, in the high -- kind of the high 40s to the low 50s. So that is reflective of this new government policy that requires the industry players to sell above production cost. So that is our poly price outlook going forward.

Yes. To follow up on the question, if the poly price stay at around RMB 50 per kilo and if we don't -- our products don't sell, like we keep piling up our inventory. So how do we see how to -- like how -- what's our strategy in terms of this kind of situations?

I think there will be industry policies and perhaps government policy is supported by the government, but that will require industry supply to balance with industry demand, right? So let's say, just making assumptions, right, industry demand say is 1.2 million tonnes per year in 100,000 tonnes per month than the industry sales and annual production will be consistent with that kind of demand levels, will be adjusted so that poly pricing can be maintained at the production cost or above level.

And to follow up on your question on inventory, I think for -- big picture, if people want to manage their inventory, I think the direction is to manage the utilization rates of the company so that will not be over demand going forward. And for us, we will really have to wait to see how the regulation unfolds in the next coming weeks or the next coming months that before we can decide what our strategy will be. And also to add on, I know there are companies who are participating in the futures market. We've also participated a meaningful amount in the futures market just to hedge against risk and to arbitrage as a strategy.

That's really clear. So to sum up, we are expecting some kind of policy to help the industry cut production into September. And we have actively engaged in the polysilicon future market in order to mitigate the volatility of the polysilicon price, right?

We -- I mean we were registered as the first batch of the companies who are allowed to sell in the futures market. But strategy-wise, will really depend on how the regulations will come out and yes, and how the spot prices will move.

Yes, sure. How about the policy time line? Is that -- should we expect any meaningful policy kicking into September?

We are working towards all of the related parties, including the CPI, the manufacturers and the related regulators are working very diligently towards a result coming out from the continuous meetings. However, we cannot guarantee, but we believe that because everyone is on the same page, we are working towards a results or proposal coming out.

The next question today will come from Zihui Hu of CICC.

This is Zihui Hu from CICC. And my first question is, I saw you lowered the sales volume for second quarter. So how is the plan on it? And what's the plan for utilization rate in the future? And my second question is, I saw you keep reduced the production cost besides the reduced cash cost. So what other ways are there to reduce the cost?

So I think for the first question, the reason why the sales volume is meaningfully below the production volume because prices are really trading at a very low level and below cash cost level. And as we are working towards or working out a proposal since in the first meeting that were hosted and hosted by MIT and DRC were happening in the second quarter. So we were waiting to see how the policies will shift or how much capacity will phase out in the future so that we can adjust our sales strategy accordingly. And we believe that once the regulation comes out, if any, then we will try to maintain our inventory at a healthy level.

Follow-up regarding utilization rate. So I think we're maintaining the 30% to 35% utilization rate. I think it will be subject to, for example, demand environment and pricing as well as the industry consensus or industry sales discipline in terms of supply and production. So it will be a balance of those decisions. But I think currently, we're maintaining the 30% to 35% utilization rate for now in the monitoring industry status in progress. In terms of production cost, I think for Q2, it is slightly lower than Q1. I think it's helped by both improvements in manufacturing efficiency and for example, lower energy usage as well as lower metal costs. And currently, we're expecting the cost trend to continue to improve for Q3 as well. So for example, our current cash cost is approximately, say, $5 per kilogram right now, I think based on the trans-silicon metal cost, which is already lower than our Q2 2025 cost. So that's the current cost status for the company.

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

So I guess my first question is, it seems like you guys explicitly said you intentionally held back polysilicon sales in the second quarter. So can we conclude from that, that you'll sell more in the third quarter? If you could provide some color there? And then from my calculations, it seems like you're guiding production to increase from 26, 000 metric tonnes at the midpoint in Q2 to 28,500 metric tonnes in Q3 and then 40,700 metric tonnes in Q4. Should we take from that you intend to sell significantly more polysilicon in Q4? And then I have a follow-up.

Okay. Thank you, Gordon. So first of all, I think the reason why we held back or sold relatively a lot lower than our actual production volume was because it was trading at below cash cost. And as we don't want to disrupt the overall, the industry dynamics or I should say as the industry has guided that we should not be selling below the production cost, we have adjusted our sales strategy accordingly. And going forward in the third quarter, as you might have seen recently that prices have ticked up. And we believe if it's not cutting below our cost, then it makes sense for us to start selling. And like I said before, I think it will really depend on when and how the regulations will come out, then we would adjust our sales strategies accordingly in the remaining days in the third quarter as well as going forward into the fourth quarter.

Okay. That's helpful. And then if I think about -- you guys said that transactions and the futures market is around the high 40s, low 50s. Based on my calculation, that would suggest a price of around $7.70 for polysilicon USD. Yet your ASP in Q2 was $4.19. So I understand you don't have great visibility, it seems like on what you're going to sell in Q3 until policy is decided. But are you transacting at that price that you highlighted, the high 49s/low-50s levels right now?

Gordon, so I think that there's 2 specific goals that the company is trying to achieve, right? So one is based on the -- I think the government policies and the new law. So I think we will sell at below -- above our production cost for sure. And I think the levels indicated is representative of the market current transactional cost. And also one of our -- another of our company's sales operations goal is to significantly reduce our inventory at hand as well given the current market dynamic environment where there's opportunity to do that. So we will try our best to do that. And I guess one clarification regarding pricing is the RMB price that we quote actually includes a 13% VAT, okay? So I think you have to divide by 1.13 to get to the actual selling price ex VAT. So that's right now roughly maybe $5.8 to range, something like that.

Right. So I mean does that mean you guys will be gross margin positive in Q3?

Let me just conclude that we expect to be cash -- generating cash from our sales because there's a lot of, I guess, noncash depreciation costs related to our idle facility because we're only running at 1/3 utilization. But I think if you remove the noncash depreciation, I think we're going to generate positive cash margin.

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.