- Revenue: $220 million, compared to $415.3 million in Q1 2024 and $637 million in Q2 2023.
- Gross Loss: $159 million, compared to a gross profit of $72 million in Q1 2024 and $259 million in Q2 2023.
- Gross Margin: Negative 72%, compared to 17.4% in Q1 2024 and 40.7% in Q2 2023.
- Inventory Impairment Expense: $108 million.
- SG&A Expenses: $37.5 million, compared to $38.4 million in Q1 2024 and $43.3 million in Q2 2023.
- R&D Expenses: $1.8 million, compared to $1.5 million in Q1 2024 and $2.2 million in Q2 2023.
- Loss from Operations: $196 million, compared to income from operations of $30.5 million in Q1 2024 and $214 million in Q2 2023.
- Operating Margin: Negative 89%, compared to 7.3% in Q1 2024 and 33.6% in Q2 2023.
- Net Loss: $120 million, compared to net income of $15.5 million in Q1 2024 and $103.7 million in Q2 2023.
- Loss per Basic ADS: $1.81, compared to earnings per ADS of $0.24 in Q1 2024 and $1.35 in Q2 2023.
- Non-GAAP Adjusted Net Loss: $98.8 million, compared to adjusted net income of $36 million in Q1 2024 and $134.5 million in Q2 2023.
- Adjusted Loss per Basic ADS: $1.50, compared to adjusted earnings per ADS of $0.55 in Q1 2024 and $1.75 in Q2 2023.
- EBITDA: Negative $145 million, compared to $76.9 million in Q1 2024 and $230 million in Q2 2023.
- EBITDA Margin: Negative 66%, compared to 18.5% in Q1 2024 and 36% in Q2 2023.
- Cash and Cash Equivalents: $1 billion as of June 30, 2024, compared to $2.7 billion as of March 31, 2024 and $3.17 billion as of June 30, 2023.
- Notes Receivables: $80.7 million as of June 30, 2024, compared to $194 million as of March 31, 2024 and $798 million as of June 30, 2023.
- Fixed Term Deposits: $1.2 billion as of June 30, 2024.
- Net Cash Used in Operating Activities: $278.6 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $786 million in the same period of 2023.
- Net Cash Used in Investing Activities: $1.7 billion for the six months ended June 30, 2024, compared to $496 million in the same period of 2023.
- Capital Expenditures: Expected full-year range of $550 million to $600 million, with second half expected range of $260 million to $310 million.
- Net Cash Used in Financing Activities: $43 million for the six months ended June 30, 2024, compared to $477 million in the same period of 2023.
Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Daqo New Energy Corp (DQ, Financial) maintained a strong balance sheet with $997 million in cash and a combined cash and bank note receivable balance of $1.1 billion.
- The company started initial production at its 100,000 metric tons Phase 5B polysilicon project in Inner Mongolia, contributing approximately 12% of total production volume.
- Total production volume for the quarter was 64,961 metric tons, exceeding expectations and representing an increase of 2,683 metric tons compared to the previous quarter.
- The overall N-type product mix reached 73% during the quarter, with Phase 5B achieving 70% N-type, indicating strong progress towards achieving 100% N-type by the end of next year.
- Production costs trended down further in the second quarter, decreasing by 3% from Q1 2024 to an average of $6.19 per kilogram.
Negative Points
- The solar industry experienced significant challenges during the second quarter, with market prices falling below production costs, leading to a non-cash inventory impairment expense of $108 million.
- Revenues decreased to $220 million, compared to $415.3 million in the first quarter of 2024 and $637 million in the second quarter of 2023.
- Gross loss was $159 million, compared to a gross profit of $72 million in the first quarter of 2024 and $259 million in the second quarter of 2023, resulting in a negative gross margin of 72%.
- Net loss attributable to Daqo New Energy shareholders was $120 million, compared to net income of $15.5 million in the first quarter of 2024 and $103.7 million in the second quarter of 2023.
- The company adjusted its target production utilization rate for the third quarter and full year, expecting Q3 production volume to be approximately 43,000 to 46,000 metric tons, down from previous levels.
Q & A Highlights
Q: Looking ahead, can you give us a sense of pricing and cost structure beyond this year? Do you think that there could be some recovery in price next year? And how much room do you have to lower the cost structure?
A: Ming Yang, CFO: In recent months, particularly in August, we've seen some pickup and recovery of pricing. As of now, pricing is in the range of RMB41 to RMB42 per kilogram. We believe that pricing should recover to at least production costs or maybe normalize to higher than production costs by mid-next year. Regarding cost structure, we expect costs to be around $6 or even slightly lower than $6 per kilogram through next year.
Q: Can you talk about the channel inventory in the market? Do you expect that to continue to grow near term? And where do you think that peaks?
A: Ming Yang, CFO: Channel inventory has already peaked and is coming down as of August. We expect it to reduce to a more reasonable level by Q4 or by the end of the year, primarily due to continued reduction in supply.
Q: What is the breakdown on the impairment of $108 million, and what was the inventory level at the end of Q2?
A: Ming Yang, CFO: The $108 million impairment is a reduction in finished goods, work-in-process inventory, and raw materials. Approximately 60% of that is related to finished goods inventory. The inventory at the end of the quarter was approximately 28,000 metric tons.
Q: The production volume guidance for Q3 and the second half has reduced significantly. Is this to preserve cash? And do your peers also cut their production volume?
A: Ming Yang, CFO: Yes, most of our peers have reduced utilization significantly in light of the current market pricing environment. We believe the current utilization level is the most prudent and effective way of minimizing cash burn.
Q: Regarding the fixed deposit of RMB1.4 billion, how long are those investments, and how liquid are they?
A: Ming Yang, CFO: Almost all of the fixed investments and term loans were purchased by the Xinjiang Daqo subsidiary. The $1.4 billion is primarily in six-month fixed term deposits with Chinese domestic banks or higher interest savings products offered by the banks, with maturity within three months.
Q: Can you provide details on the company's buyback program?
A: Anita Chu, Investor Relations: We are authorized for a USD100 million buyback program. We believe our stock is undervalued and will be opportunistic in terms of repurchase, contingent upon market conditions.
Q: If you are reducing the utilization rate, shouldn't that increase your fully-loaded costs relative to the third quarter?
A: Ming Yang, CFO: The overall impact on production cost is minimal because 80% of our costs are variable, such as electricity and consumables. The remaining costs, like depreciation and labor, have a smaller impact.
Q: Do you expect sales to be greater than production for the year as a whole?
A: Ming Yang, CFO: It's difficult to tell at this point. It depends on Q4 performance. We expect more sales than production in the second half, but it's early to make a definitive statement.
Q: Can you give specific examples of competitors who are closing shop?
A: Ming Yang, CFO: One well-known case is Runyang, which is in financial crisis and being consolidated by Tongwei. Another new entrant built a 50,000 metric ton facility that remains idle. Another competitor has built capacity but is selling trivial volumes to the market.
Q: Do you think you would have gained or lost market share in 2024?
A: Ming Yang, CFO: Based on the latest industry production, we are maintaining market share at approximately 15%. The industry is still expecting roughly 20% improvement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
