PVTIME – On August 3, Daqo New Energy Corp. (NYSE: DQ) (“Daqo New Energy”, the “Company” or “we”), a leading manufacturer of high-purity polysilicon for the global solar PV industry, today announced its unaudited financial results for the second quarter of 2022.
Second Quarter 2022 Financial and Operating Highlights
- Polysilicon production volume was 35,326 MT in Q2 2022, compared to 31,383 MT in Q1 2022
- Polysilicon sales volume was 37,545 MT in Q2 2022, compared to 38,839 MT in Q1 2022
- Polysilicon average total production cost(1) was $7.26/kg in Q2 2022, compared to $10.09/kg in Q1 2022
- Polysilicon average cash cost(1) was $6.51/kg in Q2 2022, compared to $9.19/kg in Q1 2022
- Polysilicon average selling price (ASP) was $33.08/kg in Q2 2022, compared to $32.76/kg in Q1 2022
- Revenue was $1,244.1 million in Q2 2022, compared to $1,280.3 million in Q1 2022
- Gross profit was $946.9 million in Q2 2022, compared to $813.6 million in Q1 2022. Gross margin was 76.1% in Q2 2022, compared to 63.5% in Q1 2022
- Net income attributable to Daqo New Energy Corp. shareholders was $627.8 million in Q2 2022, compared to $535.8 million in Q1 2022
- Earnings per basic American Depositary Share (ADS)(3) was $8.36 in Q2 2022, compared to $7.17 in Q1 2022
- EBITDA (non-GAAP)(2) was $955.4 million in Q2 2022, compared to $826.8 million in Q1 2022. EBITDA margin (non-GAAP)(2) was 76.8% in Q2 2022, compared to 64.6% in Q1 2022
Notes:
(1)Production cost and cash cost only refer to production in our polysilicon facilities. Production cost is calculated by the inventoriable costs relating to production of polysilicon divided by the production volume in the period indicated. Cash cost is calculated by the inventoriable costs relating to production of polysilicon excluding depreciation expense, divided by the production volume in the period indicated.
(2)Daqo New Energy provides EBITDA and EBITDA margins on a non-GAAP basis to provide supplemental information regarding its financial performance. For more information on these non-GAAP financial measures, please see the section captioned “Use of Non-GAAP Financial Measures” and the tables captioned “Reconciliation of non-GAAP financial measures to comparable US GAAP measures” set forth at the end of this press release.
(3)ADS means American Depositary Share. One (1) ADS representing five (5) ordinary shares.
Management Remarks
Mr. Longgen Zhang, CEO of Daqo New Energy, commented, “We are very proud to deliver an excellent quarter with record production volume and profits. Revenue reached $1.24 billion, gross profit was $947 million with gross margin of 76%. Net income attributable to Daqo shareholders was $628 million , an increase of 17.2% from $535.8 million in the first quarter of 2022 and an increase of 170% from $232 million in Q2 2021. Our cash position at the end of the quarter was $3.3 billion, an increase of approximately $2.2 billion from $1.1 billion at the end of Q1 2022, reflecting our strong cash flow generation. Cash and bank note receivable combined balances reached $4.6 billion. Operating cash flow was $1.1 billion for the first six months of this year.”
“During the quarter, we operated at full capacity and produced 35,326 MT of polysilicon. More than 99% of our production were high-purity Mono-grade polysilicon products. We successfully ramped up our new Phase 4B facility to full capacity and further optimized its operational performance. Our sequential improvements in gross profit and gross margin were primarily driven by a 28% reduction in our polysilicon production cost. With higher manufacturing efficiency and better economy of scale, we reduced our per unit electricity cost and depreciation cost by 7% and 13% in RMB terms quarter-over-quarter, respectively. In addition, our metallurgical–grade silicon cost in the second quarter was reduced by 37% as compared to the first quarter. With our facility in optimized stable operations, we believe we will be able to maintain, and possibly further improve, our cost structure in Q3 and Q4 this year. We expect an even more favorable outlook for cost at our new Inner Mongolia facility.
“As a chemical refining facility, safe and stable operations are extremely important for polysilicon production, and our facilities perform the best under such conditions. In order to minimize the impact on operations, we will conduct our annual maintenance in phases spread throughout the third and fourth quarters. During the same time, we will conduct some technology improvement projects which are expected to further save energy and optimize efficiency. As a result, we expect our polysilicon production volume in the third quarter to be in the range of 31,000 – 32,000MT. With our better-than-expected operational performance in the first half of 2022, we are increasing our guidance on annual production volume to 129,000 – 132,000MT for the full year 2022, up from our previous guidance of 120,000-125,000MT.”
“In June 2022, our major operating subsidiary, Xinjiang Daqo, received the total gross proceeds of approximately RMB11 billion from its private offering on the Shanghai Stock Exchange. Upon completion of the private offering, Daqo New Energy beneficially owns approximately 72.68% of Xinjiang Daqo. Proceeds from the offering will be used primarily for our Phase 5A polysilicon project of 100,000 MT in Inner Mongolia. This new project is currently under construction and expected to be completed by the second quarter of 2023.”
“Driven by several favorable trends, the global solar industry saw robust demand in the first half of this year, and demand both in China and overseas continues to exceed market expectations. According to data from the China Photovoltaic Industry Association, China’s production of polysilicon and solar modules in the first half of 2022 was approximately 365,000 MT and 123.6 GW, respectively, an increase of 53.4% and 54.1% compared to the same period of 2021. While solar PV products’ supply increased significantly compared to last year, ASPs kept rising across the entire solar value chain due to stronger-than-expected end market demand. Despite rising ASPs, during the first half, solar PV installations in China reached 30.9 GW, and China exported 78.6 GW of solar modules, up 137% and 74%, respectively, over the same period of 2021. Driven by strong end market demand and increased orders from wafer suppliers, polysilicon ASPs and profitability improved continuously during the first half of this year despite increased supply. According to the China Silicon Association, the average price (VAT included) for high-density mono grade polysilicon increased significantly by 29.3% from RMB 229/kg in the first week in January 2022 to RMB 296/kg in the last week of July 2022. Nevertheless, our production is sold out for August and we have a strong order backlog for our products. We understand that many newly built wafer facilities are idle because of a shortage of polysilicon, as capacity expansion is much faster in downstream than in polysilicon sector.”
“Beyond the urgency to address climate change that is driving various supportive policies to accelerate the adoption of solar energy globally, the recent conflict in Europe has led to an energy crisis with substantially higher natural gas and oil prices. Solar PV is easy and fast to deploy and its cost, which has already reached grid parity, is locked-in for the next 20 to 30 years. The rise in energy costs has made solar PV increasingly attractive, especially in the countries currently facing energy shortages and seeking energy safety and independence. For instance, in the second quarter, European solar PPA price increased substantially and the market saw a substantial increase in demand from Europe with module exports to Europe greater than 50% of total module export for China.”
“In June, our board of directors authorized the Company to repurchase up to US$120 million worth of its own issued shares on the open market. As of today, we have already repurchased approximately $50 million worth of our ADRs and we will continue to do so as we believe our current ADR price is seriously undervalued and not reflective of our position as an industry leader with strong profitability and operating cash flow.”
“With growing global policy support and attractive economics, we are confident that solar PV market demand and prices will remain strong, providing sustainable and healthy profits to the solar manufacturing value chain. In the first half of 2022, despite a 53.4% increase in production volumes in China over the same period of 2021, polysilicon was still a drag on the entire solar PV manufacturing value chain and capacity expansion was meaningfully slower than in the downstream sectors. Challenges in getting energy consumption approvals, long construction times, and delayed ramp-up times, as well as the operational inexperience of new players, make polysilicon one of the sectors with the highest entry barriers and slowest expansion growth in the solar PV manufacturing value chain. We expect this imbalance to continue for a while and help our sector greatly benefit from the robust market demand. We will continue to focus on our core business and further strengthen our industry leadership by increasing capacity, reducing our cost structure and improving product quality so as to continuously reward our shareholders. Our vision is that in the not-too-distant future, renewable energy will displace fossil fuels to become the primary source of energy for humans, with solar energy playing the biggest role. And our mission is to help make that vision a reality.”
Outlook and guidance
The Company expects to produce approximately 31,000MT to 32,000MT of polysilicon in the third quarter of 2022 and approximately 129,000MT to 132,000MT of polysilicon in the full year 2022, inclusive of the impact of the Company’s annual facility maintenance.
This outlook reflects Daqo New Energy’s current and preliminary view as of the date of this press release and may be subject to changes. The Company’s ability to achieve these projections is subject to risks and uncertainties. See “Safe Harbor Statement” at the end of this press release.
Second Quarter 2022 Results
Revenues
Revenues were $1,244.1 million, compared to $1,280.3 million in the first quarter of 2022 and $441.4 million in the second quarter of 2021. The minor decrease in the revenues as compared to the first quarter of 2022 was due to a decrease in sales volume but compensated by an increase in ASP.
Gross profit and margin
Gross profit was $946.9 million, compared to $813.6 million in the first quarter of 2022 and $303.2 million in the second quarter of 2021. Gross margin was 76.1%, compared to 63.5% in the first quarter of 2022 and 68.7% in the second quarter of 2021. The increase in gross profit and gross margin as compared to the first quarter of 2022 was primarily due to lower production cost and higher ASPs.
Selling, general and administrative expenses
Selling, general and administrative expenses were $14.4 million, compared to $15.5 million in the first quarter of 2022 and $9.3 million in the second quarter of 2021. SG&A expenses during the second quarter included $2.0 million in non-cash share-based compensation costs related to the Company’s share incentive plan.
Research and development expenses
Research and development (R&D) expenses were $2.7 million, compared to $2.1 million in the first quarter of 2022 and $2.1 million in the second quarter of 2021. Research and development expenses can vary from period to period and reflect R&D activities that take place during the quarter.
Income from operations and operating margin
As a result of the foregoing, income from operations was $927.6 million, compared to $796.9 million in the first quarter of 2022 and $292.4 million in the second quarter of 2021.
Operating margin was 74.6%, compared to 62.2% in the first quarter of 2022 and 66.3% in the second quarter of 2021.
EBITDA (non-GAAP)
EBITDA (non-GAAP) was $955.4 million, compared to $826.8 million in the first quarter of 2022 and $311.7 million in the second quarter of 2021. EBITDA margin (non-GAAP) was 76.8%, compared to 64.6% in the first quarter of 2022 and 70.6% in the second quarter of 2021.
Net income attributable to Daqo New Energy Corp. shareholders and earnings per ADS
As a result of the aforementioned, net income attributable to Daqo New Energy Corp. shareholders was $627.8 million, compared to $535.8 million in the first quarter of 2022 and $232.1 million in the second quarter of 2021.
Earnings per basic American Depository Share (ADS) was $8.36, compared to $7.17 in the first quarter of 2022, and $3.15 in the second quarter of 2021.
Financial Condition
As of June 30, 2022, the Company had $3,284.3 million in cash, cash equivalents and restricted cash, compared to $1,127.7 million as of March 31, 2022 and $269.7 million as of June 30, 2021. As of June 30, 2022, the notes receivable balance was $1,269.3 million, compared to $1,499.4 million as of March 31, 2022 and $97.0 million as of June 30, 2021. As of June 30, 2022, total borrowings were nil, compared to nil as of March 31, 2022 and total borrowings of $156.6 million, including $70.9 million long-term borrowings, as of June 30, 2021.
Cash Flows
For the six months ended June 30, 2022, net cash provided by operating activities was $1,128.8 million, compared to $442.3 million in the same period of 2021. The increase was primarily due to higher revenues and gross margin.
For the six months ended June 30, 2022, net cash used in investing activities was $80.3 million, compared to $255.4 million in the same period of 2021. The net cash used in investing activities in 2022 was primarily related to the capital expenditures on the Company’s 100,000 MT polysilicon project in Baotou City, Inner Mongolia, which was partially offset by $265.0 million redemption of short-term investments
For the six months ended June 30, 2022, net cash provided by financing activities was $1,579.3 million, compared to net cash used in financing activities of $37.1 million in the same period of 2021. The net cash provided by financing activities in 2022 was primarily related to the net proceeds of $1,631.7 million from by Xinjiang Daqo’ private offering in China.
Use of Non-GAAP Financial Measures
To supplement Daqo New Energy’s consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles (“US GAAP”), the Company uses certain non-GAAP financial measures that are adjusted for certain items from the most directly comparable GAAP measures including earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA margin (which represents the proportion of EBITDA in revenues). Our management believes that each of these non-GAAP measures is useful to investors, enabling them to better assess changes in key element of the Company’s results of operations across different reporting periods on a consistent basis, independent of certain items as described below. Thus, our management believes that, used in conjunction with US GAAP financial measures, these non-GAAP financial measures provide investors with meaningful supplemental information to assess the Company’s operating results in a manner that is focused on its ongoing, core operating performance. Our management uses these non-GAAP measures internally to assess the business, its financial performance, current and historical results, as well as for strategic decision-making and forecasting future results. Given our management’s use of these non-GAAP measures, the Company believes these measures are important to investors in understanding the Company’s operating results as seen through the eyes of our management. These non-GAAP measures are not prepared in accordance with US GAAP or intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP; the non-GAAP measures should be reviewed together with the US GAAP measures, and may be different from non-GAAP measures used by other companies.
A reconciliation of non-GAAP financial measures to comparable US GAAP measures is presented later in this document.
Conference Call
The Company has scheduled a conference call to discuss the results at 8:00 AM Eastern Time on August 3, 2022. (8:00 PM Beijing / Hong Kong time on the same day).
The dial-in details for the live conference call are as follows:
| Participant dial in (toll free): | +1-888-346-8982 |
| Participant international dial in: | +1-412-902-4272 |
| China mainland toll free: | 4001-201203 |
| Hong Kong toll free: | 800-905945 |
| Hong Kong-local toll: | +852-301-84992 |
| Participants please dial in 10 minutes before the call is scheduled to begin and ask to be joined into the Daqo New Energy Corp. call. |
You can also listen to the conference call via Webcast through the URL:
https://event.choruscall.com/mediaframe/webcast.html?webcastid=h0088h2l
A replay of the call will be available 1 hour after the end of the conference through August 10, 2022.
The conference call replay numbers are as follows:
| US Toll Free: | +1-877-344-7529 |
| International Toll: | +1-412-317-0088 |
| Canada Toll Free: | 855-669-9568 |
| Replay access code: | 8742766 |
To access the replay using an international dial-in number, please select the link below.
https://services.choruscall.com/ccforms/replay.html
Participants will be required to state their name and company upon entering the call.
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