PVTIME – 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 2021.
Second Quarter 2021 Financial and Operating Highlights
- Polysilicon production volume was 21,102 MT in Q2 2021, compared to 20,185 MT in Q1 2021
- Polysilicon sales volume was 21,060 MT in Q2 2021, compared to 21,471 MT in Q1 2021
- Polysilicon average total production cost(1) was $6.31/kg in Q2 2021, compared to $6.29/kg in Q1 2021
- Polysilicon average cash cost(1) was $5.41/kg in Q2 2021, compared to $5.37/kg in Q1 2021
- Polysilicon average selling price (ASP) was $20.81/kg in Q2 2021, compared to $11.90/kg in Q1 2021
- Revenue was $441.4 million in Q2 2021, compared to $256.1 million in Q1 2021
- Gross profit was $303.2 million in Q2 2021, compared to $118.9 million in Q1 2021. Gross margin was 68.7% in Q2 2021, compared to 46.4% in Q1 2021
- Net income attributable to Daqo New Energy Corp. shareholders was $232.1 million in Q2 2021, compared to $83.2 million in Q1 2021
- Earnings per basic American Depositary Share (ADS)(3) was $3.15 in Q2 2021, compared to $1.13 in Q1 2021
- EBITDA (non-GAAP)(2) was $311.7 million in Q2 2021, compared to $128.1 million in Q1 2021. EBITDA margin (non-GAAP)(2) was 70.6% in Q2 2021, compared to 50.0% in Q1 2021
- Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy Corp. shareholders was $234.5 million in Q2 2021, compared to $86.2 million in Q1 2021
- Adjusted earnings per basic ADS(3) (non-GAAP)(2) was $3.18 in Q2 2021, compared to $1.18 in Q1 2021
| Three months ended | |||
| US$ millions except as indicated otherwise | Jun 30, 2021 | Mar 31, 2021 | Jun 30, 2020 |
| Revenues | 441.4 | 256.1 | 133.5 |
| Gross profit | 303.2 | 118.9 | 22.7 |
| Gross margin | 68.7% | 46.4% | 17.0% |
| Income from operations | 292.4 | 109.2 | 10.8 |
| Net income attributable to Daqo New Energy Corp. shareholders | 232.1 | 83.2 | 2.4 |
| Earnings per basic ADS(3) ($ per ADS) | 3.15 | 1.13 | 0.03 |
| Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy Corp. shareholders | 234.5 | 86.2 | 6.9 |
| Adjusted earnings per basic ADS(3) (non-GAAP)(2) ($ per ADS) | 3.18 | 1.18 | 0.10 |
| EBITDA (non-GAAP) (2) | 311.7 | 128.1 | 26.8 |
| EBITDA margin (non-GAAP)(2) | 70.6% | 50.0% | 20.0% |
| Polysilicon sales volume (MT) | 21,060 | 21,471 | 18,881 |
| Polysilicon average total production cost ($/kg)(1) | 6.31 | 6.29 | 5.79 |
| Polysilicon average cash cost (excl. dep’n) ($/kg)(1) | 5.41 | 5.37 | 4.87 |
Notes:
(1) Production cost and cash cost only refer to production in our polysilicon facilities in Xinjiang. Production cost is calculated by the inventoriable costs relating to production of polysilicon in Xinjiang 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, EBITDA margins, adjusted net income attributable to Daqo New Energy Corp. shareholders and adjusted earnings per basic ADS 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. On November 17, 2020, the Company effected a change of the ratio of its ADSs to ordinary shares from one (1) ADS representing twenty-five (25) ordinary shares to one (1) ADS representing five (5) ordinary shares. The earnings per ADS and number of ADS information have been retrospectively adjusted to reflect the change for all periods presented.
Management Remarks
Mr. Longgen Zhang, CEO of Daqo New Energy, commented, “We are very excited to report an excellent quarter with strong revenue growth and better-than-expected profitability, as the Company achieved record-high production volume, gross profit, and net income. With the global focus on addressing the climate challenge with plans to reach carbon neutrality, market conditions remain strong for the polysilicon sector. The strong increase in downstream demand has led to a shortage of polysilicon and caused our polysilicon ASP to rise significantly from $11.90/kg in Q1 to $20.81/kg in Q2. In July and August, the market price for mono-grade polysilicon has remained at approximately $26-28/kg and we expect the strong price momentum to continue into the second half of this year. Despite the rise in solar module prices in the first half of this year, we continue to see stronger-than-expected market demand even at the new market prices.”
“Recently the solar value chain has been stable at the new market prices and downstream manufacturers are currently able to pass through price increases to their customers. During the week of August 9, major solar wafer and solar cell manufacturers in China announced price increases for solar wafers and solar cells, further demonstrating the strong end-market demand. We saw an uptick in polysilicon pricing in the last two weeks with a surge in orders from our diverse customer base. We expect the constrained polysilicon supply to be the main limiting factor to the size of the global solar market this year.”
“Polysilicon production is a complex chemical process and has the highest barrier to entry in the solar value chain. Based on our research, we expect to see approximately 180~220 thousand MT of additional polysilicon supply in 2022 considering a potential six months’ ramp-up period for other polysilicon producers. This total global polysilicon supply can be used to produce approximately 240~250 GW of solar modules which can support approximately 200~210 GW of solar installations in 2022. So, the polysilicon sector will still be the one with most constrained supply across the main solar PV manufacturing value chain in 2022. On the demand side, more and more countries have set up time tables for peak carbon and carbon neutrality targets that will significantly increase demand for renewable energies including solar PV. In addition, there is still meaningful room for potential cost reduction across the value chain, which will effectively stimulate larger demand, especially given that solar PV has already reached grid parity in many countries and regions in the world. As a result, we believe polysilicon pricing will remain healthy in 2022 making our sector one of the most attractive sectors in the solar PV industry in the long run given its high entry barrier and operational complexity.”
“On the policy front, during the Politburo Central Committee meeting on July 30 regarding economic activity in the second half of 2021, with China’s President Mr. Xi Jinping presiding over the meeting, the central government reiterated the urgency for national coordination on carbon peak and carbon neutrality goals and the development of the peak carbon 2030 action plans and related policies as early as possible. In addition, China recently announced an ambitious program to massively deploy distributed generation solar projects at the local government level. We believe solar will continue to be a strong beneficiary of government policies and support.”
“With regard to our ESG initiatives, we are in the process of incorporating environmental, social and governance factors in all of our major business decisions, and we published our inaugural ESG Sustainability Report in July. We are already making substantial progress on the sustainability front, including installing a new wastewater treatment facility in 2018 that reduced our wastewater discharge density by 60% in 2020 compared to 2018. Furthermore, by increasing energy efficiency and energy recycling as well as optimizing our production process, we reduced our comprehensive energy consumption density by 40% in 2020 compared to 2017. We will continue to work on our ESG efforts, including planning for greater renewable energy use as part of our energy sources in the future.”
“We continue to focus on initiatives to strengthen the Company’s long-term competitiveness. Our major operational subsidiary, Xinjiang Daqo New Energy (“Xinjiang Daqo”), successfully completed its IPO listing on China’s A share market and started trading on the Shanghai Stock Exchange’s Sci-Tech Innovation Board (SSE, code: 688303) on 22 July, 2021. The total gross proceeds of the IPO are approximately RMB6.45 billion, which will fund Xinjiang Daqo’s polysilicon expansion project and provide additional capital for its future growth plans. Following the Xinjiang Daqo’s IPO, Daqo New Energy directly holds approximately 79.6% of Xinjiang Daqo’s shares and indirectly holds 1.1% of Xinjiang Daqo’s shares through Daqo New Energy’s wholly-owned subsidiary Chongqing Daqo, for a total ownership of 80.7% of the A-share listed subsidiary. There is no Variable Interest Entity (VIE) structure between Daqo New Energy and Xinjiang Daqo. The successful IPO will offer us an additional venue to access the attractive capital markets in China for future growth and expansion. With our advantages of competitive cost structure, quality and technology advancement, outstanding operational expertise and experienced management team, we have set up a road map to increase our capacity to 270 thousand MT by the end of 2024, representing an approximately 50% annual growth rate of our production capacity over the next three years to better serve the fast-growing global solar PV market.”
Outlook and guidance
The Company produced 41,287 MT of polysilicon and sold approximately 42,531 MT of polysilicon in the first half of 2021, representing full utilization level of the company’s production facilities. For the second half of 2021, the Company expects to remain in full utilization with sales volume similar to production volume. For the full year of 2021, the Company raises its production guidance from the previous level of 81,000 to 83,000 MT to the level of approximately 83,000 to 85,000 MT of polysilicon for the full year, 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 2021 Results
Revenues
Revenues were $441.4 million, compared to $256.1 million in the first quarter of 2021 and $133.5 million in the second quarter of 2020. The increase in revenues as compared to the first quarter of 2021 was primarily due to higher ASPs partially offset by slightly lower polysilicon sales volume.
Gross profit and margin
Gross profit was $303.2 million, compared to $118.9 million in the first quarter of 2021 and $22.7 million in the second quarter of 2020. Gross margin was 68.7%, compared to 46.4% in the first quarter of 2021 and 17.0% in the second quarter of 2020. The increase in gross margin was primarily due to higher ASPs.
Selling, general and administrative expenses
Selling, general and administrative expenses were $9.3 million, compared to $9.0 million in the first quarter of 2021 and $10.1 million in the second quarter of 2020. SG&A expenses during the quarter included $2.4 million in non-cash share-based compensation costs related to the Company’s share incentive plan, compared to $3.0 million in the first quarter of 2021 and $4.5 million in the second quarter of 2020.
Research and development expenses
Research and development (R&D) expenses were $2.1 million, compared to $1.2 million in the first quarter of 2021 and $2.0 million in the second quarter of 2020. 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 $292.4 million, compared to $109.2 million in the first quarter of 2021 and $10.8 million in the second quarter of 2020.
Operating margin was 66.3%, compared to 42.6% in the first quarter of 2021 and 8.1% in the second quarter of 2020.
Interest expense
Interest expense was $7.2 million, compared to $7.8 million in the first quarter of 2021 and $6.7 million in the second quarter of 2020.
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 $232.1 million, compared to $83.2 million in the first quarter of 2020 and $2.4 million in the second quarter of 2020.
Earnings per basic American Depository Share (ADS) was $3.15, compared to $1.13 in the first quarter of 2021, and $0.03 in the second quarter of 2020.
EBITDA (non-GAAP)
EBITDA (non-GAAP) was $311.7 million, compared to $128.1 million in the first quarter of 2021 and $26.8 million in the second quarter of 2020. EBITDA margin (non-GAAP) was 70.6%, compared to 50.0% in the first quarter of 2021 and 20.0% in the second quarter of 2020.
Financial Condition
As of June 30,2021, the Company had $269.7 million in cash and cash equivalents and restricted cash, compared to $227.8 million as of March 31, 2021 and $115.8 million as of June 30, 2020. As of June 30, 2021, the notes receivable balance was $97.0 million, compared to $38.5 million as of March 31, 2021 and $8.2 million as of June 30, 2020. As of June 30, 2021, total borrowings were $156.6 million, of which $70.9 million were long-term borrowings, compared to total borrowings of $222.2 million, including $100.4 million long-term borrowings, as of March 31, 2021 and total borrowings of $264.8 million, including $116.9 million long-term borrowings, as of June 30, 2020.
Cash Flows
For the six months ended June 30, 2021, net cash provided by operating activities was $442.3 million, compared to $47.0 million in the same period of 2020.
For the six months ended June 30, 2021, net cash used in investing activities was $255.4 million, compared to $60.4 million in the same period of 2020. The net cash used in investing activities in 2021 and 2020 was primarily related to the capital expenditures on the Company’s polysilicon expansion projects.
For the six months ended June 30, 2021, net cash used in financing activities was $37.1 million, compared to net cash provided by financing activities of $16.2 million in the same period of 2020. The net cash used in financing activities in 2021 was primarily related to the repayment of bank loans.
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; adjusted net income attributable to Daqo New Energy Corp. shareholders and adjusted earnings per basic and diluted ADS. 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.
The Company uses EBITDA, which represents earnings before interest, taxes, depreciation and amortization, and EBITDA margin, which represents the proportion of EBITDA in revenues. Adjusted net income attributable to Daqo New Energy Corp. shareholders and adjusted earnings per basic and diluted ADS exclude costs related to share-based compensation. Share-based compensation is a non-cash expense that varies from period to period. As a result, our management excludes this item from our internal operating forecasts and models. Our management believes that this adjustment for share-based compensation provides investors with a basis to measure the Company’s core performance, including compared with the performance of other companies, without the period-to-period variability created by share-based compensation.
 (“Daqo New Energy”, the “Company” or “we”), a leading manufacturer of high-purity polysilicon for the global solar PV industry, today announced its…){kind=link}