DAQO New Energy Q1 2025 Earnings Call Transcript

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April 29, 2025

Key Takeaways

  • Robust liquidity: As of March 31, 2025, Daqo New Energy held US$2.15 billion in quick assets with no financial debt, underpinning its ability to navigate the market downturn.
  • Q1 financials showed a sequential narrowing of losses but still a net loss of US$71.8 million on revenues of US$123.9 million, down from US$415 million in Q1 2024.
  • Q1 polysilicon production was 24,810 metric tons at a 33% utilization rate, and Q2 production is guided at 25,000–28,000 metric tons.
  • Industry capacity utilization rose to about 50% in Q1, with polysilicon prices stable at RMB37–42/kg as self-discipline measures and gradual inventory drawdown take effect.
  • New market-based on-grid tariff policy is driving a front-loading of solar installations ahead of the June 1 cutoff, boosting near-term demand and narrowing value-chain losses.
AI Generated. May Contain Errors.
Earnings Conference Call
DAQO New Energy Q1 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day and welcome to the Daqo New Energy first quarter 2025 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhang, Investor Relations Director. Please go ahead.

Operator

Hello, everyone. I'm Jessie Zhang, 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 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 Ms. Zhu 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.

Operator

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 report or documents we have filed with or furnished to the U.S. 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.

Operator

All information provided in today's call is as of today, and we will 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. Xu Xiang. Mr. Xu, please go ahead. 现在请董事长开始您的发言。

Xiang Xu
Xiang Xu
Chairman and CEO at Daqo New Energy Corp

尊敬的各位投资者，分析师晚上好。我是徐翔，当年新能源的CEO。感谢大家不用复习。大家现在2025年的一季度的一级交流会，我还是请这个安妮塔，包括公司的一些情况，因为语言的问题，我们提高效率。谢谢。

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

好，谢谢董事长。 Hello everyone, this is Anita. Thank you for joining our conference today, and I'll now deliver the management remarks on behalf of Mr. Xu. In the first quarter of 2025, the solar PV industry continues to face significant challenges. Overcapacity persisted, and polysilicon prices stayed below cash cost levels. Although this caused Daqo New Energy to sustain quarterly operating and net losses, our losses narrowed sequentially, and we continue to maintain a strong and healthy balance sheet with no financial debt. As of March 31, 2025, the company had a cash balance of $792 million, short-term investment of $168 million, bank notes receivable of $63 million, and a fixed-term bank deposit balance of $1.1 billion. In total, our quick assets readily convertible into cash if needed stood at $2.15 billion, providing us with ample liquidity.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

With no financial debt, our solid financial position gives us the confidence that we'll remain strategically resilient and well-positioned to overcome the current market downturn. On the operational front, the company operated at a reduced utilization rate of approximately 33% of our nameplate capacity in response to challenging market conditions and weak selling prices. Total production volume at two polysilicon facilities for the quarter was 24,810 metric tons, slightly below our guidance range of 25,000-28,000 metric tons. However, sales volume reached 28,008 metric tons, exceeding production and enabling us to reduce inventory to a healthier level. As a result of lower utilization across our factories, idle facility-related costs for the quarter was approximately $1.58 per kilogram, which was primarily related to non-cash depreciation expenses. Overall, polysilicon unit production costs increased by 11% sequentially to an average of $7.157.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

$ per kilogram, primarily due to higher unit depreciation costs as a result of lower production. Our cash costs increased by 5% to $5.31 per kilogram quarter over quarter, primarily due to maintenance and facilities-related costs during the quarter. In light of the current market conditions, we expect our total production volume in the second quarter of 2025 to be in the range of 25,000-28,000 metric tons. As a result, we anticipate our full year 2025 production volume to be in the range of 110,000 and 100,000-140,000 metric tons. During the first quarter, polysilicon producers implemented self-discipline measures to mitigate the impact of irrational competition amid falling prices, resulting in industry-wide capacity utilization of approximately 50%. According to industry data, domestic polysilicon production volume came in at 105,500 metric tons in March and below 100,000 metric tons for both January and February.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Consequently, supply in the first quarter fell short of demand, gradually reducing industry inventory levels. On February 9, Chinese authorities introduced a market-based reform policy for new energy on-grid tariffs to promote the high-quality development of the renewable energy sector. All on-grid electricity generated from renewable energy, such as wind and solar power, will be traded through market mechanisms with prices determined by supply and demand. This policy aims to balance grid load more effectively. As mandated in the policy, the cutoff date that distinguishes new projects from existing projects is May 31, 2025, and new energy projects that commence operations on and after June 1, 2025, will be subject to a provincial-level competitive bidding process. As a fixed tariff structure for renewable energy electricity transitions to a market-based pricing mechanism, uncertainties around future electricity prices and revenue generations have emerged.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

In response, project developers and investors are accelerating project completions ahead of the June 1 deadline in order to secure current policy benefits, which have led to a surge in downstream installations. Fueled by this front-loading, market prices of solar products have trended upward, narrowing losses across the value chain, particularly for end products. However, given the relatively high level of poly inventory held by wafer manufacturers, price increases have yet to fully materialize in the polysilicon segment. Polysilicon prices remain stable throughout the quarter at approximately RMB 37-42 per kilogram. In the medium to long-term fall, however, we believe current low prices and market downturn will eventually result in a healthier and more sustainable industry.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

As ongoing losses for profitability and cash for less competitive players to exit the market, we expect overcapacity to be ultimately eliminated, bringing the solar PV industry back to normal, improved profitability, and healthier margins. The solar PV industry continues to show promising prospects. China's new solar PV installations reached 59.71 gigawatts in the first quarter, a robust 30.5% year-over-year growth. In the long run, as one of the most cost-effective and sustainable energy resources worldwide, 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 market and strengthen its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through digital transformation and AI adoption.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

As one of the world's lowest-cost producers with the highest quality N-type products, it has shown a balance sheet with no financial debt. We are confident in our ability to weather the current market downturn and emerge as a leader in the industry ready to capture future growth. I will now turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

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 of 2025 financial performance. Revenues were $123.9 million compared to $195.4 million in the fourth quarter of 2024 and $415 million in the first quarter of 2024. The decreasing revenue compared to the fourth quarter of 2024 was primarily due to a decrease in sales volume. Gross loss was $81.5 million compared to $65.3 million in the fourth quarter of 2024, and gross profit was $72 million in the first quarter of 2024. Gross margin was negative 66% compared to negative 33% in the fourth quarter of 2024 and 17.4% in the first quarter of 2024.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

The decrease in gross margin compared to the fourth quarter of 2024 was primarily due to a lower average selling price and higher production costs. SG&A expenses were $35.1 million compared to $29.4 million in the fourth quarter of 2024 and $38 million in the first quarter of 2024. SG&A expenses during the first quarter included $18.6 million in non-cash share-based compensation costs related to the company's share incentive plans compared to $14.9 million in the fourth quarter of 2024. R&D expenses for the quarter were $0.5 million compared to $0.4 million in the fourth quarter of 2024 and $1.5 million in the first quarter of 2024. R&D expenses converted from period-to-period and reflect R&D activities that take place during the quarter.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

As a result of the foregoing, loss from operations was $114 million compared to loss of $300 million in the fourth quarter of 2024 and income from operations of $30 million in the first quarter of 2024. The decrease of loss from operations in the first quarter of 2024 compared to the fourth quarter of 2024, the first quarter of 2025 earlier, was also attributable to the long-lived asset impairment of $125.6 million assets and allowance for expected credit loss of $18 million reported in the fourth quarter of 2024. Operating margin was negative 92% compared to negative 154% in the fourth quarter of 2024 and 7.3% in the first quarter of 2024. Net loss attributable to Daqo New Energy shareholders was $71.8 million compared to $180 million in the fourth quarter of 2024 and net income of $15.5 million in the first quarter of 2024.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

Loss per basic ADS was $1.07 compared to $2.71 in the fourth quarter of 2024 and earnings per basic ADS of $0.24 in the first quarter of 2024. Non-GAAP adjusted net loss attributable to Daqo New Energy shareholders, excluding non-cash-based compensation costs, was $53 million compared to $170.6 million in the fourth quarter of 2024 and adjusted net income of $36 million in the first quarter of 2024. Adjusted loss per basic ADS was $0.80 compared to $2.56 in the fourth quarter of 2024 and adjusted earnings per basic ADS of $0.55 in the first quarter of 2024. EBITDA was negative $48 million compared to negative $236 million in the fourth quarter of 2024 and $76.9 million in the first quarter of 2024. EBITDA margin was negative 39% compared to negative 121% in the fourth quarter of 2024 and 18.5% in the first quarter of 2024.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

Now on the company's financial position. As of March 31, 2025, the company had $792 million in cash, cash equivalent, and restricted cash compared to $1.04 billion as of December 31, 2024, and $2.7 billion as of March 31, 2024. As of March 31, 2025, the note receivable balance was $62.7 million compared to $55 million as of December 31, 2024, and $194 million as of March 31, 2024. Note receivable represents bank notes with maturity within six months. As of March 31, 2025, the balance of fixed-term deposits within one year was $1.12 billion compared to $1.09 billion as of December 31, 2024, and nil as of March 31, 2024. Now on the company's cash flows. For the three months ended March 31, 2025, net cash used in operating activities was $38.9 million compared to $116 million in the same period of 2024.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

For the three months ended March 31, 2025, net cash used in investing activities was $211 million compared to $190.5 million in the same period of 2024. The net cash used in investing activities in the first quarter of 2025 was primarily related to the purchase of short-term investments and fixed-term deposits. For the three months ended March 31, 2025, net cash used in financing activities was nil compared to $6 million in the same period of 2024. That concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

Operator

We will now begin the question and answer session. To ask a question, you may press star and one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Phil Shen with Roth Capital Partners. Please go ahead.

Philip Shen
Philip Shen
Managing Director and Senior Research Analyst at Roth Capital Partners

Hi everyone. Thank you for taking my questions. In your prepared remarks, you talked about overcapacity ultimately being eliminated. I was wondering if you could talk through when you think that could happen. You also mentioned less competitive players will exit the market. Who have you seen exit thus far, and which exits do you think might be nil-term? Thanks.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Thank you, Phil. In terms of the rebalancing of supply and demand, to give a quick recap, back in 2024, the total polysilicon production volume is around 1.82 million metric tons. The nameplate capacity production capacity of polysilicon of all completed projects, regardless of whether it is completed or temporary shutdown, exceeded 1,400 gigawatts, which is roughly 3.2 million metric tons. That is more than double of demand. What we have seen in this cycle compared to the previous cycle is that the incumbents and even some of the new players, they either have a very solid shareholder base that, in the worst case, can they inject asset or have other sources of financing. For instance, recently, we have seen Tongwei announcing CNY 10 billion in fundraising out of Yongxiang subsidiary.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

I think that's just one case that signals the rebalancing of supply and demand will take longer than expected compared to the previous cycles. We've seen that the overall industry utilization rate is currently at around 40-50%. We actually haven't seen any companies completely exiting the market. Most of them are either lowering their utilization rate or undergoing this temporary shutdown. It's hard to say when exactly we would see the players exiting, but as we are still transacting at prices below most of the companies' cash costs, it will be relatively difficult for some of the companies to sustain the current situation.

Philip Shen
Philip Shen
Managing Director and Senior Research Analyst at Roth Capital Partners

Thank you, Anita. That's helpful. You mentioned the industry utilization rate is between 40% and 50%. Can you tell us what you expect that to trend or how you expect it to trend by quarter through this year? Do you think it goes above 50% by Q4, or do you think we're well below 50% even in Q4? Thanks.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Yeah, sure. In the first quarter, the monthly domestic production actually came in to around 90,000-100,000 metric tons per month. We've seen a slight shortage in supply compared to the monthly demand. The inventory depletion of polysilicon is actually happening at a very slow pace. However, because of the high level of inventory in polysilicon, we've seen almost, I would say, 400,000 metric tons in total at the poly manufacturer and at the ingot manufacturer. Now, that's across the avalanching. We think the inventory depletion will take at least four months, assuming the most extreme case of zero production per month and also a monthly production of 950,000 metric tons.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Because of that, the poly prices actually remained relatively stable during the first quarter, trading at CNY 38-CNY 42 per kilogram, with intake from the top players actually coming in at CNY 41-CNY 42. If we're looking at the second quarter and maybe going forward, we believe the prices will be supported at the current level because of the policy that was rolled out in February. We expect price level to sustain at the current range before the policy cutoff date of May 31, especially because we expect strong April and May demand at around 55-65 gigawatts, which will translate to a poly demand of around 125,000. We do see potential downside risks both coming from the policy change, also coming from external tensions, especially from the Trump administration's trade war 2.0.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

After the rush installations, we see demand would trend down slightly. That is why we maintain cautious and expect pricing to be relatively suppressed at the low price range of CNY 35-40 per kilogram throughout the remaining of 2025.

Philip Shen
Philip Shen
Managing Director and Senior Research Analyst at Roth Capital Partners

Okay. Great. Again, a lot of information there. Thank you. You said demand in China after May would be down slightly, but I think you mentioned 55 gigawatts for those April, May. What's your expectation for after May 31? How much lower could demand be on a monthly basis in China? Thanks.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

I think overall, the whole year of 2025, we believe China demand will still come in relatively strong in the range of 250-300 gigawatts, which would be roughly equivalent to 1.4-1.6 million metric ton of poly demand. Although compared to 2024, it may seem more stagnant primarily because of the potentially deteriorating solar project returns, which was impacted by the new policy in February, primarily because of the uncertainty in calculating the yield. In the long run, we are encouraged to see that renewable energy is actually transitioning to a more market-driven and heading into a more sustainable and high-quality development compared to being subsidized by the government with more guaranteed on-grid volume price for all incremental renewable energy projects. I think overall this year in China, it would still be relatively supported at 250-300 gigawatts.

Philip Shen
Philip Shen
Managing Director and Senior Research Analyst at Roth Capital Partners

Okay. Great. Appreciate the time and taking my questions. Thanks. I'll pass it on.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Thank you, Phil.

Operator

Once again, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Alan Hon with JPMorgan. Please go ahead.

Alan Hon
Alan Hon
Head of Asia Power Utilities and Renewables Equity Research at JPMorgan Chase & Co.

Hi, management. Thank you for taking my question. My first question is regarding ADR delisting risk. I mean, what is the strategy? I mean, you're looking to employ or what do you think? How should we encounter the ADR delisting risk?

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Thank you, Allen. First of all, we fully understand our investor concern over the risk of forcing the ADR to delist from the U.S. amid the heightened U.S.-China trade war. Although we personally, although I think that we would remain vigilant and consider the delisting of all ADRs, they are relatively low probability. I do acknowledge that the Trump administration is putting all options on the table. Because of that, this will be a key stake for negotiation as decoupling from the two largest economies spreads to the financial sectors. We actually consider a potential dual listing of returning to the Hong Kong exchange back in 2022 as some background information because of the risk rising from the Holding Foreign Companies Accountable Act.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

That issue was effectively resolved in the same year after PCAOB determined at the end of 2022 that it was able to inspect and investigate audit firms in mainland China and Hong Kong completely. It vacated its 2021 determination. This is why our listing in Hong Kong was held off. We decided to keep our ADRs because the trading volume is much higher for the ADRs compared to the Hong Kong listing. Based on my understanding, I think for a Hong Kong listing, it would take maybe around six months depending on regulatory approvals, the market conditions, and our internal readiness. To be fully transparent to our investors, while we have no immediate plans in place amid the current situation, we are definitely closely monitoring the market and the regulatory development.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

We want to assure you that we remain fully committed to driving the long-term value for our stakeholders and also executing our long-term growth vision. It is very unfortunate for us to see tensions escalate. If circumstances do exacerbate to the most extreme case of a forced delisting, our management team will definitely evaluate all strategic options to protect the interests of our shareholders, such as a listing in Hong Kong or seek other means to return capital to our shareholders.

Alan Hon
Alan Hon
Head of Asia Power Utilities and Renewables Equity Research at JPMorgan Chase & Co.

Thank you very much. My next question is regarding cash costs. I know that the cash production cost in the first quarter has edged up a little bit from the fourth quarter last year. You mentioned maintenance costs. I just want to get a feeling about the outlook on cash costs, I mean, in the subsequent quarters in the year.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

Okay. Allen, thanks for your question. Cash costs did trend up slightly this quarter, I guess about 5%-6% compared to the previous quarter. It is primarily due to two primary reasons. The first reason is that I think since December of last year, our Inner Mongolia phase two was shut down completely and then went into what is called in Chinese Weibao or maintenance of the facilities, right, for longer term. It is incurring equivalent to roughly $0.20 per kilogram of cost this quarter. Even though there is no production, there is that additional cost related to, for example, the electricity, the air, and the people, employees necessary to maintaining facilities. That actually adds up roughly $0.20 in cash costs. If you look at the way that we record cash costs, it is actually all the costs that occur for the facilities, right?

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

Not just for production, but also for the maintenance. Okay. Then we subtract out the depreciation and the non-cash-based compensation to arrive at the cash cost. Okay. There is that $0.20 additional impact because of the maintenance related to the facility that is now being shut down. There is another roughly $0.10 of cost related to the maintenance of the facility. Inner Mongolia went to maintenance in roughly the second half of March. Okay. As you can see, it had some impact on production for the quarter. For example, if you compare to the previous quarter, right, I mean, we produced around 34,000 metric tons, right? For this quarter, we only produced roughly 24,800 metric tons. We incurred relatively similar level of employees in terms of staffing costs.

Ming Yang
Ming Yang
CFO at Daqo New Energy Corp

I think that's the part that has to be kind of amortized over a fewer amount of production. So there's that $0.10 impact of cost that we have. I think if we remove these impacts, I think we would have roughly $5. I think going forward for Q2, I think, again, I think depending on production level, but I think based on current guidance, we should probably have similar to slightly lower cash costs compared to the current quarter.

Alan Hon
Alan Hon
Head of Asia Power Utilities and Renewables Equity Research at JPMorgan Chase & Co.

Got it. Thank you. I'll pass it on.

Anita Zhu
Anita Zhu
Deputy CEO at Daqo New Energy Corp

Thank you, Allen.

Alan Hon
Alan Hon
Head of Asia Power Utilities and Renewables Equity Research at JPMorgan Chase & Co.

Thank you.

Operator

As a reminder, if you would like to ask a question, please press star then one to join the question queue. Once again, that's star then one to ask a question. This concludes our question and answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

Jessie Zhao
Jessie Zhao
Former Director of Investor Relations at Daqo New Energy Corp

Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please do not hesitate to contact us. Thank you and have an awesome day. Goodbye.

Operator

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

Analysts
    • Xiang Xu
      Chairman and CEO at Daqo New Energy Corp
    • Anita Zhu
      Deputy CEO at Daqo New Energy Corp
    • Ming Yang
      CFO at Daqo New Energy Corp
    • Philip Shen
      Managing Director and Senior Research Analyst at Roth Capital Partners
    • Alan Hon
      Head of Asia Power Utilities and Renewables Equity Research at JPMorgan Chase & Co.
    • Jessie Zhao
      Former Director of Investor Relations at Daqo New Energy Corp
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