PR Newswire
SHIHEZI, China, Aug. 14, 2019
SHIHEZI, China, Aug. 14, 2019 /PRNewswire/ -- 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 2019.
Second Quarter 2019 Financial and Operating Highlights
| Three months ended | ||
US$ millions except as indicated otherwise | Jun 30, 2019 | Mar 31, 2019 | Jun 30, 2018 |
Revenues | 66.0 | 81.2 | 63.0 |
Gross profit | 8.6 | 18.3 | 25.2 |
Gross margin | 13.0% | 22.6% | 40.1% |
(Loss)/ income from operations | (0.4) | 9.2 | 18.0 |
Net (loss)/ income from continuing operations | (2.7) | 5.9 | 10.9 |
Income from discontinued operations, net of tax | 0.5 | 0.8 | 2.7 |
Adjusted net income (non-GAAP)(2) attributable | 2.3 | 11.1 | 18.2 |
Adjusted earnings per basic ADS (non-GAAP)(2) | 0.17 | 0.83 | 1.44 |
Net (loss)/ income attributable to Daqo New | (2.2) | 6.6 | 13.4 |
(Loss)/ earnings per basic ADS ($ per ADS) | (0.16) | 0.50 | 1.06 |
EBITDA (non-GAAP)(2) from continuing | 10.2 | 20.0 | 27.4 |
EBITDA margin (non-GAAP) (2) from continuing | 15.5% | 24.6% | 43.6% |
Polysilicon sales volume (MT) | 7,130 | 8,450 | 3,881 |
Polysilicon average total production cost | 8.12 | 7.42 | 9.05 |
Polysilicon average cash cost (excl. dep'n) | 6.65 | 6.20 | 7.43 |
Notes: |
(1) Production cost and cash cost only refer to production in our Xinjiang polysilicon facilities. 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 in Xinjiang, divided by the production volume in the period indicated. |
(2) Daqo New Energy provides EBITDA from continuing operations, EBITDA margin from continuing operations adjusted net income attributable to Daqo New Energy Corp. shareholders and adjusted earnings per 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. |
Management Remarks
Mr. Longgen Zhang, CEO of Daqo New Energy, commented, "We are pleased to report a solid quarter, in which we made good progress in capacity increase and quality improvement. During the second quarter, we completed our capacity debottlenecking project on time, which allowed us to increase our annual capacity to 35,000 MT. At the same time, we also completed the annual maintenance of our Xinjiang facilities, which was originally scheduled in the third quarter. While our production volume was temporarily impacted by the debottlenecking project and the annual maintenance, we were still able to produce 7,151 MT of polysilicon in the second quarter at the total production cost and cash cost of $8.12/kg and $6.65/kg, respectively. With the production ramp up at our newly debottlenecked facilities, we anticipate our production volume in the third quarter to be approximately 9,200 to 9,500 MT of polysilicon, with the total production cost returning to the normal level of approximately $7.50/kg."
"During the second quarter, we also significantly improved the quality of our products. Out of our entire sales volume during the quarter, approximately 80% was sold to mono customers. With the completion of our debottlenecking project and annual maintenance, we expect the percentage of mono-grade polysilicon of our product to further increase to approximately 85% in the third quarter. In addition, we are now working closely with some leading mono wafer producers to test our ultra-high purity polysilicon for application in potential N-type mono wafer market."
"The expansion of our Phase 4A project is progressing smoothly and remains on schedule. The equipment installation has already begun and will continue through to the end of the third quarter of 2019. Based on our current assessment, we expect to complete the Phase 4A project by the end of 2019 and ramp up to the full capacity of 70,000 MT by the end of the first quarter of 2020. Upon the full ramp up, we expect that 90% of our total production volumes will be sold to mono customers, including 40% for the N-type mono wafer market."
"In early July this year, China's National Energy Administration released a list of 22.8 GW approved solar projects that secured government subsidies for 2019. Combining these approved subsidized projects, grid-parity projects, residential distributed-generation projects, top-runner projects and poverty alleviation PV projects, China is expected to install approximately 40GW to 45GW of new solar PV projects in 2019. During the first half of 2019, China has already installed 11.4GW, which means the installation volumes could triple in the second half of 2019. Realistically, it will take some time to complete the preparation work for these recently approved subsidized solar projects, which includes detailed designs and rounds of procurement bidding and contract negotiations. All of these stages have to be completed before the actual modules can be shipped. All in all, we anticipate China's solar demand to pick up significantly starting from early September."
"The second quarter of 2019 was a challenging time for polysilicon industry as prices dropped to their lowest levels in history, particularly for multi-grade products. While prices for mono-grade products declined sequentially, they were relatively stable. We believe that polysilicon supply and demand will balance out and begin to improve when Chinese project developers begin to place orders by the end of the third quarter. Incremental demand from China is expected to gradually exceed the additional supply that is currently hitting the market. We believe polysilicon ASP will begin to improve in the third quarter of 2019 to a level that the majority of marginal high-cost players are able to break even on a cash-cost basis, which we estimate to be approximately $10.5 to $11/kg. Moreover, the pricing spread between mono-grade and multi-grade polysilicon products will likely remain significant, because output of mono-grade polysilicon still lags behind market demand and new capacities of mono wafer are still growing."
"In early August, we signed a three-year supply agreement with LONGi Green Energy to supply 112,800 MT of polysilicon products. LONGi is our long time strategic partner with strong balance sheet and growth momentum in mono wafer sector. This is the second long term supply agreement between us. It's also a testament to our supply stability and excellent quality of polysilicon product for mono-applications. We are confident that the combination of our premium product quality and competitive cost structure will set a benchmark for the polysilicon industry and solidify our position as the market leader. Our competitive advantage will be further strengthened once the Phase 4A project is completed and ramped up to full capacity in the first quarter of 2020 which will double our capacity and drive our production cost even lower."
Outlook and guidance
The Company expects to produce approximately 9,200 to 9,500 MT of polysilicon with a total production cost of $7.5/kg during the third quarter of 2019 and sell approximately 9,000 to 9,300 MT of polysilicon to external customers during the third quarter of 2019. For the full year of 2019, the Company expects to produce approximately 37,000 to 40,000 MT of polysilicon, 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 2019 Results
Revenues
Revenues were $66.0 million, compared to $81.2 million in the first quarter of 2019 and $63.0 million in the second quarter of 2018. The decrease in revenues was primarily due to lower polysilicon sales volume and lower ASP.
Gross profit and margin
Gross profit was $8.6 million, compared to $18.3 million in the first quarter of 2019 and $25.2 million in the second quarter of 2018. Gross margin was 13.0%, compared to 22.6% in the first quarter of 2019 and 40.1% in the second quarter of 2018. The sequential decrease was primarily due to lower average ASP and higher polysilicon production costs caused by the annual maintenance and ramp-up process of the Company's debottlenecking project.
Selling, general and administrative expenses
Selling, general and administrative expenses were $7.8 million, compared to $7.9 million in the first quarter of 2019 and $7.5 million in the second quarter of 2018. This quarter's SG&A expenses include $3.9 million of 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 $1.5 million, compared to $1.3 million in the first quarter of 2019 and $0.2 million in the second quarter of 2018. Research and development expenses could vary from period to period and reflected R&D activities that took place during the quarter.
(Loss)/ income from operations and operating margin
As a result of the foregoing, loss from operations was $0.4 million, compared to income from operations of $9.2 million in the first quarter of 2019 and $18.0 million in the second quarter of 2018.
The Company recorded an operating loss, compared to operating margin of 11.3% in the first quarter of 2019 and 28.6% in the second quarter of 2018.
Interest expense
Interest expense was $1.9 million, compared to $2.0 million in the first quarter of 2019 and $3.1 million in the second quarter of 2018.
EBITDA
EBITDA from continuing operations was $10.2 million, compared to $20.0 million in the first quarter of 2019 and $27.4 million in the second quarter of 2018. EBITDA margin was 15.5%, compared to 24.6% in the first quarter of 2019 and 43.6% in the second quarter of 2018.
Income from discontinued operations, net of tax
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