Daqo New Energy Announces Unaudited Third Quarter 2020 Results

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 third quarter of 2020.

Third Quarter 2020 Financial and Operating Highlights

  • Polysilicon production volume was 18,406 MT in Q3 2020, compared to 18,097 MT in Q2 2020
  • Polysilicon sales volume was 13,643 MT in Q3 2020, compared to 18,881 MT in Q2 2020
  • Polysilicon average total production cost(1) was $5.82/kg in Q3 2020, compared to $5.79/kg in Q2 2020
  • Polysilicon average cash cost(1) was $4.88/kg in Q3 2020, compared to $4.87/kg in Q2 2020
  • Polysilicon average selling price (ASP) was $9.13/kg in Q3 2020, compared to $7.04/kg in Q2 2020
  • Revenue was $125.5 million in Q3 2020, compared to $133.5 million in Q2 2020
  • Gross profit was $45.3 million in Q3 2020, compared to $22.7 million in Q2 2020. Gross margin was 36.0% in Q3 2020, compared to 17.0% in Q2 2020
  • Net income attributable to Daqo New Energy Corp. shareholders was $20.8 million in Q3 2020, compared to $2.4 million in Q2 2020
  • Earnings per basic American Depositary Share (ADS)(3) was $0.29 in Q3 2020, compared to $0.03 in Q2 2020
  • EBITDA (non-GAAP)(2) was $51.6 million in Q3 2020, compared to $26.8 million in Q2 2020. EBITDA margin (non-GAAP)(2) was 41.1% in Q3 2020, compared to 20.0% in Q2 2020
  • Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy Corp. shareholders was $25.2 million in Q3 2020, compared to $6.9 million in Q2 2020
  • Adjusted earnings per basic ADS(3) (non-GAAP)(2) was $0.35 in Q3 2020, compared to $0.10 in Q2 2020

Three months ended

US$ millions

except as indicated otherwise

Sep 30,
2020

Jun 30,
2020

Sep 30,
2019

Revenues

125.5

133.5

83.9

Gross profit

45.3

22.7

18.1

Gross margin

36.0%

17.0%

21.5%

Income from operations

33.3

10.8

8.8

Net income attributable to Daqo New Energy Corp.
shareholders

20.8

2.4

5.0

Earnings per basic ADS ($ per ADS)(3)

0.29

0.03

0.07

Adjusted net income (non-GAAP)(2) attributable to
Daqo New Energy Corp. shareholders

25.2

6.9

9.5

Adjusted earnings per basic ADS (non-GAAP)(2)
($ per ADS) (3)

0.35

0.10

0.14

EBITDA (non-GAAP)(2) 

51.6

26.8

19.7

EBITDA margin (non-GAAP)(2)

41.1%

20.0%

23.5%

Polysilicon sales volume (MT) 

13,643

18,881

9,238

Polysilicon average total production cost ($/kg)(1)

5.82

5.79

6.97

Polysilicon average cash cost (excl. dep'n) ($/kg)(1)

4.88

4.87

5.85

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, 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 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 has been retrospectively adjusted to reflect the change for all periods presented.

Management Remarks

Mr.Longgen Zhang, CEO of Daqo New Energy, commented, "During the third quarter of 2020, we successfully completed the annual maintenance and several technology improvement projects at our polysilicon manufacturing facilities. We resumed full production in August with excellent operational results. For the third quarter, we produced 18,406 MT of polysilicon among which approximately 97.7% was mono-grade. We continued our relentless drive to lower production cost and reached a record-low cost in Renminbi terms. During the third quarter, we completed our digital transformation project, with a fully digitized manufacturing system that allows us to continuously improve our process control and analyze our manufacturing data so as to achieve better results in system stability, manufacturing efficiencies, production cost and product quality in future. As our facilities are now running with increased efficiency, we expect to achieve a higher production volume of approximately 19,500-20,500 MT in the fourth quarter, with a potential cost reduction by approximately 3% as compared to the third quarter."

"During the quarter, polysilicon ASPs increased rapidly due to the quick recovery in solar PV demand from both domestic and foreign markets. Our ASP was $9.13/kg, a significant improvement from approximately $7.04/kg in the second quarter. With robust market demand for mono-grade polysilicon, we expect our ASP to improve meaningfully in the fourth quarter as compared to the third quarter. In recent weeks, because of strong solar module and installation demand, we began to see solar glass capacity shortage becoming a bottleneck for the solar industry and limiting module production. We expect the shortage of solar glass to ease over the coming months as additional solar glass capacity comes online. The temporary constraint on the industry's utilization rate will be removed which eventually will increase demand for polysilicon."

"Solar is now becoming one of the most competitive sources of energy, even compared to traditional power generation methods. Globally, we are seeing strong momentum around the world in adopting and implementing renewable energy policies that would strongly benefit the solar end market. Last month, Mr. Xi Jinping, President of China, announced China's initiative to scale up the national contributions to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. We believe favorable policies benefiting solar will be implemented during the upcoming 14th five-year-plan, driving a substantial increase in solar installations in China. In addition, a growing number of countries and regions, including the most important economies in the world, have announced goals and plans to reduce carbon emission and widely adopt renewable energies. In particular, we are starting to see the trend of utility-scale solar generation combined with power storage providing base-load energy and replacing and displacing coal power plants. We believe this is the beginning of a long term trend of solar displacing traditional fossil-fuel based generation driven by both economics and renewable energy mandates. We are strongly committed to contributing our efforts as a raw material provider for mainstream solar PV modules and are fully confident we will benefit from this fast-growing market."

Outlook and guidance

The Company expects to produce approximately 19,500 to 20,500 MT of polysilicon and sell approximately 20,500 MT to 21,500 MT of polysilicon to external customers during the fourth quarter of 2020. For the full year of 2020, the Company expects to produce approximately 75,800 MT to 76,800 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.

Third Quarter 2020 Results

Revenues

Revenues were $125.5 million, compared to $133.5 million in the second quarter of 2020 and $83.9 million in the third quarter of 2019. The sequential decrease in revenues was primarily due to lower polysilicon sales volume despite higher ASP.

Gross profit and margin

Gross profit was $45.3 million, compared to $22.7 million in the second quarter of 2020 and $18.1 million in the third quarter of 2019. Gross margin was 36.0%, compared to 17.0% in the second quarter of 2020 and 21.5% in the third quarter of 2019. The increase in gross margin was primarily due to improvement in production costs and higher ASP.

Selling, general and administrative expenses

Selling, general and administrative expenses were $9.2 million, compared to $10.1 million in the second quarter of 2020 and $8.2 million in the third quarter of 2019. SG&A expenses during the quarter included $4.0 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 $1.7 million, compared to $2.0 million in the second quarter of 2020 and $1.2 million in the third quarter of 2019. 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 $33.3 million, compared to $10.8 million in the second quarter of 2020 and $8.8 million in the third quarter of 2019. Operating margin was 26.6%, compared to 8.1% in the second quarter of 2020 and 10.5% in the third quarter of 2019.

Interest expense

Interest expense was $5.4 million, compared to $6.7 million in the second quarter of 2020 and $2.6 million in the third quarter of 2019.

EBITDA (non-GAAP)

EBITDA (non-GAAP) was $51.6 million, compared to $26.8 million in the second quarter of 2020 and $19.7 million in the third quarter of 2019. EBITDA margin (non-GAAP) was 41.1%, compared to 20.0% in the second quarter of 2020 and 23.5% in the third quarter of 2019.

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 $20.8 million in the third quarter of 2020, compared to $2.4 million in the second quarter of 2020 and $5.0 million in the third quarter of 2019.

Earnings per basic ADS was $0.29 in the third quarter of 2020, compared to $0.03 in the second quarter of 2020, and $0.07 in the third quarter of 2019.

Financial Condition

As of September 30, 2020, the Company had $109.8 million in cash and cash equivalents and restricted cash, compared to $115.8 million as of June 30, 2020 and $68.2 million as of September 30, 2019. As of September 30, 2020, notes receivable balance was $1.9 million, compared to $8.2 million as of June 30, 2020 and $4.3 million as of September 30, 2019. As of September 30, 2020, total borrowings were $271.0 million, of which $140.0 million were long-term borrowings, compared to total borrowings of $264.8 million, including $116.9 million long-term borrowings, as of June 30, 2020 and total borrowings of $248.8 million, including $163.5 million long-term borrowings, as of September 30, 2019.

Cash Flows

For the nine months ended September 30, 2020, net cash provided by operating activities was $71.1 million, compared to $101.6 million in the same period of 2019.

For the nine months ended September 30, 2020, net cash used in investing activities was $80.3 million, compared to $202.3 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures on our Phase 3B and 4A polysilicon projects.

For the nine months ended September 30, 2020, net cash provided by financing activities was $1.1 million, compared to $76.6 million in the same period of 2019.

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 the non-operational polysilicon assets in Chongqing. Such costs mainly consist of non-cash depreciation costs, as well as utilities and maintenance costs associated with the temporarily idle polysilicon machinery and equipment, and the Company had removed this adjustment from the non-GAAP reconciling item since the fourth quarter of 2018, because as of the end of the third quarter of 2018, all of the polysilicon machinery and equipment had been either relocated to Xinjiang, disposed, or planned to be disposed of in due course. Adjusted net income attributable to Daqo New Energy Corp. shareholders and adjusted earnings per basic and diluted ADS also 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.

A reconciliation of non-GAAP financial measures to comparable US GAAP measures is presented later in this document.

Daqo New Energy Corp.

Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income

(US dollars in thousands, except ADS and per ADS data)

Three months ended

Nine months ended

Sep 30,
2020

Jun 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

Revenues

$125,529

$133,518

$83,909

$427,878

$231,072

Cost of revenues

(80,276)

(110,820)

(65,834)

(303,373)

(186,087)

Gross profit

45,253

22,698

18,075

124,505

44,985

Operating expenses

Selling, general and administrative
expenses

(9,223)

(10,120)

(8,178)

(28,235)

(23,920)

Research and development expenses

(1,746)

(1,958)

(1,228)

(5,358)

(4,052)

Other operating (expense) / income

(954)

133

145

(1,036)

579

Total operating expenses

(11,923)

(11,945)

(9,261)

(34,629)

(27,393)

Income from operations

33,330

10,753

8,814

89,876

17,592

Interest expense

(5,438)

(6,653)

(2,551)

(18,378)

(6,461)

Interest income

200

368

193

719

775

Foreign exchange loss

-

-

-

-

(189)

Income before income taxes

28,092

4,468

6,456

72,217

11,717

Income tax expense

(6,193)

(2,037)

(1,561)

(14,574)

(3,652)

Net income from continuing operations

21,899

2,431

4,895

57,643

8,065

Income / (loss) from discontinued
operations, net of tax

-

(55)

88

(141)

1,370

Net income

21,899

2,376

4,983

57,502

9,435

Net income (loss) attributable to non-
controlling interest

1,142

(7)

-

1,132

-

Net income attributable to Daqo New
Energy Corp. shareholders

$20,757

$2,383

$4,983

$56,370

$9,435

Net income

21,899

2,376

4,983

57,502

9,435

Other comprehensive income / (loss):

Foreign currency translation adjustments

25,937

1,213

(21,337)

17,331

(20,594)

Total other comprehensive income / (loss)

25,937

1,213

(21,337)

17,331

(20,594)

Comprehensive income / (loss)

47,836

3,589

(16,354)

74,833

(11,159)

Comprehensive income / (loss)
attributable to non-controlling interest

1,163

(6)

-

1,148

-

Comprehensive income / (loss)
attributable to Daqo New Energy Corp.
shareholders

$46,673

$3,595

$(16,354)

$73,685

$(11,159)

 Earnings per ADS* (GAAP)

- continuing operations

0.29

0.03

0.07

0.80

0.12

- discontinued operations

0.00

0.00

0.00

0.00

0.02

 Basic

0.29

0.03

0.07

0.80

0.14

- continuing operations

0.27

0.03

0.06

0.74

0.12

- discontinued operations

0.00

0.00

0.01

0.00

0.02

 Diluted

0.27

0.03

0.07

0.74

0.14

Weighted average ADS outstanding*

Basic

71,281,184

70,546,207

68,172,007

70,570,987

67,483,068

Diluted

76,626,371

76,270,603

75,755,443

76,398,480

69,631,876

*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 earning
per ADS and number of ADS information has been retrospectively adjusted to reflect the change for all periods presented.

 

Daqo New Energy Corp.

Unaudited Consolidated Balance Sheets

(US dollars in thousands)

Sep 30, 2020

Jun 30, 2020

Sep 30, 2019

ASSETS:

Current Assets:

Cash and cash equivalents

$70,150

$88,215

$26,985

Restricted cash

39,640

27,551

41,192

Accounts receivable, net

42

65

129

Notes receivable

1,908

8,163

4,294

Prepaid expenses and other current assets

12,972

13,476

24,176

Advances to suppliers

1,229

6,712

7,823

Inventories, net

53,640

26,824

21,023

Amount due from related parties

213

12

3,492

Current assets associated with discontinued operation

-

667

414

Total current assets

179,794

171,685

129,528

Property, plant and equipment, net

987,295

956,675

883,084

Prepaid land use right

29,815

28,826

21,030

Deferred tax assets

1,386

1,332

790

Investment in affiliate

658

633

625

Operating lease Right-of-use assets

137

153

211

Other non-current assets

147

-

-

Non-current asset associated with discontinued operation

-

181

6,804

TOTAL ASSETS

1,199,232

1,159,485

1,042,072

Current liabilities:

Short-term borrowings, including current portion of long-
term borrowings

131,064

147,839

85,278

Accounts payable

19,739

18,833

20,070

Notes payable

62,128

49,143

62,287

Advances from customers-short term portion

17,544

23,500

21,218

Payables for purchases of property, plant and equipment

76,158

97,239

81,709

Accrued expenses and other current liabilities

16,616

18,262

12,071

Amount due to related parties

4,820

8,169

16,787

Income tax payable

7,314

4,414

3,437

Lease liabilities - short term portion

78

74

81

Current liabilities associated with discontinued operation

-

877

1,087

Total current liabilities

335,461

368,350

304,025

Long-term borrowings

139,967

116,911

163,519

Advance from customers – long term portion

1,266

1,132

9,092

Amount due to related parties - long term portion

10,897

16,247

15,387

Other long-term liabilities

21,157

20,067

20,876

Deferred tax liabilities

5,647

5,459

1,145

Lease liabilities – long term portion

-

-

74

Non-current liabilities associated with discontinued
operation

-

-

-

TOTAL LIABILITIES

514,395

528,166

514,118

EQUITY:

Ordinary shares

36

36

35

Treasury stock

(1,749)

(1,749)

(1,749)

Additional paid-in capital

405,784

400,103

382,660

Accumulated gains

257,292

236,535

180,834

Accumulated other comprehensive loss

(2,622)

(28,538)

(33,826)

Total Daqo New Energy Corp.'s shareholders' equity

658,741

606,387

527,954

Non-controlling interest

26,096

24,932

-

Total equity

684,837

631,319

527,954

TOTAL LIABILITIES & EQUITY

1,199,232

1,159,485

1,042,072

 

Daqo New Energy Corp.

Unaudited Consolidated Statements of Cash Flows

(US dollars in thousands)

For the nine months ended Sep 30,

2020

2019

Operating Activities:

Net income

57,502

9,435

Less: (loss) / income from discontinued operations, net of tax

(141)

1,370

Net income from continuing operations

57,643

8,065

Adjustments to reconcile net income to net cash provided by operating activities

68,248

45,814

Changes in operating assets and liabilities

(54,722)

45,588

Net cash provided by operating activities-continuing operations

71,169

99,467

Net cash (used in) / provided by operation activities-discontinued operations

(50)

2,138

Net cash provided by operating activities

71,119

101,605

Investing activities:

Net cash used in investing activities-continuing operations

(80,147)

(204,067)

Net cash (used in) / provided by investing activities-discontinued operations

(195)

1,791

Net cash used in investing activities

(80,342)

(202,276)

Financing activities:

Net cash provided by financing activities – continuing operations

1,127

87,445

Net cash used in financing activities – discontinued operations

(64)

(10,843)

Net cash provided by financing activities

1,063

76,602

Non-cash transactions

Effect of exchange rate changes

2,656

(2,582)

Net (decrease) / increase in cash, cash equivalents and restricted cash

(5,504)

(26,651)

Cash, cash equivalents and restricted cash at the beginning of the period

115,294

95,120

Cash, cash equivalents and restricted cash at the end of the period

109,790

68,469

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

Sep 30, 2020

Sep 30, 2019

Cash and cash equivalents

70,150

27,277

Restricted cash

39,640

41,192

Total cash, cash equivalents, and restricted cash shown in the
statement of cash flows

109,790

68,469

 

Daqo New Energy Corp.

Reconciliation of non-GAAP financial measures to comparable US GAAP measures

(US dollars in thousands)

Three months Ended

Nine months Ended

Sep 30,
2020

Jun 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

Net income

21,899

2,431

4,895

57,643

8,065

Income tax expense

6,193

2,037

1,561

14,574

3,652

Interest expense

5,438

6,653

2,551

18,378

6,461

Interest income

(200)

(368)

(193)

(719)

(775)

Depreciation & Amortization

18,289

16,004

10,878

51,568

32,524

EBITDA (non-GAAP)

51,619

26,757

19,692

141,444

49,927

EBITDA margin (non-GAAP)

41.1%

20.0%

23.5%

33.1%

21.6%

 

Three months Ended

Nine months Ended

Sep 30,
2020

Jun 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

Net income attributable to Daqo New Energy Corp.
shareholders

20,757

2,383

4,983

56,370

9,435

Share-based compensation

4,478

4,491

4,476

13,430

13,436

Adjusted net income (non-GAAP) attributable to Daqo New
Energy Corp. shareholders

25,235

6,874

9,459

69,800

22,871

Adjusted earnings per basic ADS* (non-GAAP)

$0.35

$0.10

$0.14

$0.99

$0.34

Adjusted earnings per diluted ADS* (non-GAAP)

$0.33

$0.09

$0.12

$0.91

$0.33

*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 earning
per ADS and number of ADS information has been retrospectively adjusted to reflect the change for all periods presented.

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