Daqo New Energy to Announce Unaudited Third Quarter 2021 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 2021.


Third Quarter 2021 Financial and Operating Highlights
• Polysilicon production volume was 21,684 MT in Q3 2021, compared to 21,102 MT in Q2 2021
• Polysilicon sales volume was 21,183 MT in Q3 2021, compared to 21,060 MT in Q2 2021
• Polysilicon average total production cost(1) was $6.84/kg in Q3 2021, compared to $6.31/kg in Q2 2021
• Polysilicon average cash cost(1) was $5.96/kg in Q3 2021, compared to $5.41/kg in Q2 2021
• Polysilicon average selling price (ASP) was $27.55/kg in Q3 2021, compared to $20.81/kg in Q2 2021
• Revenue was $585.8 million in Q3 2021, compared to $441.4 million in Q2 2021
• Gross profit was $435.2 million in Q3 2021, compared to $303.2 million in Q2 2021. Gross margin was 74.3% in Q3 2021, compared to 68.7% in Q2 2021
• Net income attributable to Daqo New Energy Corp. shareholders was $292.3 million in Q3 2021, compared to $232.1 million in Q2 2021
• Earnings per basic American Depositary Share (ADS)(3) was $3.95 in Q3 2021, compared to $3.15 in Q2 2021
• EBITDA (non-GAAP)(2) was $441.8 million in Q3 2021, compared to $311.7 million in Q2 2021. EBITDA margin (non-GAAP)(2) was 75.4% in Q3 2021, compared to 70.6% in Q2 2021
• Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy Corp. shareholders was $294.7 million in Q3 2021, compared to $234.5 million in Q2 2021
• Adjusted earnings per basic ADS(3) (non-GAAP)(2) was $3.98 in Q3 2021, compared to $3.18 in Q2 2021

 Three months ended
US$ millionsexcept as indicated otherwiseSep 30, 2021Jun 30, 2021Sep 30, 2020
Revenues585.8441.4125.5
Gross profit435.2303.245.3
Gross margin74.3%68.7%36.0%
Income from operations421.7292.433.3
Net income attributable to Daqo New Energy Corp. shareholders292.3232.120.8
Earnings per basic ADS(3) ($ per ADS)3.953.150.29
Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy Corp. shareholders294.7234.525.2
Adjusted earnings per basic ADS(3) (non-GAAP)(2) ($ per ADS)3.983.180.35
EBITDA (non-GAAP) (2)441.8311.751.6
EBITDA margin (non-GAAP)(2)75.4%70.6%41.1%
Polysilicon sales volume (MT)21,18321,06013,643
Polysilicon average total production cost ($/kg)(1)6.846.315.82
Polysilicon average cash cost (excl. dep’n) ($/kg)(1)5.965.414.88

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 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 record-high production volume and net profit in the company’s history. The strong end market environment, supported by favorable global policies to address climate change and rapidly increasing use of green energy, resulted in stronger-than-expected downstream demand that continues to push up polysilicon market prices. Our third quarter polysilicon ASP was $27.55/kg, a significant sequential improvement of more than 30% from $20.81/kg in the second quarter. The end market demand continues to be strong even under today’s high-price module environment, and this has further raised polysilicon market prices to the current level of $33-$35/kg. Our production cost increased 8.4% quarter-over-quarter primarily due to the increase in silicon powder’s cost. Excluding this impact, our production cost actually decreased by approximately 1% quarter-over-quarter. The increasing silicon powder cost will continue to impact our cost structure in the fourth quarter. However, with the strong market demand, so far, we have been able to pass down the majority of such cost increase to our customers. Over the past three weeks, we have seen silicon powder prices stabilizing and we expect they will gradually normalize in the first half of next year as the energy and emission controls could be somewhat relaxed compared to the fourth quarter of this year and new supply of silicon powder will start to enter the market.”


“During the first three quarters of 2021, we generated $653 million of cash flow from operations. We repaid all our bank loans in the third quarter and reduced our debt to asset ratio to 18.2%. At the end of the third quarter, we had $661 million in cash and cash equivalents, $414 million in short-term investments which are low risk financial products, and $353.3 million in bank notes receivable which will mature in the next three to six months. This total liquidity of $1.4 billion is a strong foundation to support our expansion projects and future plans to reward our investors. The construction of our Phase 4B capacity expansion project is going smoothly according to schedule. We expect to complete the construction by the end of 2021 and ramp up to full capacity by the end of the first quarter of 2022.”


“In the third and fourth quarter of this year, we have observed some volatility in the global energy market. Prices of almost all energy sources are going up quickly and significantly, including the prices of natural gas, oil, and coal. In many regions in China, many companies are required to shut down production from time to time due to the shortage of electricity supply and carbon emissions control. Fortunately, the Chinese government quickly responded to the challenging situation by accelerating coal production and allowing electricity prices for industrial users to float according to market, resulting in rising electricity prices. We expect these measures will further stimulate the solar end market for electricity generation in the near term. With solar already at grid parity broadly, higher fossil fuels make solar projects more competitive. In addition, according to the newly released policies, the usage of renewable energy will not be counted towards the energy usage quota, which will further promote renewable energy in the future. This also explains why the demand from industrial users for solar distributed generation is strong even in the current high-price module environment. On the other hand, because of the strict energy quota and carbon emission control, the overall expansion pace of the polysilicon industry will inevitably slow down. For example, as we are now in the process of identifying the location for our next expansion project, the energy quota issue becomes more and more challenging. We will be committed to using more renewable energy in our next polysilicon project in order to secure the energy quota, which will allow us to gradually realize the idea of ‘green poly’ or ‘solar for solar’.”


“This October, at the United Nations Biodiversity Conference in Kunming, Chinese President Xi Jinping announced that the first step had been taken towards the construction of a huge 400 GW wind and solar park. Construction on the first phase, comprising 100 gigawatts of wind and solar in deserts in China is already underway. The full 400 GW project would be half finished by 2025. The Chinese government has also released policies to promote energy storage systems especially for water reservoirs storage in the near term. With all these plans and policies in place, it’s very clear that China has made a strong determination supported by initial and detailed plans to build a new national energy infrastructure in which renewable energy will play a critical role. The newly announced policies and evolving energy market environment illustrate a vast potential market for solar in China which is much larger than previously anticipated. Therefore, we are very optimistic about solar PV’s demand in the future and expect the polysilicon sector will continue to be one of the most favorable sectors in the foreseeable future, as polysilicon availability will remain as the main constraint and determinant for the future size of the solar end market.”

Outlook and guidance
The Company produced 62,970 MT of polysilicon and sold approximately 63,714 MT of polysilicon in the first three quarters of 2021, representing full utilization level of the company’s production facilities. For the full year of 2021, the Company’s guidance on annual polysilicon production volume is at the level of approximately 83,000 to 85,000 MT, 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 2021 Results
Revenues

Revenues were $585.8 million, compared to $441.4 million in the second quarter of 2021 and $125.5 million in the third quarter of 2020. The increase in revenues as compared to the second quarter of 2021 as well as the third quarter of 2020 was primarily due to higher ASPs and higher polysilicon sales volume.

Gross profit and margin
Gross profit was $435.2 million, compared to $303.2 million in the second quarter of 2021 and $45.3 million in the third quarter of 2020. Gross margin was 74.3%, compared to 68.7% in the second quarter of 2021 and 36.0% in the third quarter of 2020. The increase in gross margin was primarily due to higher ASPs offset by slightly higher production cost. 

Selling, general and administrative expenses
Selling, general and administrative expenses were $11.4 million, compared to $9.3 million in the second quarter of 2021 and $9.2 million in the third quarter of 2020. SG&A expenses during the quarter included $2.0 million in non-cash share-based compensation costs related to the Company’s share incentive plan, compared to $2.0 million in the second quarter of 2021 and $4.0 million in the third quarter of 2020. The increase as compared to the second quarter of 2021 as well as the third quarter of 2020 was primarily due to expenses related to the IPO of Xinjiang Daqo.

Research and development expenses
Research and development (R&D) expenses were $1.9 million, compared to $2.1 million in the second quarter of 2021 and $1.7 million in the third 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 $421.7 million, compared to $292.4 million in the second quarter of 2021 and $33.3 million in the third quarter of 2020.
Operating margin was 72.0%, compared to 66.3% in the second quarter of 2021 and 26.6% in the third quarter of 2020.
 
Interest expense
Interest expense was $6.4 million, compared to $7.2 million in the second quarter of 2021 and $5.4 million in the third 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 $292.3 million, compared to $232.1 million in the second quarter of 2021 and $20.8 million in the third quarter of 2020.

Earnings per basic American Depository Share (ADS) was $3.95, compared to $3.15 in the second quarter of 2021, and $0.29 in the third quarter of 2020.

EBITDA (non-GAAP)
EBITDA (non-GAAP) was $441.8 million, compared to $311.7 million in the second quarter of 2021 and $51.6 million in the third quarter of 2020. EBITDA margin (non-GAAP) was 75.4%, compared to 70.6% in the second quarter of 2021 and 41.1% in the third quarter of 2020.

Financial Condition
As of September 30, 2021, the Company had $660.9 million in cash and cash equivalents and restricted cash, compared to $269.7 million as of June 30, 2021 and $109.8 million as of September 30, 2020. As of September 30, 2021, the notes receivable balance was $353.3 million, compared to $97.0 million as of June 30, 2021 and $1.9 million as of September 30, 2020. As of September 30, 2021, total borrowings were nil, compared to total borrowings of $156.6 million, including $70.9 million long-term borrowings, as of June 30, 2021 and total borrowings of $271.0 million, including $140.0 million long-term borrowings, as of September 30, 2020.

Cash Flows
For the nine months ended September 30, 2021, net cash provided by operating activities was $653.1 million, compared to $71.1 million in the same period of 2020, the increase was primarily due to higher ASPs and higher polysilicon sales volume, as well as prepayment of long-term contracts from customers

For the nine months ended September 30, 2021, net cash used in investing activities was $855.8 million, compared to $80.3 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 nine months ended September 30, 2021, net cash provided by financing activities was $741.6 million, compared to $1.1 million in the same period of 2020. The net cash provided by financing activities in 2021 was primarily related to the net proceeds of $935.0 million contributed by Xinjiang Daqo’ IPO in China.

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Source: Daqo

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