Daqo New Energy(DQ) - 2023 Q4 - Annual Report

Financial & Operating Highlights In Q3 2023, Daqo New Energy reported increased polysilicon production and sales volumes, but a sharp 37.7% quarter-over-quarter decline in ASP led to lower revenue of $484.8 million and a net loss of $6.3 million, compressing gross margin to 14.0% Q3 2023 Key Metrics vs. Q2 2023 | Metric | Q3 2023 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Polysilicon Production Volume (MT) | 57,664 | 45,306 | +27.3% | | Polysilicon Sales Volume (MT) | 63,263 | 51,550 | +22.7% | | Average Total Production Cost ($/kg) | $6.52 | $6.92 | -5.8% | | Average Selling Price (ASP) ($/kg) | $7.68 | $12.33 | -37.7% | | Revenue (US$ millions) | $484.8 | $636.7 | -23.9% | | Gross Profit (US$ millions) | $67.8 | $258.9 | -73.8% | | Gross Margin | 14.0% | 40.7% | -26.7pp | | Net (Loss)/Income (US$ millions) | ($6.3) | $103.7 | - | | Adjusted Net Income (non-GAAP) (US$ millions) | $44.0 | $134.5 | -67.3% | Financial Summary (US$ millions) | Metric | Q3 2023 | Q2 2023 | Q3 2022 | | :--- | :--- | :--- | :--- | | Revenues | 484.8 | 636.7 | 1,219.7 | | Gross profit | 67.8 | 258.9 | 978.6 | | Gross margin | 14.0% | 40.7% | 80.2% | | Net (loss)/income attributable to shareholders | (6.3) | 103.7 | 323.4 | | Adjusted net income (non-GAAP) | 44.0 | 134.5 | 590.4 | | EBITDA (non-GAAP) | 70.2 | 230.0 | 720.0 | Management Discussion and Analysis Management highlighted record production volume and reduced costs, driven by the new Inner Mongolia facility, while maintaining a strong debt-free balance sheet and actively returning capital to shareholders Operational Performance and Cost Reduction Production volume rose 27% QoQ to 57,664 MT, largely due to the Inner Mongolia 5A facility, while production cost fell 5.8% QoQ to $6.52/kg, benefiting from improved efficiency and lower raw material costs - Q3 production volume reached 57,664 MT, a 27% increase from Q2, with the new Inner Mongolia facility contributing approximately 40% of the total[6] - Average production cost decreased by 5.8% from Q2 to $6.52/kg and is expected to continue trending downwards in Q4[6] - The company maintains a strong balance sheet with no financial debt, a cash balance of $3.3 billion, and a combined cash and bank note receivable balance of $3.6 billion at the end of Q3[6] Market Environment and Pricing Trends After bottoming out in Q2, the polysilicon market saw a gradual price recovery in Q3, with mono-grade prices rebounding and an accelerated transition to N-type cell technology offering a significant price premium - Polysilicon prices recovered in Q3, with mono-grade prices rebounding from a low of less than RMB 60/kg in June to an average of RMB 87/kg by the end of September[6] - The market is experiencing an accelerated transition to N-type cell technology, with the ASP premium for N-type products expanding to RMB 10-12/kg in Q3[6] - The company believes that as solar end markets grow and customers shift to higher-efficiency N-type technology, it will benefit from this trend and strengthen its competitive position[8] Capital Return and Shareholder Value Under its $700 million share buyback program, the company had repurchased 8.10 million ADSs for approximately $328.8 million by the end of September 2023, at an average cost of $40.58 per ADS - By the end of September 2023, the company had repurchased 8.10 million ADSs for approximately $328.8 million as part of its $700 million share buyback program[8] - The average repurchase cost was approximately $40.58 per ADS, and total outstanding shares were reduced to approximately 71.8 million[8] Future Outlook and Guidance For Q4 2023, Daqo New Energy expects to produce between 59,000 MT and 62,000 MT of polysilicon, with full-year 2023 production guidance set at 196,000 MT to 199,000 MT, representing a substantial 46% to 49% increase compared to 2022 Production Guidance | Period | Production Volume (MT) | | :--- | :--- | | Q4 2023 (est.) | 59,000 - 62,000 | | Full Year 2023 (est.) | 196,000 - 199,000 | Detailed Financial Results (Q3 2023) Q3 2023 financial results reflect a challenging pricing environment, with revenue decreasing to $484.8 million and gross margin falling to 14.0%, leading to a net loss of $6.3 million despite a robust cash position Income Statement Analysis Q3 revenue was $484.8 million, down from $636.7 million in Q2 2023, primarily due to lower ASP, which also caused gross margin to contract to 14.0%, while increased SG&A expenses led to a net loss of $6.3 million - Q3 revenue was $484.8 million, down from $636.7 million in Q2 2023, primarily due to a decrease in ASP mitigated by an increase in sales volume[11] - Gross margin fell to 14.0% in Q3 from 40.7% in Q2, as the impact of lower ASPs was only partially mitigated by lower production costs[12] - SG&A expenses increased to $89.7 million in Q3 from $43.3 million in Q2, primarily due to resignation expenses and accelerated recognition of share-based compensation related to a management change[13] - The company recorded a net loss attributable to shareholders of $6.3 million, or ($0.09) per basic ADS, compared to a net income of $103.7 million, or $1.35 per basic ADS, in Q2 2023[16] Balance Sheet and Financial Condition As of September 30, 2023, the company maintained a strong financial position with cash, cash equivalents, and restricted cash increasing to $3.28 billion, while notes receivables decreased significantly to $275.8 million Key Balance Sheet Items (US$ millions) | Account | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | ASSETS | | | | | Total current assets | 3,839.1 | 4,267.7 | 4,740.6 | | Property, plant and equipment, net | 3,237.8 | 2,920.2 | 2,040.2 | | TOTAL ASSETS | 7,295.6 | 7,325.0 | 6,906.2 | | LIABILITIES & EQUITY | | | | | Total current liabilities | 810.3 | 713.2 | 909.8 | | TOTAL LIABILITIES | 948.1 | 873.8 | 1,034.3 | | Total equity | 6,347.6 | 6,451.2 | 5,871.9 | | TOTAL LIABILITIES & EQUITY | 7,295.6 | 7,325.0 | 6,906.2 | Cash Flow Analysis For the first nine months of 2023, net cash provided by operating activities was $1.5 billion, while cash used in investing activities was $954.3 million, primarily for capital expenditures, and cash used in financing activities was $602.0 million, mainly for share repurchases and dividends - For the nine months ended Sep 30, 2023, net cash provided by operating activities was $1,497.4 million[21] - Net cash used in investing activities for the first nine months of 2023 was $954.3 million, primarily for the capital expenditures on the Company's polysilicon project in Baotou City, Inner Mongolia[21] - Net cash used in financing activities for the first nine months of 2023 was $602.0 million, mainly due to $321.8 million in share repurchases and $303.7 million in dividend payments by the Xinjiang Daqo subsidiary[22] Unaudited Consolidated Financial Statements This section provides the detailed unaudited consolidated financial statements for the period ending September 30, 2023, including the Statement of Operations, Balance Sheet, and Statement of Cash Flows, offering a comprehensive view of the company's financial performance and position Statement of Operations The statement details revenues of $484.8 million and a gross profit of $67.8 million for Q3 2023, resulting in a net loss attributable to Daqo New Energy Corp. shareholders of $6.3 million after accounting for expenses and non-controlling interests Unaudited Condensed Consolidated Statement of Operations (US$ thousands) | | Three months ended Sep 30, 2023 | Three months ended Jun 30, 2023 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Revenues | 484,839 | 636,724 | 1,831,397 | | Gross profit | 67,814 | 258,908 | 833,454 | | Income from operations | 22,471 | 213,867 | 700,139 | | Net income | 17,843 | 162,182 | 574,718 | | Net (loss)/income attributable to Daqo New Energy Corp. shareholders | (6,312) | 103,723 | 376,213 | | (Loss)/Earnings per basic ADS | (0.09) | 1.35 | 4.93 | Balance Sheet As of September 30, 2023, total assets were $7.30 billion, total liabilities stood at $948.1 million, and total equity was $6.35 billion, reflecting a strong liquidity position with $3.28 billion in cash and no short-term borrowings Unaudited Condensed Consolidated Balance Sheets (US$ thousands) | | Sep. 30, 2023 | Jun. 30, 2023 | Sep. 30, 2022 | | :--- | :--- | :--- | :--- | | ASSETS | | | | | Total current assets | 3,839,108 | 4,267,726 | 4,740,560 | | Property, plant and equipment, net | 3,237,803 | 2,920,163 | 2,040,221 | | TOTAL ASSETS | 7,295,641 | 7,325,027 | 6,906,223 | | LIABILITIES & EQUITY | | | | | Total current liabilities | 810,318 | 713,247 | 909,777 | | TOTAL LIABILITIES | 948,050 | 873,811 | 1,034,304 | | Total equity | 6,347,591 | 6,451,216 | 5,871,919 | | TOTAL LIABILITIES & EQUITY | 7,295,641 | 7,325,027 | 6,906,223 | Statement of Cash Flows For the nine months ended September 30, 2023, the company generated $1.50 billion in cash from operating activities, while using $954.3 million in investing activities and $602.0 million in financing activities, ending the period with $3.28 billion in cash Unaudited Condensed Consolidated Statements of Cash Flows (US$ thousands) | | For the nine months ended Sep 30, 2023 | For the nine months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,497,436 | 1,697,077 | | Net cash used in investing activities | (954,290) | (605,362) | | Net cash (used in)/provided by financing activities | (602,006) | 1,477,866 | | Effect of exchange rate changes | (180,675) | (242,428) | | Net (decrease)/increase in cash | (239,535) | 2,327,153 | | Cash at the beginning of the period | 3,520,351 | 723,966 | | Cash at the end of the period | 3,280,816 | 3,051,119 | Non-GAAP Financial Measures Daqo New Energy uses non-GAAP financial measures, including EBITDA and adjusted net income, to offer investors a clearer view of its core operational performance by excluding non-cash items like share-based compensation, with Q3 2023 adjusted net income at $44.0 million and EBITDA at $70.2 million - The company utilizes non-GAAP measures such as EBITDA, adjusted net income, and adjusted EPS to provide supplemental information on its financial performance, primarily by excluding non-cash share-based compensation costs[23][24] Reconciliation of Net Income to EBITDA (non-GAAP) (US$ thousands) | | Three months ended Sep 30, 2023 | Three months ended Jun 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Net income | 17,843 | 162,182 | 545,820 | | Adjustments (Tax, Interest, D&A) | 52,371 | 67,814 | 174,223 | | EBITDA (non-GAAP) | 70,214 | 229,996 | 720,043 | | EBITDA margin (non-GAAP) | 14.5% | 36.1% | 59.0% | Reconciliation to Adjusted Net Income (non-GAAP) (US$ thousands) | | Three months ended Sep 30, 2023 | Three months ended Jun 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Net (loss)/income attributable to shareholders | (6,312) | 103,723 | 323,409 | | Share-based compensation | 50,287 | 30,824 | 266,962 | | Adjusted net income (non-GAAP) | 43,975 | 134,547 | 590,371 | | Adjusted earnings per basic ADS (non-GAAP) | $0.59 | $1.75 | $7.81 |