Yahoo Finance Daqo New Energy Corp. (NYSE:DQ) Q1 2024 Earnings Call Transcript
Daqo New Energy Corp. (NYSE:DQ) Q1 2024 Earnings Call Transcript April 29, 2024
Daqo New Energy Corp. misses on earnings expectations. Reported EPS is $0.24 EPS, expectations were $0.56. DQ isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the Daqo New Energy First Quarter 2024 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Xiang Xu, CEO. Please go ahead.
Anita Zhu: Hello everyone. I'm Anita, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. So Daqo New Energy just issued its financial results for the first quarter of 2024, which can be found on our website at www.dqsolar.com. So today, attending the conference call, we have our chairman and CEO, Mr. Xiang Xu; our CFO, Mr. Ming Yang, and myself. The call today will begin with an update from Mr. Xu on market conditions and company operations and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we'll open the floor to Q&A from the audience. 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 statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the 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. All information provided in today's call is as of today and we undertake no duty to update such information except as required under applicable law. Also, during the call, we'll 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. Mr. Xu will make his remarks regarding current market conditions and company performance in Chinese, which I'll translate into English after he finishes. Now I'll turn the call to our CEO. [Foreign Language]
Xiang Xu : Thank you Anita. [Foreign Language] [Interpreted] Hello everyone this is Anita. Thank you for joining the call. So I’ll now translate our CEO Mr. Xu’s remarks. During the first quarter, we continued to optimize our manufacturing operations and made improvements in both yield and throughout at our two poly facilities. Total production volume for the quarter was 62,278 metric tons, which was above our expectations and represented an increase of 1,264 metric tons compared to the previous quarter. Our Inner Mongolia 5A facility contributed 46% of our total production volume for the first quarter. Through achievements in R&D and significant purity improvements at our both facilities, we further increased our N-type product mix from 60% in December last year to 72% in March.
Compared to the end of last year, production cost trended down over the quarter, decreasing further by 2% from fourth quarter 2023 to an average of $6.37 per kilogram in the first quarter of 2024. For the quarter, we generated $77 million in EBITDA. By the end of first quarter 2024, the company maintained a strong cash balance of $2.7 billion and a combined cash and bank note receivable balance of $2.9 billion. We expect second quarter 2024 total poly production volume to be approximately 60,000 metric tons to 63,000 metric tons, similar to that of first quarter 2024, as the company maintains full production. We expect to finish construction and begin initial pilot production at our new Inner Mongolia Phase 5B facility in the second quarter 2024 and expect to ramp up to full production level by the end of third quarter 2024.
As a result, we anticipate full year 2024 production volume to be in the range of 280,000 metric tons to 300,000 metric tons, approximately 40% to 50% higher than that of 2023. With more than 15 years of experience in poly production, as well as a fully digitalized and integrated production system that optimizes operational efficiency, we will continue to increase our N-type production in the product mix. During the first quarter, the solar market initially showed signs of strength as we headed into the Chinese New Year holiday in February. Despite production cuts and down time as usual, during the holidays, polysilicon demand had been strong preholiday, as wafer manufacturers kept utilization rate unchanged or even higher, in anticipation of higher demand and better product pricing post-holidays.
The general polysilicon price range was RMB65 to RMB70 per kilogram for n-type and RMB55 to RMB60 per kilogram for P-type during this period. However, with weaker than expected production plans downstream starting in March, the wafer sector faced significant pressure from accumulated inventories and negative margins. Market sentiment shifted significantly in mid-March with widespread expectations of falling prices throughout the value chain, particularly for polysilicon. As a result, downstream manufacturers began to lower utilization, reduce inventory and delay orders to minimize the impact of falling prices. In April, further pressure on polysilicon prices emerged as the issues of excess inventory among wafer manufacturers worsened and wafer customers further delayed orders and product delivery.
Therefore, polysilicon prices dropped further by late-April to RMB47 to RMB54 per kilogram for Tier-1 producers, at the industry’s cash break-even cost. At this level, we believe the entire solar value chain, including polysilicon, is likely to be loss making in general and that a large number of polysilicon producers are currently unprofitable. The solar industry has gone through multiple cycles in the past and, based on our previous experience, we believe that the current low prices and market downturn will eventually result in a healthier market, as poor profitability and losses, as well as cash burn, will lead to many market players exiting the business with some possible bankruptcies. This will bring the inevitable capacity rationalization and solve the overcapacity issue we are currently experiencing.
And as demand growth resumes after excess inventories are depleted in the [short-term] (ph) and on the backdrop of positive policies pushing renewable installations in the long-run, the solar PV industry will return to normal profitability and achieve better margins. We believe that at the end of the quarter, we had one of the industry’s lowest levels of finished goods inventory, with approximately two weeks of production. Overall, 2023 marked a step change for renewable power growth, with China’s newly installed solar PV capacity reaching a record high of 216.9 gigawatt, representing a 148% year-over-year growth. We continued to see strong growth in solar PV installations in China during the first quarter of 2024, which reached an aggregate of 45.7 gigawatt, representing a 36% year-over-year growth rate.
Solar has become one of the most competitive forms of power generation, and continuous cost reductions in solar PV products and associated reductions in solar energy generation costs are expected to create substantial additional demand for solar PV. With 2023 setting the stage for gradually phasing out P-type products, we believe that 2024 will [mark] (ph) the year when N-type products dominate the industry. We are optimistic that we will capture the long-term benefits of the growing global solar PV market and maintain our competitive advantage by enhancing our higher efficiency N-type technology and optimizing our cost structure through digital transformation and AI adoption. As one of the world’s lowest-cost producers with the highest quality N-type product, a strong balance sheet and no financial debt, we believe we are very well positioned to weather the current market downcycle and emerge as one of the leaders in the industry to capture the market’s future growth.
Now I will 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 : 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 2024 financial performance. Revenues were $415.3 million, compared to $476.3 million in the fourth quarter of 2023 and $709 million in the first quarter of 2023. The decrease in revenues compared to the fourth quarter of 2023 was primarily due to a decrease in average selling prices and lower polysilicon sales volume. Gross profit was $72 million compared to $87 million in the fourth quarter of 2023 and $506 million in the first quarter of 2023. Gross margin was 17.4% compared to 18.3% in the fourth quarter of 2023 and 71.4% in the first quarter of 2023.
The decrease in gross margin compared to the fourth quarter of 2023 was primarily due to lower average selling prices, which was partially mitigated by lower production costs. Selling general and administrative expenses were $38.4 million compared to $39 million in the fourth quarter of 2023 and $41.3 million in the first quarter of 2023. SG&A expenses during the first quarter included $19.6 million in non-cash share-based compensation cost related to the company's share incentive plan compared to $19.6 million in the fourth quarter of 2023. R&D expenses were $1.5 million compared to $3.3 million in the fourth quarter of 2023 and $1.9 million in the first quarter of 2023. R&D expenses vary from period to period and reflect the R&D activities that take place during the quarter.
Our R&D activities currently focus on process and technologies that improve purity for polysilicon and remove contamination to increase our N-type polysilicon percentage. As a result of the foregoing, income from operations were $30.5 million compared to $83.3 million in the fourth quarter of 2023 and $463.8 million in the first quarter of 2023. Operating margin was 7.3% compared to 17.5% in the fourth quarter of 2023 and 65% in the first quarter of 2023. Foreign exchange loss was $0.3 million compared to a loss of $0.8 million in the fourth quarter of 2023. And this is attributed to the volatility and fluctuation of the U.S. Dollar to RMB exchange rate during the quarter. Net income attributable to Daqo New Energy shareholder was $15.5 million compared to $53.3 million in the fourth quarter of 2023 and $278.8 million in the first quarter of 2023.
Earnings per basic ADS was $0.24 compared to $0.76 in the fourth quarter of 2023 and $3.56 in the first quarter of 2023. Adjusted net income attributable to Daqo New Energy shareholders excluding non-cash share based compensation costs, was $36 million compared to $74.3 million in the fourth quarter of 2023 and $310 million in the first quarter of 2023. Adjusted earnings per basic ADS was $0.55 compared to $1.06 in the fourth quarter of 2023 and $3.96 in the first quarter of 2023. EBITDA was $76.9 million compared to $128 million in the fourth quarter of 2023 and $490 million in the first quarter of 2023. EBITDA margin was 18.5% compared to 26.9% in the fourth quarter of 2023 and 69% in the first quarter of 2023. Now the company's financial condition.
As of March 31, 2024, the company had $2.689 billion in cash and cash equivalents compared to $3.05 billion as of December 31, 2023, and $4.1 billion as of March 31, 2023. And as of March 31, 2024, the notes receivables balance was $194 million, compared to $116 million as of December 31, 2023, and $791 million as of March 31, 2023. Notes receivables represent bank notes with maturity within six months. For the three months ended March 31, 2024, net cash used in operating activities was $115.9 million compared to net cash provided by operating activities of $807 million in the same period of 2023. Net cash used in operating activities for the quarter was a result of changes in operating assets and liabilities, primarily related to the company's payment of approximately $75 million in tax payables that is due -- during the first quarter, as well as an increase in notes receivable balance of approximately $78 million.
And other items that use cash include payments to suppliers in conjunction with the period related to the Chinese New Year holidays, as well as the increase in inventory. For the three months ended March 31, 2024, net cash used in investing activities was $190.5 million compared to $268.9 million in the same period of 2023. Net cash used in investing activities in the first quarter of 2024 was primarily related to the capital expenditures on the company's Phase 5A and Phase 5B polysilicon expansion projects in Baotou City, Inner Mongolia. Due to the recent changes in market conditions, the company's Board and management team have decided to temporarily postpone the company's non-polysilicon manufacturing capacity expansion plans to reserve capital.
As such, the company's capital expenditure plan has been reduced to approximately $700 million for the year, which is related to the company's Inner Mongolia polysilicon project. And this represents a significant decrease from the previous capital expenditure plan for the year of approximately $1.1 billion to $1.2 billion. And for the three months ended March 31, 2024, net cash used in financing activities was $6 million compared to net cash provided by financing activities of $59.9 million in the same period of 2023. Net cash used in financing activities in the first quarter of 2024 was primarily related to approximately $5 million that was used for the company's share repurchase. And that concludes our prepared remarks. We will now open the call to Q&A from the audience.
Operator, please begin.
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