Daqo New Energy Corp. American Depositary Shares (each representing 5 Ordinary Shares) 2026 Q3 Earnings Call

I'm Jessie Zhao, the Investor Relations Director of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the third quarter of 2026, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Zhu, our CFO, Mr. Ming Yang, and myself. Our Chairman and CEO, Mr. Xiang Xu, is on a business trip now, so Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xiang Xu. Today's call will begin with an update from Ms. Zhu on market conditions and company operations, then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will 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, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statements. 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 will 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. Now I will turn the call to our Deputy CEO, Ms. Anita Zhu. Ms. Zhu, please go ahead.

Thank you. Hello, everyone. This is Anita, and I will now deliver our management remarks on behalf of our CEO, Mr. Xiang Xu. Supported by continued anti-involution policies, including price enforcement, the polysilicon sector bottomed out and rebounded in Q3, with polysilicon prices gradually recovering towards cost levels. However, downstream players continued to hold polysilicon inventories and largely limited their purchases to immediate operational needs, keeping overall sector trading volumes low. Against this backdrop, we delivered a substantial increase in Q3 shipment volumes, driving strong sequential revenue growth and narrowing losses. Our financial position remains sound, with a robust balance sheet and zero debt throughout the period.

As of September 30, 2026, we held cash equivalents, and restricted cash of $546.5 million, short-term investments of $267.3 million, bank notes receivable of $161.5 million, held-to-maturity investment of $61.6 million, and a fixed-term bank deposit balance of $1 billion. Together, these readily convertible assets total $2.06 billion, up to $1.92 billion at the end of Q2, providing a strong financial foundation and strategic flexibility to navigate the current market environment. Operationally, our nameplate capacity utilization rate was approximately 70% during the period. Total production volume at our two polysilicon facilities was 53,469 metric tons, exceeding our guidance range of 50,000 to 55,000 metric tons. Sales volume rose sharply from 15,190 metric tons in Q2 to 46,910 metric tons in Q3, following our shift in June from a wait-and-see stance to a more market-oriented sales and pricing strategy.

We believe this increase also reflects greater customer confidence in our product quality and continued preference for our products. Our average selling price increased by 2% sequentially to $4.12 per kilogram, although the increase lagged the broader market recovery because Q3 shipments fulfilled orders signed before late July. On the cost side, average total production cost and average cash cost fell by 9.7% and 7.4% sequentially, respectively, reaching new record lows of $5.37 per kilogram and $4.23 per kilogram, respectively, reflecting our continued improvements in manufacturing efficiency and cost control. In light of the current market dynamics, we expect total polysilicon production volume in Q4 of 2026 to be approximately 35,000 metric tons to 45,000 metric tons. For the full year of 2026, we expect production volume to be in the range of 175,000 metric tons to 185,000 metric tons.

Anti-involution efforts across the solar PV sector continued during Q3. The State Administration for Market Regulation released price compliance guidance targeting the solar PV sector on July 31. This followed August by industry initiative against below-cost sales that we co-signed. Against this backdrop, polysilicon manufacturers halted below cost sales, and N-type polysilicon prices rebounded from a trough of CNY 30.5 to CNY 33 per kilogram in Q2 to approximately CNY 40 to CNY 43 per kilogram by the end of Q3. On September 3, the National Development and Reform Commission and the SAMR jointly issued the Notice on Matters Concerning Cost Accounting for Low-Price Disorderly Competition in Key Industrial Products, establishing a firmer regulatory basis for polysilicon pricing. Despite these policy tailwinds, elevated industry inventories and weak near-term demand continued to make the operating environment challenging.

In response, we are taking a disciplined approach and evaluating and reducing our near-term utilization rate to better align our production with market demand and support the orderly de-stocking of polysilicon inventories. This approach is consistent with our commitment to the long-term healthy development of the solar industry. We are also diversifying beyond our core polysilicon business to reduce our exposure to solar PV cyclicality by targeting the fast-growing AIDC power infrastructure market. On June 3, 2026, we announced the investment agreement to establish a manufacturing base for the R&D, manufacturing, and sale of next-generation energy solutions and related equipment for AIDC, including energy storage systems, solid-state transformers, and solid-state circuit breakers. These technologies support the AIDC industry transition to a high-voltage direct current architecture, such as 800V DC standard advanced by NVIDIA and other leading AI infrastructure providers.

The platform is anchored by Daqo Group, an affiliated entity under common beneficial ownership with Daqo New Energy Corp., which brings over 40 years of power equipment manufacturing expertise, established technology, experienced talent, and deep customer relationships to help accelerate our entry into the segment. We view AIDC power infrastructure as a structural growth opportunity that complements our core business and has the potential to broaden our earning base. Drawing on our track record of navigating multiple polysilicon cycles, we intend to pursue this expansion in a disciplined manner while preserving our balance sheet strength. Despite the challenging market environment, the solar PV industry retains compelling long-term growth prospects. Growing vulnerabilities in global energy markets have heightened concerns about national energy security, underscoring the important role that solar PV and other renewable energy sources can play.

As one of the world's lowest cost producers of high-quality N-type polysilicon, supported by a robust balance sheet and zero debt, we remain optimistic about the sector and are well-positioned to capitalize on the anticipated broader market recovery and long-term growth opportunities. We will continue to sharpen our competitive edge by advancing high-efficiency N-type technology and using digital transformation and AI adoption to optimize costs. As the world accelerates its transition to clean energy, we are confident in our ability to play a leading role in that transition. 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. Thank you, Anita, and 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 third quarter 2026 financial performance. Revenues were $194.2 million compared to $62.7 million in the second quarter of 2026 and to $44.6 million in the third quarter of 2025. The sequential increase was primarily driven by higher sales volume as the company resumed normal sales activities in June following its adoption of a more market-oriented sales and pricing strategy. Gross loss was $60.6 million, compared to a gross loss of $83.7 million in the second quarter of 2026, net gross profit of $9.7 million in the third quarter of 2025. Gross margin was -31% compared to -132% in the second quarter of 2026 and a positive 4% in the third quarter of 2025.

The sequential improvement in gross margin reflected higher selling prices, lower production costs, and lower inventory impairment provisions. Inventory impairment provisions totaled $30.9 million in the third quarter of 2026, down from $55.7 million in the second quarter of 2026. Selling, general, and administrative expenses were $16.3 million, compared to $15.8 million in the second quarter of 2026 and $32 million in the third quarter of 2025. The sequential increase was primarily attributable to higher sales volume. The year-over-year decrease was primarily because the company recognized $18.6 million in non-cash share-based compensation related to the share incentive plan in the third quarter of 2025, while it did not have the same item in the same period of 2026. R&D expenses were $2.7 million, compared to $1.6 million in the second quarter of 2026 and $0.6 million in the third quarter of 2025.