Daqo New Energy Corp. American Depositary Shares (each representing 5 Ordinary Shares) 2026 Q2 Earnings Call

I am 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 second quarter of 2026, which can be found on our website at www.daqosolar.com. Today attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu, our Deputy CEO, Ms. Anita Zhu, our CFO, Mr. Ming Yang, and myself. Today's call will begin with an update from Mr. Xu on market conditions and company operations, followed by a translation from Ms. Zhu for Mr. Xu, and 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 want 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 will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We will offer these translations into U.S. dollars solely for the convenience of the audience. Now I will turn the call to our Chairman and CEO, Mr. Xiang Xu. Mr. Xu, please go ahead.

Hello everyone. This is Anita, and I'll now translate our Chairman, Mr. Xu's remarks. In the second quarter of 2026, market sentiment across the solar PV industry remained cautious amid weak domestic demand and elevated inventory levels, which drove prices lower across the solar value chain. Despite these headwinds, we resumed sales in June, delivering a sequential increase in revenue and a narrowing of our quarterly operating and net losses. Throughout this period, we continued to maintain a robust and healthy balance sheet with zero debt. As of June 30, 2026, we held a cash balance of $555.3 million, short-term investments of $250 million, bank deposits and vaults of $71.7 million, held-to-maturity investments of $51 million, and fixed-term bank deposit balance of $994.8 million. Together, these readily convertible assets totaled $1.9 billion, providing us with ample liquidity, confidence, and strategic flexibility to navigate the current market downturn.

On the operational front, we continued to take proactive measures to navigate challenging market conditions with our nameplate capacity utilization rate operating at approximately 57% during the period. Total production volume at our two polysilicon facilities was 43,675 metric tons for the quarter, exceeding our guidance range of 35,000 metric tons to 40,000 metric tons. Polysilicon market prices remaining below production costs since the first quarter of 2026. We initially refrained from engaging in below-cost sales in line with Chinese self-regulation guidelines and adopted a disciplined wait-and-see approach pending further implementation of the national anti-involution policies. However, after an extended period without clear policy updates, we adjusted our sales and pricing strategies toward a more market-oriented approach in June. As a result, our sales volume increased from 4,482 metric tons last quarter to 15,190 metric tons, with average selling price falling to $4.04 per kilogram.

Our polysilicon transaction and shipment volumes have continued to pick up in the third quarter, reflecting increased confidence in the quality and an ongoing preference for product from customers. On the cost side, solar production costs remained flat sequentially at $5.95 per kilogram, with cash costs edging down by 0.4% to $4.57 per kilogram, and manufacturing costs in R&D terms declining slightly. In light of the current market dynamics, we expect total polysilicon production volume third quarter 2026 to be approximately 40,000 metric tons to 45,000 metric tons. For the full year of 2026, we expect production volume to be in the range of 160,000 metric tons to 180,000 metric tons.

Polysilicon market prices came under further downward pressure during the second quarter, with untied polysilicon prices falling from CNY 35-37 per kilogram at the end of the first quarter to CNY 31-34 per kilogram at the end of the second quarter. Amid subdued demand, depressed pricing, and accumulating industry-wide inventories, polysilicon producers operated at low utilization rates, with aggregate outputs of 5,308 thousand metric tons in the first half of 2026, representing a 9.8% year-on-year decrease. As we make our way through the third quarter, the continued roll-out of anti-involution measures is gaining momentum. In July, a series of mandatory national standards were issued for energy consumption and product efficiency across the solar PV value chain, including the final official version of a new standard setting energy consumption limits per unit of polysilicon output, which will take effect on January 1, 2027.

Polysilicon manufacturers whose unit energy consumption exceeds 6.3 kilograms of coal equivalent per kilogram must complete a corrective improvement by that date or face the risk of plant shutdown. Notably, the threshold of 6.3 per kilogram is stricter than the 6.4 proposed in the draft, signaling regulators' commitment to accelerating the phase-out of inefficient capacity. On July 27th, the China Photovoltaic Industry Association issued the General Principles for Cost Accounting Models in the Photovoltaic Industry, an initiative to regulate market competition and advance standardized industry governance to lay the foundation for price regulation enforcement. On July 31st, the State Administration for Market Regulation issued price compliance guidance for the solar PV sector, promoting a structural shift from price competition to value-driven differentiation.

The SAMR emphasized that solar PV companies must conduct price compliance self-reviews and curb irrational low-price competition, and that CPIA should strengthen industry self-regulation, promote the General Principles, and guide companies away from illegal pricing practices such as below-cost dumping. The SAMR also indicated that it will take enforcement action against non-compliant entities. Together with seven other polysilicon manufacturers, we jointly signed an initiative to eliminate below-cost sales and fully comply with energy consumption standards on August 6th. As a result of these selective measures, polysilicon prices are beginning to show signs of recovery, with spot prices stabilizing and forward prices rebounding by more than 10% from their recent lows. We are also diversifying beyond our core polysilicon business to hedge against solar PV cyclicality, targeting the fast-growing AIDC power infrastructure market.

On June 3rd, 2026, we announced the signing of an investment agreement to establish a manufacturing base focused on the R&D, manufacturing, and sale of next-generation energy solutions and related equipment for AIDCs. This includes energy storage systems, solid-state transformers, and solid-state circuit breakers. These technologies support the industry's transition to high-voltage direct current architecture, such as the 800-volt DC standard advanced by NVIDIA and other leading AI infrastructure providers. The platform is anchored by Daqo Group, our affiliated entity under common beneficial ownership with Daqo New Energy, which brings over 40 years of power equipment manufacturing expertise, established technology, deep talent, and customer relationships to accelerate our entry into the segment. We view AIDC power infrastructure as a structural growth opportunity that complements our core business and broadens our earnings base.

Consistent with our strong track record, having navigated several polysilicon cycles, we intend to pursue this expansion in a disciplined manner that preserves our balance sheet strength. Despite a challenging environment, the solar PV industry continues to exhibit compelling long-term growth prospects. Growing vulnerabilities in global energy markets have sparked widespread concerns about national energy security, in which the solar PV and renewable energy sectors can play a crucial role. As one of the world's lowest-cost producers of the highest quality N-type polysilicon, backed by a robust balance sheet and zero debt, we remain optimistic about the sector and are well-positioned to capitalize on anticipated market recovery and long-term growth opportunities.

We'll continue to strengthen our competitive edge through advancements in high-efficiency N-type technology and cost optimization via digital transformation and AI adoption. As the world accelerates its transition to clean energy, we're confident in our ability to play a leading role in shaping that future. Now I'll 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 on our new conference call today. I will now go over the company's second quarter 2026 financial performance. Revenues were $62.7 million, compared to $26.7 million in the first quarter of 2026 and $75 million in the second quarter of 2025. The increase in revenue compared to the first quarter of 2026 was primarily driven by higher sales volume. The company resumed normal sales activities starting in June, following a prolonged period with no new policy developments. Gross loss was $82.7 million, compared to $139 million in the first quarter of 2026 and $81.4 million in the second quarter of 2025. Gross margin was negative 132%, compared to negative 520% in the first quarter of 2026 and negative 108% in the second quarter of 2025.