Daqo New Energy Announces Unaudited Fourth Quarter and Fiscal Year 2013 Results

daqo solar polysilicon solar pv manufacturer in china

CHONGQING, China, April 4, 2014 — Daqo New Energy Corp, a leading polysilicon manufacturer based in China, today announced its unaudited financial results for the fourth quarter and fiscal year 2013.

As previously reported, the Company has been transitioning from its original production facilities in Wanzhou, Chongqing to a new facility in Shihezi, Xinjiang. The Company continued ramp up of its new Xinjiang facility which had commenced commercial production in Q1 2013, and is pleased to report that the plant has now reached close to nameplate capacity of 6,150 MT per annum, with production of 1,445 MT in the fourth quarter of 2013, up from 1,311 MT and 962 MT in the third and second quarters of 2013, respectively.

The Company will commence ground preparing construction on a new expansion at the Xinjiang facility in April of 2014, which will add 6,000 MT and take nameplate polysilicon capacity to 12,150 MT once completed. The Company will utilize some of the existing equipments which are being relocated from the Chongqing line where production is no longer taking place, and as a result the capital expenditure required will be less than that of an equivalent completely new build. Daqo New Energy ceased a technology improvement project at the Chongqing polysilicon line in the second quarter of 2013 ahead of the relocation of the machinery and equipment to Xinjiang. The Company has already completed an optimized feasibility study and received all permits and approvals required for the ground preparing construction. The upcoming scheduled annual maintenance work in April 2014 will include readying the existing plant for the expansion project and upgrading off-gas treatment process from traditional hydrogenation technology to hydrochlorination technology. Construction work on the expansion is expected to be completed by the end of 2014 with full ramp up of capacity by the second quarter of 2015.

  • The Company believes the transition to Xinjiang has transformed it into a low-cost leader and positions the Company to compete with the leading polysilicon manufacturers in China and globally. As of the fourth quarter 2013, the Company achieved a total production cost, including depreciation, of $15.8 per kilogram, and cash cost (excluding depreciation) of $12.0 per kilogram. The Company expects to further lower total production cost to $12 per kilogram when capacity at the Xinjiang expansion is fully ramped up by the second quarter of 2015.

Fourth Quarter 2013 Financial and Operating Highlights

Polysilicon shipments were approximately 1,271 metric tons (MT) and wafer shipments were 16.7 million pieces, respectively, compared to 1,288 MT of polysilicon and 7.5 million pieces of wafer in the third quarter of 2013.

Revenues were $37.0 million, an increase of 25.0% compared to $29.6 million in the third quarter of 2013 and an increase of 496.8% compared to $6.2 million in the fourth quarter of 2012.

Gross profit was approximately $1.0 million, compared to gross loss of $3.9 million in the third quarter of 2013 and gross loss of $11.1 million in the fourth quarter of 2012.

Gross margin was 2.6%, compared to negative 13.3% in the third quarter of 2013 and negative 178.5% in the fourth quarter of 2012. Excluding costs of $5.9 million related to the polysilicon operations in Chongqing, which halted production in September 2012 for a planned technology improvement project, the non-GAAP gross margin was approximately 18.5%, compared to 9.8% in the third quarter of 2013 and negative 10.5% in the fourth quarter of 2012. Operating loss was $4.1 million, compared to $5.0 million in the third quarter of 2013 and $55.9 million in the fourth quarter of 2012.

Net loss attributable to Daqo New Energy Corp. shareholders was $8.0 million, compared to $10.3 million in the third quarter of 2013 and $75.6 million in the fourth quarter of 2012.

Loss per diluted ADS was $1.16, compared to $1.49 in the third quarter of 2013, and $10.76 in the fourth quarter of 2012.

EBITDA* was $8.1 million, compared to $6.8 million in the third quarter of 2013 and negative $46.8 million in the fourth quarter of 2012. EBITDA margin was 21.9%, compared to 22.9% in the third quarter of 2013 and negative 754.9% in the fourth quarter of 2012.

*A non-GAAP measure which represents earnings before interest, taxes, depreciation and amortization

Xinjiang production was approximately 1,445 MT during the quarter, near the nameplate capacity of 6,150 MT per annum. This is an increase from production of 1,311 MT and 962 MT in the in the third and second quarter of 2013, respectively.

Production cost at Xinjiang was $15.8/kg and cash cost (excluding depreciation) was $12.0/kg in the fourth quarter of 2013.

On December 30, 2013, Chongqing Daqo and Daqo New Material terminated the lease agreement between the two entities. The Company deconsolidated Daqo New Material as of December 31, 2013. As noted above, the Company is in the process of relocating machinery and equipment to its Xinjiang facility in connection with the planned expansion.

Full Year 2013 Results Financial and Operating Highlights

  • Polysilicon shipments were 4,240 MT, an increase of 18.3% compared to 3,585 MT in 2012.
  • Revenues were $109.0 million, an increase of 25.5% compared to $86.9 million in 2012.
  • Gross loss was $26.1 million, a decrease of 30.3% compared to $37.4 million in 2012.
  • Gross margin was negative 23.9%, compared to negative 43.1% in 2012.
  • Operating loss was $200.6 million, compared to $88.5 million in 2012. The Company recognized a $158.4 million impairment loss for the long-lived assets of its Chongqing polysilicon facilities in the second quarter of 2013 and a $42.8 million impairment loss for the long-lived assets of its wafer facilities in the fourth quarter of 2012.
  • Net loss attributable to Daqo New Energy Corp. shareholders was $70.9 million, compared to $111.9 million in 2012.
  • Loss per diluted ADS was $10.25, compared to $15.92 in 2012.

Commentary

Improvement in operational and financial performance

The commencement of commercial operations and subsequent ramp-up at the Shihezi, Xinjiang facility has significantly improved Daqo New Energy’s operational and financial results.

In the fourth quarter of 2013, following the successful debottlenecking project at Xinjiang, the Company increased production to near nameplate capacity whilst realizing significant improvements in polysilicon production costs. The Company produced 1,445 MT of polysilicon for the fourth quarter of 2013 compared to 1,311 MT in the third quarter and now expects polysilicon production in 2014 to be very close to nameplate capacity of 6,150 MT. Costs also improved substantially, with total production cost, including depreciation moving to $15.8 per kilogram in the fourth quarter of 2013 compared with $16.0 per kilogram in the third quarter and significantly lower than the 2012 total production cost of $31.9 per kilogram.

Strong demand for the Company’s products continued through the fourth quarter of 2013. The Company shipped 1,271 MT of polysilicon and 16.7 million pieces of wafer in the fourth quarter of 2013, compared with 1,288 MT of polysilicon and 7.5 million pieces of wafer in the third quarter of 2013 and 975 MT of polysilicon and 7.1 million pieces of wafer in the second quarter of 2013. Average selling prices for both our polysilicon and wafer products continued their positive trends and, in combination with decreasing production costs, have resulted in strong improvement in our gross margins. Strong demand more broadly in the sector has seen polysilicon and wafer prices increase significantly in the past six months, which have consequently improved gross margins over the past two quarters. In the fourth quarter of 2013, excluding costs of $5.9 million related to the polysilicon operations in Chongqing, the non-GAAP gross margin was approximately 18.5%, compared to 9.8% in the third quarter of 2013.

These improved operational and financial results reflect the Company’s new position as a leading low-cost and high-quality polysilicon manufacturer, provide the Company with a strong platform from which to build future growth, and leave the Company in an excellent position to navigate any future market challenges or fluctuations that may arise.

Market outlook and Q1 2014 guidance

In 2013, according to industry analysis reports, global solar PV installations were around 37 GW, of which the China market alone contributed approximately 11 GW. In terms of production, China accounted for approximately 66% global cell / wafer production and imported almost 50% of polysilicon requirements. Most industry research institutions estimate global installations in 2014 to be around 45 GW, which represents a year-on-year growth of 22%. This growth is expected to accelerate in the years to come, as solar PV is rapidly approaching grid-parity in an increasing number of regions. The Company believes that as the key raw material for the most widely used c-Si solar PV cells, polysilicon demand will continue its rapid growth going forward. With one of the lowest cost structures, an excellent reputation for first-class quality in the industry and a strategic location in China, the Company is confident that it will be able to enjoy and benefit from robust growth.

For the first quarter of 2014, the Company expects to ship 1,350 MT to 1,400 MT of polysilicon. The Company also expects to ship approximately 16.6 million to 17.0 million pieces of wafer. This outlook reflects our current and preliminary view and may be subject to change. Our ability to achieve this projection is subject to risks and uncertainties. See “Safe Harbor Statement” at the end of this press release.

Fourth Quarter 2013 Results

Revenues

Revenues were $37.0 million, compared to $29.6 million in the third quarter of 2013 and $6.2 million in the fourth quarter of 2012.

The Company generated revenues of $24.2 million from polysilicon, compared to $22.9 million in the third quarter of 2013, and $4.7 million in the fourth quarter of 2012. The increase from the third quarter of 2013 was primarily due to higher sales volume and higher average selling prices.

The Company generated $11.0 million from sales of wafers, compared to $6.0 million in the third quarter of 2013 and $0.8 million in the fourth quarter of 2012. The increase from the third quarter of 2013 was primarily due to higher sales volume and higher average selling prices. In November 2013, we fully ramped up our wafer capacity to 6 million pieces per month.

The Company also generated $1.8 million from the wafer OEM business.

Gross profit and margin

Gross profit was approximately $1.0 million, compared to a gross loss of $3.9 million in the third quarter of 2013 and a gross loss of $11.1 million in the fourth quarter of 2012.

Gross margin was 2.6%, compared to negative 13.3% in the third quarter of 2013 and negative 178.5% in the fourth quarter of 2012. The 2013 fourth quarter was the first period that we have been able to achieve positive gross margin since the third quarter of 2011. The positive gross margin in the fourth quarter of 2013 was mainly attributable to higher average selling prices during the period and lower production costs due to better utilization of production capacity in the quarter.

Overall gross margins were impacted by continuing depreciation expense and other maintenance expense associated with the non-operational Chongqing polysilicon plant. In the fourth quarter of 2013, total depreciation expense was $12.2 million, of which $5.5 million related to the non-operational Chongqing polysilicon plant. In the fourth quarter of 2013, total costs including depreciation related to the non-operational Chongqing polysilicon plant was $5.9 million. Excluding such costs, the non-GAAP gross margin was approximately 18.5%, compared to 9.8% in the third quarter of 2013 and negative 10.5% in the fourth quarter of 2012.

Selling, general and administrative expenses

Selling, general and administrative expenses were $4.0 million, compared to $3.8 million in the third quarter of 2013 and $1.8 million in the fourth quarter of 2012. The increase in selling, general and administrative expenses from the third quarter of 2013 was primarily due to a higher bad debt provision.

Research and development expenses

Research and development expenses were $1.1 million, compared to $0.8 million in the third quarter of 2013 and $2.8 million in the fourth quarter of 2012.

Other operating income

Other operating income was $0.1 million, compared to $3.6 million in the third quarter of 2013 and $2.5 million in the fourth quarter of 2012. Other operating income was mainly composed of unrestricted cash incentives that the Company received from local government authorities, which fluctuates from period to period.

Operating loss and margin

As a result of the foregoing, operating loss was $4.1 million, compared to $5.0 million in the third quarter of 2013 and $55.9 million in the fourth quarter of 2012. Our operating margin improved, although incentives received from local government authorities decreased from $3.6 million in the third quarter to $0.1 million in the fourth quarter.

Operating margin was negative 11.0%, compared to negative 16.8% in the third quarter of 2013 and negative 902.5% in the fourth quarter of 2012.

EBITDA

EBITDA* was $8.1 million for the quarter, compared to $6.8 million in the third quarter of 2013 and negative $46.8 million in the fourth quarter of 2012. EBITDA margin was 21.9% for the quarter, compared to 22.9% in the third quarter of 2013 and negative 754.9% in the fourth quarter of 2012.

* A non-GAAP measure which represents earnings before interest, taxes, depreciation and amortization

Net Interest expense

Net interest expense was $4.2 million, compared to $4.9 million in the third quarter of 2013 and $3.4 million in the fourth quarter of 2012. The decrease in net interest expense from the third quarter of 2013 was primarily due to lower loan balance.

Income tax expense

Income tax expense was $59.5 thousand, compared to $1.1 million in the third quarter of 2013 and $19.9 million in the fourth quarter of 2012. As of the fourth quarter of 2013, all of our deferred tax assets were fully provided for on the basis that they are not likely to be realized.

Net loss attributable to our shareholders and loss per ADS

As a result of the aforementioned, net loss attributable to Daqo New Energy Corp. shareholders was $8.0 million in the fourth quarter of 2013, compared to $10.3 million in the third quarter of 2013 and $75.6 million in the fourth quarter of 2012.

Loss per ADS was $1.16 in the fourth quarter of 2013, compared to $1.49 in the third quarter of 2013, and $10.76 in the fourth quarter of 2012.

Financial Condition

As of December 31, 2013, the Company had $16.7 million in cash and cash equivalents and restricted cash, compared to $19.5 million as of September 30, 2013 and $17.3 million as of December 31, 2012.

As of December 31, 2013, the accounts receivable balance was $9.9 million, compared to $11.8 million as of September 30, 2013. As of December 31, 2013, the notes receivable balance was $15.9 million, compared to $11.9 million as of September 30, 2013. As of December 31, 2013, total borrowings were $253.7 million, of which $134.9 million were long-term borrowings, compared to total borrowings of $262.6 million, including $137.0 million long-term borrowings as of September 30, 2013.

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