Daqo New Energy Announces Unaudited Second Quarter 2013 Results

Wed Sep 11, 2013 6:42am EDT

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Daqo New Energy Announces Unaudited Second Quarter 2013 Results

PR Newswire

CHONGQING, China, Sept. 11, 2013 /PRNewswire/ -- Daqo New Energy Corp. (NYSE: DQ) ("Daqo New Energy" or the "Company"), a leading polysilicon manufacturer based in China, today announced its unaudited financial results for the second quarter of 2013.

Second Quarter 2013 Financial and Operating Highlights

  • Polysilicon shipments were approximately 975 metric tons, or MT. Wafer shipments were 7.1 million pieces. We also shipped 41 MT of multi-crystal silicon blocks to our customers.
  • Revenues were $27.8 million, compared to $14.5 million in the first quarter of 2013 and $27.6 million in the second quarter of 2012.
  • Gross loss was $10.2 million, compared to $12.9 million in the first quarter of 2013 and $5.7 million in the second quarter of 2012.
  • Gross margin was negative 36.7%, compared to negative 89.0% in the first quarter of 2013 and negative 20.7% in the second quarter of 2012.
  • Operating loss was $174.9 million, compared to $16.6 million in the first quarter of 2013 and $6.2 million in the second quarter of 2012. Excluding $158.4 million of fixed assets impairment loss for Wanzhou polysilicon facilities, the non-GAAP operating loss in the second quarter of 2013 was $16.5 million.
  • Net loss attributable to Daqo New Energy Corp. shareholders was $34.0 million, compared to$18.7 million in the first quarter of 2013 and $7.1 million in the second quarter of 2012.
  • Earnings per fully diluted ADS were negative $4.91, compared to negative $2.70 in the first quarter of 2013, and negative $1.01 in the second quarter of 2012.

"In the second quarter of 2013, our Xinjiang polysilicon facilities continued to contribute positive cash flow. In April, we successfully conducted several technical improvement projects which reduced our production cost below $16/kg, which is significantly lower than our original target of $20/kg. We expect our Xinjiang facilities to generate positive operating income in the third quarter of 2013. We are also making great effort to maximize our capacity in Xinjiang. We plan to expand our capacity in Xinjiang to 6,150 MT by the end of 2013. By achieving that, we expect that we can reduce our cost to the level of $14/kg at that time," commented Dr. Gongda Yao, Chief Executive Officer of the Company.

"In the first half of 2013, we saw average selling prices of polysilicon stabilizing and improvement through the whole value chain. Recently the trade conflict in the solar PV industry between China and the European Union has been settled with a solution that is acceptable for both parties. The Ministry of Commerce of China also announced the preliminary ruling for the investigations on the polysilicon imported from the United States and Korea. With the resolution of various uncertainties becoming clearer, we expect that the industry will start to recover in the second half of 2013, especially when Chinese domestic market starts to take off.

"After evaluating the polysilicon market situation and the business environments both in Wanzhou and Xinjiang, in order to optimize the utilization of our resources and maximize the return on the polysilicon assets, the Company made a strategic decision to move the polysilicon equipments, which no longer create value in Wanzhou under the current situation, to our Xinjiang facilities. As a result, we have incurred certain impairment charges related to the Wanzhou polysilicon assets which will not be relocated in the amount of $158.4 million. At the same time, we plan to increase our Wanzhou wafer capacity to 6 million pieces per month in order to achieve economies of scale. We expect that our wafer facilities will achieve positive operating income by the end of 2013 when we fully ramp up the capacity," Dr. Yao concluded.

Second Quarter 2013 Results

Revenues

Revenues were $27.8 million, compared to $14.5 million in the first quarter of 2013 and $27.6 million in the second quarter of 2012.

The Company generated revenues of $16.4 million from polysilicon, compared to $11.3 million in the first quarter of 2013, and $23.6 million in the second quarter of 2012. The increase from the first quarter of 2013 was primarily due to higher sales volume. The decrease from the second quarter of 2012 was primarily due to lower sales volume combined with lower average selling prices.

The Company generated $7.1 million from sales of wafers, compared to $1.7 million in the first quarter of 2013 and $2.8 million in the second quarter of 2012. The increase from the first quarter of 2013 and the second quarter of 2012 both were primarily due to higher sales volume.

The Company also generated $4.3 million from other businesses, such as sales of multi-crystal silicon blocks.

Gross loss and margin

Gross loss was $10.2 million, compared to $12.9 million in the first quarter of 2013 and $5.7 million in the second quarter of 2012.

Gross margin was negative 36.7%, compared to negative 89.0% in the first quarter of 2013 and negative 20.7% in the second quarter of 2012. Gross margin improved from the first quarter of 2013 as a result of the increased sales and reduced production cost both in polysilicon and wafer businesses.

Selling, general and administrative expenses

Selling, general and administrative expenses were $6.2 million, compared to $4.1 million in the first quarter of 2013 and $3.6 million in the second quarter of 2012. The increase in selling, general and administrative expenses from the first quarter of 2013 was primarily due to a $2.0 million increase in bad debt provision.

Research and development expenses

Research and development expenses were $1.0 million, compared to $0.4 million in the first quarter of 2013 and $0.4 million in the second quarter of 2012. The increase in research and development expenses from the first quarter of 2013 was primarily due to the expenses related to technical improvement projects conducted in Xinjiang facilities in the second quarter of 2013.

Fixed assets impairment loss

The Company recognized $158.4 million fixed assets impairment loss for its Wanzhou polysilicon facilities in the second quarter of 2013, as a result of the Company's decision to relocate its polysilicon manufacturing assets to Xinjiang and consolidate production operations in Xinjiang in response to market conditions.

Other operating income

Other operating income was $0.9 million, compared to $0.8 million in the first quarter of 2013 and $3.5 million in the second 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 $174.9 million, compared to $16.6 million in the first quarter of 2013 and $6.2 million in the second quarter of 2012. Excluding $158.4 million of fixed assets impairment loss for Wanzhou polysilicon facilities, the non-GAAP operating loss in the second quarter of 2013 was $16.5 million.

Excluding $158.4 million of fixed assets impairment loss, the non-GAAP operating margin was negative 59.4%, compared to negative 114.7% in the first quarter of 2013 and negative 22.3% in the second quarter of 2012.

Net Interest expense

Net interest expense was $4.9 million, compared to $5.3 million in the first quarter of 2013 and $3.8 million in the second quarter of 2012.

The decrease in net interest expense from the first quarter of 2013 was primarily due to decrease of outstanding loan balance.

Income tax expense / benefit

Income tax expense was $139,204, compared to $nil in the first quarter of 2013. The income tax benefit was $2.6 million in the second quarter of 2012.

Net loss attributable to our shareholders and earnings per share

As a result of the aforementioned, net loss attributable to Daqo New Energy Corp. shareholders was $34.0 million in the second quarter of 2013, compared to $18.7 million in the first quarter of 2013 and $7.1 million in the second quarter of 2012.

Earnings per fully diluted ADS were negative $4.91 in the second quarter of 2013, compared to negative $2.70 in the first quarter of 2013, and negative $1.01 in the second quarter of 2012.

Financial Condition

As of June 30, 2013, the Company had $10.8 million in cash and cash equivalents and restricted cash, compared to $11.7 million as of March 31, 2013.

As of June 30, 2013, the accounts receivable balance was $16.5 million, compared to $19.3 million as of March 31, 2013. As of June 30, 2013, the notes receivable balance was $9.0 million, compared to $13.9 million as of March 31, 2013. As of June 30, 2013, total borrowings were $266.1 million, of which $144.4 million were long-term borrowings, compared to total borrowings of $301.5 million, including $178.7 million long-term borrowings as of March 31, 2013.

Outlook for Third Quarter 2013

For the third quarter of 2013, the Company expects to ship 1,000 MT of polysilicon. The Company also expects to ship approximately 8.9 million pieces of wafer and 6.8 MT of multi-crystal silicon ingots and blocks. 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.

About Non-GAAP Financial Measures

To supplement Daqo's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Daqo uses in this press release non-GAAP operating loss and non-GAAP operation margin, which exclude long-lived asset impairment. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Daqo believes that the non-GAAP financial measure facilitates investors' and management's comparisons to Daqo's historical performance and assists management's financial and operational decision making.  For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of Non-GAAP financial measures to comparable GAAP measures".

Conference Call

The Company has scheduled a conference call to discuss the results at 8:00 AM Eastern Time on September 11, 2013.

The dial-in details for the live conference call are as follows:

United States:

+ 1-800-860-2442

International:

+ 1-412-858-4600

China(N):

10-800-712-2304

China(S):

Hong Kong:

10-800-120-2304

800-962475

The conference ID number is 10033157.

You can also listen to the conference call via Webcast through the URL:

http://www.visualwebcaster.com/event.asp?id=95713

A replay of the call will be available 1 hour after the end of the conference through September 19, 2013 at 9:00am ET.

The conference call replay numbers are as follows:

United States:

+ 1-877-344-7529

International:

+ 1-412-317-0088

The conference ID number for accessing the recording is 10033157.

Investors will also have the opportunity to listen to the replay over the Internet through the investor relations section of Daqo New Energy's web site at: www.dqsolar.com

About Daqo New Energy Corp.

Daqo New Energy Corp. (NYSE: DQ) is a leading polysilicon manufacturer based in China. Daqo New Energy primarily manufactures and sells high-quality polysilicon to photovoltaic product manufacturers. It also manufactures and sells photovoltaic wafers. For more information about Daqo New Energy, please visit www.dqsolar.com.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the outlook for the third quarter of 2013 and quotations from management in this announcement, as well as Daqo New Energy's strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking 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, including but not limited to the following: the demand for photovoltaic products and the development of photovoltaic technologies; global supply and demand for polysilicon; alternative technologies in cell manufacturing; our ability to significantly expand our polysilicon production capacity and output; the reduction in or elimination of government subsidies and economic incentives for solar energy applications; and our ability to successfully implement our vertical integration strategy. 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. Daqo New Energy does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release, and Daqo New Energy undertakes no duty to update such information, except as required under applicable law.

 

Daqo New Energy Corp.

Unaudited Preliminary Condensed Consolidated Statement of Operations and Comprehensive Income

(US dollars in thousands, except ADS and per ADS data)



Three months Ended



June 30, 2013


Mar 31, 2013


June 30, 2012








Revenues      


$27,840


$14,485


$27,584

Cost of revenues


(38,062)


(27,376)


(33,291)

Gross loss


(10,222)


(12,891)


(5,707)

Operating expenses







Selling, general and administrative expenses


 

(6,199)


 

(4,126)


 

(3,560)

Research and development expenses


 

(993)


 

(436)


 

(427)

Other operating income


887


832


3,539

Impairment of long-lived assets


(158,425)


-


-

Total operating expenses


(164,730)


(3,730)


(448)

Loss from operations


(174,952)


(16,621)


(6,155)

Interest expense


(4,931)


(5,278)


(4,053)

Interest income


46


25


253

Foreign exchange gain (loss)


8


1


(59)

Loss before income taxes


(179,829)


(21,873)


(9,896)

Income tax benefit/(expense)


 

(139)


 

-


 

2,647

Net loss from continuing operations


(179,968)


(21,873)


(7,250)








Loss from discontinued operations


-


-


(745)








Net loss


(179,968)


(21,873)


(7,995)

Net loss attributable to noncontrolling interest


(146,001)


(3,209)


(927)


Net loss attributable to Daqo New Energy Corp.  
   shareholders


$(33,967)


 

$(18,664)


$(7,068)








Net loss


(179,968)


(21,873)


(7,995)

Other comprehensive income (loss):







Foreign currency translation adjustments


 

2,992


 

1,198


 

(4,005)

Total other comprehensive income (loss)


2,992


1,198


(4,005)

Comprehensive loss


(176,976)


(20,675)


(12,000)

Comprehensive loss attributable to noncontrolling interest


(144,888)


 

(2,691)


(2,241)

Comprehensive loss attributable to Daqo New Energy Corp.
   shareholders


 

$(32,088)


 

$(17,984)


 

$(9,759)








 Loss per ADS







 --Continuing operations


(4.91)


(2.70)


(0.90)

 --Discontinued operations


-


-


(0.11)

 Basic


(4.91)


(2.70)


(1.01)

 --Continuing operations


(4.91)


(2.70)


(0.90)

 --Discontinued operations


-


-


(0.11)

 Diluted


(4.91)


(2.70)


(1.01)

Weighted average ADS outstanding







Basic


6,915,097


6,915,097


7,028,564

Diluted


6,915,097


6,915,097


7,028,564

 


Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures



Three months Ended



June 30, 2013


Mar 31, 2013


June 30, 2012








Loss from operations


(174,952)


(16,621)


(6,155)

Add back: Impairment of long-lived assets


158,425


-


-

Non-GAAP loss from operations.


(16,527)


(16,621)


(6,155)

 

Daqo New Energy Corp.

Unaudited Consolidated Balance Sheet

(US dollars in thousands)
















Jun 30, 2013


Mar 31, 2013


Jun 30, 2012








ASSETS:







Current Assets:







  Cash and cash equivalents


$6,679


$5,539


$66,114

  Restricted cash


4,100


6,147


24,038

  Accounts receivable, net


16,534


19,305


33,263

  Notes receivable


9,041


13,907


2,926

  Prepaid expenses and other current assets


25,774


24,265


20,204

  Advances to suppliers


631


1,820


2,344

  Inventories


13,311


19,305


17,648

  Amount due from related party


11,901


6,944


4,935

  Deferred tax assets-current


364


360


6,571

Total current assets


88,335


97,592


178,043

  Property, plant and equipment, net


506,927


673,499


701,279

  Prepaid land use right


36,327


36,105


35,316

  Deferred tax assets


934


1,061


17,922

  Other non-current assets


4,189


4,633


3,939

TOTAL ASSETS


636,712


812,890


936,499















Current liabilities:







  Short-term borrowings, including current portion  
    of long-term borrowings 







121,713

122,834

119,746

  Accounts payable


15,746


13,544


9,952

  Note payable


3,585


10,671


12,023

  Advances from customers


27,871


29,439


25,577

  Payables for purchases of property, plant and  equipment


45,135


48,737


55,087

  Accrued expenses and other current liabilities 


7,872


6,560


8,355

  Amount due to related party


99,455


54,160


12,244

  Income tax payable


163


161


5,920

Total current liabilities


321,540


286,106


248,904








  Long-term borrowings


144,431


178,652


223,599

  Accrued warranty cost


-


-


496

  Advance from customers – long term portion


-


-


4,862

  Payables for Purchases of Property, Plant and Equipment


-


1,131


4,985

  Other long Term Liabilities


26,609


26,453


25,735

TOTAL LIABILITIES


492,580


492,342


508,581








EQUITY:














  Ordinary shares


17


17


18

  Treasury stock


(495)


(495)


-

  Additional paid-in capital


145,660


145,101


144,056

  Retained earnings (accumulated losses)


(14,355)


19,612


129,411

  Accumulated other comprehensive income


22,112


20,232


16,199

Total Daqo New Energy Corp.'s shareholders' equity


152,939


184,467


289,684








Noncontrolling interest


(8,807)


136,081


138,234

Total equity


144,132


320,548


427,918








TOTAL LIABILITIES & EQUITY


636,712


812,890


936,499

For further information, please contact:

Daqo New Energy Corp.
Kevin He, Investor Relations
Phone: +86-23-6486-6556
Email: Kevin.he@daqo.com

SOURCE Daqo New Energy Corp.

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