Daqo New Energy Corp. Sponsored ADR Aktie

Welcome to the Daqo New Energy Second Quarter 2026 Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy issued its financial results for the second quarter of 2026, which can be found on our website at www.console.com.

Today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu, our Deputy CEO, Mr. Anita Zhu, our CFO, Mr. Ming Yang and myself., Today's call will begin with an update from Mr. Xu, our market conditions and company operations. followed by a translation from [indiscernible] and then Mr. Yang will discuss the company's financial performance for the quarter.

After that, we will open the floor to Puna 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. This statement involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements.

Further information regarding this 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 rules.

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 those -- we'll 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.

[Interpreted]

Hi, everyone. This is Anita. I'll now than our Chairman, Mr. Xu's remarks. In the second quarter of 2026, market centers across the store industry remains cautious to make reformation the assay on elevated inventory levels, which drove prices lower cost solar value -- despite these headwinds included assumed sales in June, delivering a sequential increase in revenue and the narrowing of our quarterly operating and net losses -- throughout this period, we continue to maintain a robust and healthy balance sheet with 0 debt.

As of June 30, 2026, we held a cash balance of $555.3 million short-term investments of $250 million, that those cows of $71.7 million, how to mature invest $51 million and fixed term as upon the balance of [ $94.8 ] million. Together, these reveal convertible assets totaled USD 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 pick proactive measures to navigate challenging market conditions with our nameplate capacity utilization rate, operating at approximately [indiscernible] the period. total production volume at our 2 Polycom facilities was 43,675 petric tonnes for the quarter, exceeding our guidance range of 35,000 metric tons to 40,000 metric tons. With Holotamarket prices remaining below production cost since the first quarter of 2026. Initially refrained from engaging in the below cost sales in line with top Chinese self-regulation guidelines. And adopted a disciplined way of the approach, pending further implementation of the national antipollution policies.

However, after an extensive period without clear policy updates, we adjusted our sales and pain strategies toward a more market-oriented approach G. As a result, our sales volume increased from 4,400 does 2 metric ton last quarter to 151 metric tons, with average selling price falling to USD 4.04 per too. Our wholesale transaction in shipment volumes have continued to pick up in the third quarter reflecting increased confidence in the quarter and an ongoing preference for products from customers.

On the cost side, solar production costs remained flat sequentially at USD 0.95 per kilogram with CAS costs edging down by 0.4% to USD 4.7 per ton and manufacturing cost in R&D terms to declining slightly. In light of the current market dynamics, we expect total position production volume in the third quarter of 2026 to be approximately 40,000 metric tons to 45,000 metric tons. For the full year, 2026 we expect production volume to be in the range of 160,000 metric tons to 180,000 metric tons.

Helical market prices came under further downward pressure during the second quarter with an high positive comprises falling from RMB 35 to RMB 37 per program at the end of the first quarter to RMB 313 per chogram at the end of the second quarter. Amidst odd demand, the price pricing and cumulating industry-wide inventory poison producer operated a low utilization rate with a you 5,381,000 metric in the first half representing a 9.8% year-on-year increase or decrease.

As we make our way through the third quarter, the continued rollout of Ntvolution measures sustaining momentum. July, a series of mandatory national standards were issued for energy consumption and product efficiencies across the Solar value including the final official version of a new standard, selling energy consumption limit per unit of police output, which will take effect on January also manufactured with unit energy consumption ex.3tmpertodan must complete corrective improvement by that date. -- or face the risk of plant shutdown.

Notably, the threshold of 6.3% sicker than 6.4% proposing a draft signal regulators' commitment to accelerating the phaseout of inefficient capacity. On Slide 7, the China Potomoac Industry Association issued the general principle for cost accounting model in the photo industry initiative to regulate market competition and advance to standardize industry governance at foundation for tieregulation inforce. On July 31, these allocation for market regulation issue price compliance guidelines for the solar PV sector, promoting a structural shift from price competition on value-driven differentiation.

The SAMR enters solar PV company must conduct price compliance self-review and curtirational low-priced competition and that KPIs industry self-regulation promote the general principle and give companies away from the legal pricing processes such as too companies. The SAMR also indicated that we'll take enforcement actions against noncompliant entities. Together with some other public company faster, we jointly signed an initiative to eliminate world-class sales and polyol with underantion standards on August 1.

As a result of these elective measures ostomies are beginning to show signs of recovery, with spot prices stabilizing and lower prices rebounding by more than 10% from their lease as growth. We're also diversifying beyond our full polysome business to head against solar PV class ecology, targeting the fast-growing AI data center, power infrastructure market.

On June 2026, we announced the signing of investment agreements to establish a manufacturing base focused on the R&D, manufacturing and sales of next-generation energy solutions and related equipment for ADC. This includes energy storage systems, solid space, transformers and solid saturable. These technologies support the industry and the central high-voltage direct current architecture such as the [indiscernible] PC standard advanced line of idea and other leading AI infrastructure providers. The platform is entered by Dako Group, our affiliated entity under common basical ownership of Daphne Energy which brings over 40 years of color equipment many backing expertise at Davos technology and deep talent and customer relationships accelerate our contango the segment.

We view of AIBD power infrastructure as a structural growth opportunity that complements our core business and broaden our earnings base, consistent with our strong track record having navigated several postevent cycles, we intend to pursue the expansion in a disciplined manner that preserves our balance sheet strain. Despite a challenging environment, authority industry continues to exhibit a compelling long-term growth process. Growing on our billings in global energy markets have misread concern about national energy security in which the solar PBM renewable energy sector can play a crucial role as 1 of the world's lowest cost producers of the highest quality and type of month rugby robust balance sheet and see debt, we remain optimistic about the sector and are well positioned to capitalize on an anticipated market recovery and long-term growth opportunities.

We'll continue to strengthen our competitive edge sure advancement, the high-efficiency antitechnology and cost optimization via digital transformation and adoption as the world accelerates its transition in energy, we're confident in our ability to create a leading role in shaping that future. And now I'll turn the call to our CFO, Mr. Li, who will discuss the company's financial performance for the quarter. Min, 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 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 our sales volume. The company resumed normal sales activity starting in June following a prolonged period with no new policy development. .

Gross loss was $82.7 million compared to $39 million in the first quarter of 2026 and $81.4 million in the second quarter of 2025. Gross margin was negative [indiscernible] and compared to negative 520% in the first quarter of 2026, a negative 108% in the second quarter of 2025. The sequential improvement in group gross margin was primarily due to a decrease in provisions for inventory impairment, which was $55.7 million in the second quarter of 2026 compared to $98.9 million in the first quarter of 2026. G&A expenses were $13.8 million compared to $12.2 million in the first quarter of 2026 and $32 million in the second quarter of 2025.

The sequential increase was primarily due to higher sales volume in the second quarter of 2026. The year-over-year decrease was also due to the company's recognizing 18.6 [indiscernible] noncash share-based compensation costs related to its share incentive plan in the same quarter of 2025. R&D expenses were $1.6 million compared to $0.8 million in the first quarter of 2026 and $0.8 million in the second quarter of 2025.

The increase is primarily due to R&D of next-generation energy solutions for AIDC power infrastructure. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. Loss from operations was $98 million compared to $50.8 million in the first quarter of 2026 and $12 million in the second quarter of. Operating margin was negative 156% compared to negative 60% in the first quarter of 2026 and negative 152% in the second quarter 2025.

Net loss attributable to Durg Corp shareholders was $81 million compared to $88 million in the first quarter of 2026 and $76.5 million in the second quarter of 2025. Loss per basic ADS was $1.20 compared to $1.31 in the first quarter of 2026 and $14 in the second quarter of 2025. Adjusted net loss attributable to -- do New Energy shareholders, excluding noncash share-based compensation costs, was $81 million compared to $88.4 million in the first quarter of 2026 and $67.9 million this. Adjusted loss per basic ADS was $1.20 compared to $1.31 in the first quarter of 2026 and $0.86 in the same quarter was negative $29 million compared to negative $83 million in the first quarter of 2026 and negative $48 million in the same quarter of 2025. ITDA margin was negative 46.8% and compared to negative 31% in the first quarter of 2026, and negative 64% in the same quarter.

Now on the company's financial condition. As of June 30, 2026, the company had $555 million in cash and tax equivalent compared to $559.4 million monarch 31, 2026 at $198.6 million 8.25% -- and as of June 30, 26, short-term investment was $215 million compared to $88 million as of March 31, 2026, and $18 million of -- as of June 30, 26, no receivable balance was $71.7 million compared to $20.8 million as of March 31, 2026 and $49 million as of June 30, 25 no receivable balance, which represent bank notes with maturity within 6 months.

As of June 30, 2026, held-to-maturity investment was $51 million compared to $50.3 million at the March 3126 and as of June 30, 2025. And as of June 30, 2026, the balance of fixed term deposits within 1 year, was $928.9 million compared to $1 billion as of March 31, 2026 and $160.7 million as of June 30, 25 -- now on the company's cash flows. For the 6 months ended June 30, 2026, net cash used in operating activities was $276 million compared to $105 million in the same period 2 and for 6 months ended June 30, 2026, net cash used in investing activities was $19.6 million compared to $22.7 million in the same period of 2025.

Net cash used in investing activities in 2026 was primarily related to the purchase of short-term investments and fixed-term deposits. For the 6 months ended June 30, 2026. Net cash using finance activities was $7.8 million compared to $32,000 in the same period of 2020. The Net cash used in finance activities in 2026 was primarily related to $7.8 million in stock purchases made by the company's subsidiary Xinjiang from its minority shareholders. And that concludes our prepared remarks.

We will now open the call to Q&A from the audience. Operator, please begin.

[Operator Instructions] Our first question comes from Philip Shen with Rock Capital Partners.

This is Oscar Jim on for Shell. Can you hear me okay?

Yes, you're allowing clear.

I have 2 questions. First question is on government support on poly pricing -- even with the recent 10% rebound in forward prices, poly ASP remained below industry production costs since late -- how would you characterize the central government stance on supply rationalization -- are you anticipating any incremental regulatory support that could help establish a sustainable price for in the near term? And then I have a follow-up.

Okay. We're going to translate your question and then.

[Interpreted] I will translate for our CEO, Mr. Xi Okay. On August 6, led by the China's photovoltaic Industry Association, there is strong initiative for self discipline. And based on the CTIA cost model, the industry average cost is estimated production cost estimate to be around RMB 50,000 per ton, so about per kilogram -- but due to the current market environment where demand activity is relatively low. -- and there's still approximately 500,000 to 600,000 tons of par inventory in the industry.

So we think the price recovery might take a little bit longer than anticipated, but there is a strong consensus within the industry for self discipline and also with the urging of the government and the related departments. -- that English consensus is that it's no longer viable to sell below cost. And what we're seeing in the market is that the quotations for polysilicon pricing from different manufacturers have already exceeded RMB 40 per kilogram. So we're optimistic about the current policy development, and we're waiting to see how the policies may be enforced going forward.

[Interpreted] So let me translate for Mr. Xi. So right now, the industry in terms of the value chain between the buyers and sellers of polysilicon. So some of the buyers are still observing the market and the policy development and they're taking a wait-and-see approach. But in terms of the past manufacturers or expecting a reasonable price where they would not be selling at a loss or below their cost. So there's still some you can call it a wait-and-see between the possible manufacturers and the downstream. But we do believe that the past industry practice of selling below cost, especially in the first 6 months of the year is likely to end and where the government is very element about preventing dumping of the products and selling below cost. .

So within the lot framework for price low and for the anti-evolution expectation is that this is likely to move forward optimistically over the next several months. And then we know that over the past few years, the polycican manufacturers of the whole industry in general have seeing significant losses, and we do not think that this is long term sustainable. In fact, it is very unsustainable, and this is likely to lead to the industry in trouble.

So if we look at Daqo especially in December of last year when the anti-evolution policy was more successful, right? So EQ had no cash loss in Q4 2025. So we were able to achieve a positive operating cash flow during that period. So we think that that's a more sustainable the timing of framework going forward.

Ms. Yan. Just my second question is on the self-discipline agreement signed in August previous rounds of cell regulation kind of struggle to maintain compliance once prices fluctuated -- just wondering what makes this framework structurally distant from past attempts. And then regarding the energy consumption requirements -- what is your estimate of total industry capacity that could be phased out.

Our next question comes from Alan Lou with Jefferies.

We're still answering nontax rating. -- hold on on -- let's give us a minute. .

All right. We have Philip Chan back on the podium. My apologies.

[Interpreted] Okay. Now let me translate for Mr. Xi. So we believe that the current round of anti evolution policy and with the price on enforcement is likely to sustain -- what we saw in the previous round was that even with the proposal for the industry consolidation platform, right, to accelerate the excess capacity. And but the stay and nutrition for market regulation stepped in because they were very worried about antimonopoly practices between the manufacturers the leading manufacturers.

So they will worry that this would bring a nonmarket activities or behaviors by the main manufacturers. But this time, this -- the current effort is led by the same administration for market regulation and this is bring self discipline forward. And also this is not, for example, there's no coordination between the manufacturers on pricing or allocating allocation of soon, for example, right? So those times is really based on each individual manufacturers, their own cost -- production costs, right, and in terms of their manufacturing efficiencies and for them to sell products based on their ability to produce products at a lower cost, okay? So we think that this time it's actually a much more sustainable and is being supported by the government -- so we think that -- so through these 2 efforts, right? So 1 is by being 1 of the lower-cost producers within the industry as well as with the regulations energy usage.

We think that this time, it will promote a more market-oriented approach to both capacity exits and the selling of products at a reasonable price. And this is all under the current legal framework brought forward by the government.

Our next question comes from Alan Lou with Jefferies.

Management -- so my first question is a follow-up on the overall initiative to avoid selling below cost. So my understanding is that current inventory in the industry is at quite a high level. And the end demand is also quite weak at the same time. So when would you expect the poly price? For example, you mentioned the price quotes at 4 per kilogram -- but given that their inventory at the wafer players and demand isn't that strong? Or when would you expect the first or like batch of transaction at a higher price to happen? Because in the past 2 weeks, all the data has halted. So I would like to know when will we expect the real transaction is coming out.

Okay. Let me translate for [indiscernible] . [Interpreted]

Okay. Let me translate for Mr. Xi. Okay. I think he's seeing in the market that there is some transactions happening roughly RMB 40,000 per ton or about RMB 40 per kilogram, although there's a very low volume of transactions right now. even though the overall demand is relatively weak, but there are some wafer producers in the industry that have a very low to no inventory where they are procuring to production. So right now -- so we are seeing some transactions though not very high. What we're seeing is some manufacturers are testing the market.

So although the full cost model would stipulate around per kilogram. Some producers are right now testing the market and selling at approximately RMB 40 per kilogram. -- right now. And so it's been about 2 weeks since the announcement of the manufacturers and the guidance from the government. So we do think that going forward, we are likely to see more and more transactions happen at this new price range.

Certainly based on the production costs, probably system price would be higher than that. But given that in this round of the anti-flution initiatives, there is not an acquisition plan afterwards. So if prices goes up to 40 or maybe RMB 45 or RMB 50 biogas what do you think would happen because effectively the -- this will reach to the cost level of more players. So like who would be able to sell their products or -- what do you think the end game of this round of initiatives? Or is there some capacities would be shut down because of the higher energy consumption requirement? Or like how you see...

[Interpreted]

Okay, let me translate for Mr. Xi, okay. He thinks that the recent energy quota policy from the government where there's different energy usage requirements for the industry, imbues will lead to Fork exit of a significant amount of capacity that have a significant overall higher energy usage. So we're likely to see that happen pretty soon. And then also the industry self-discipline and there's a commitment from the various manufacturers that there should be a voluntary reduction of capacity or production. And then also there's a commitment that the manufacturers should not be selling below production cost.

So we think that -- both of these are likely to happen starting in the second half of this year. And then -- there's also the issue that not that many producers actually have the capability to produce especially now that the industry is running at a fairly low utilization level. So a lot of manufacturers have like a significant number of people. So there is actually a lack of employees and also lack of training and time. So a lot of capacity that has been shut down is unlikely to restart. -- going forward.

So even now, we think that, for example, the effective capacity is within the industry, midsoclose to 3 million tons. -- have been billed as capacity is already less than 2 million tonnes right now. It's likely to go lower as well.

My last question is about the IPC initiative on -- as a second growth driver of the company. I wonder if there's or the backlog or progress our share on this bill business?

[Interpreted]

Okay. Let me translate for Mr. Xi. So we do see that the IDC-related power infrastructure and equipment market is actually a very viable sector where is going to be a significant growth driver for the company, and the second sector that companies turning into. So I think most investors are probably aware that we do think the growth for the political market going forward is likely to be relatively low in terms of volume demand as well as solar. So the company is actively looking for other areas of growth. .

And because Dako Group has more than 40 years of experience in the power equipment sector and being 1 of the leading manufacturer and supplier of high and low voltage on power equipment such as transformer and circuit breakers. So our group is seeing a very strong demand, especially in AI data center-related power equipment demand -- so we do think this is a very significant and real opportunity for the company. And Dako Group brings many years of experience and advantage in manufacturing in R&D and in technology capability. So in terms of products, as well.

So with the growing power demand and especially for the next-generation power structure where he led by NVIDIA, the future development of a next generation of equipment under the 800-volt DC infrastructure for -- so we're targeting initially in the solid state transformer and salsa circuit breaker market. So the industry is starting in 2027 next year. And then we expect to see very significant growth from 2028 to 2030 and with power demand from on these new AI data centers based on the new 800-volt TC technology.

So with Dakos brings significant experience and Vantage. And at the same time, matching with Dako New Energy's strong balance sheet and capital position, right, to capture this growth driver -- so now we have built an R&D team in Shanghai, and we expect to have an initial product ready by year-end. And then with prototypes and achieving sales starting in 2027 and then capturing the growth opportunity 2028 to and our goal to become an industry leader within this IDC power equipment sector by being a Tier 1, both in terms of product and the team. So that's our current goal right now.

Yes. Thanks a lot for management to explain .

Great. Thank you, Alan. .

Our next question comes from Mona Wang with Goldman Sachs.

Sure. I have 2 questions. One is related to the Poly business and other to the IDC business. So first, in terms of the poly business, I think you just mentioned like currently, the industry upstream and downstream players is kind of wait and see -- and given the downstream inventory is at a relatively higher level, I'm not sure what.

The Hongkong do you expect for after the wait-and-see period. And particularly, we had this kind of sale display in first half, like we uphold our pricing and then we record lower shipments. So I'm wondering like -- do you have any shipment guidance towards the end of the year. What's our priority going forward, will we upward pricing to the higher level. The payout per ton or we are kind of want to reach the balance between price or shipments. So I want to hear more about the poly business operation strategy.

Okay. Okay. So let me transfer your question for Mr. Xi. [Interpreted]

Okay. Let me translate for Mr. S. So in the second half, we believe is that because Daunt, we have a superior quality product in the market. So selling and shipping our product is really not an issue. I think the question is really price. So in the first half, because we adhere to self-discipline, so we did not sell as much products as our normal market share. So -- because our competitors were engaged in below-cost sales practices. But if we look at our market share in the past, we believe that we can achieve approximately 15% market share within the industry, and we continue to expect that going forward.

So our target is to sell at an appropriate price or a resin price also be fully complying with the government guidance and the price low. So what we expect is that, say, in the next 6 to 18 months, we're likely to see forced exit or a market-based exit of manufacturers with high production costs or manufacturers with poor cash positions or poor cash flow. -- so companies with not a good balance is likely to struggle continue to struggle. -- going forward, while a new energy with our cash position and our strong balance sheet also our high product quality and low cost, we expect that we're likely to do better. to do well in the market.

So especially in 2027, where we expect to see a much improved and better market environment. And then we expect to continue to lower our inventory going forward to a relatively low inventory levels. That's our target.

Okay. Thank you. So can I conclude that we will hold up the price in your term, and we will wait the rest of the marginal players to exit and then we -- that's the time we will see fast inventory depletion and recovery of the shipment is likely to occur in the net of 6 to 18 months?

I think in terms of pricing, right, so I mean we cannot sell below cost, right? So we're going to adhere to that. And at the same time, we'll look from to sell at a reasonable price. And yes, and then -- and then for the market to have additional capacity yes. .

Okay. That's super clear. And my second question about IDC. I think we have put out announcements like we have investment billion in the first phase. And you just mentioned, we will have sales volume reported in next year. So just wondering, can you share a bit more about the plan for the special our CapEx time line and the source of capital for this 6 billion or 2 billion enhancement? And what's our expected payback duration for the first phase of the production base? And what's the normalized apotbiliti from this business, do we expect will achieve and also for other like operating metrics will we have more other sources allocated for this new business development or we can use some of the synergies our Dacogroup aligned company. So a lot of details but can you share a bit more regarding to this net metrics.

Okay. Okay. Let me translate your question first quickly. Okay, hold on, [Interpreted]

Okay. Let me translate for Mr. Xi. Okay. I think, first of all, let me just clarify on the investments involved -- so even though the total project anticipated investment is RMB 6 billion. We're only committing the first phase right now, which is about RMB 3 billion, which will cover all of South State transformers, satiabreaker and also our e-house total solution for infrastructure and also some related to energy storage. And so the remaining $4 billion is not committed as of today. So -- and it will be planned sometime in the future. And then in terms of our strategy, so we're focusing on IT-related power infrastructure or equipment.

And then we expect to have 3 primary products. right, right? So 1 is a total solution or a package solution for -- which is going to be a plug and play kind of solution for AI infrastructure. which has all the related power equipment and then also our salsa transformers and solid state titbreakers and so it includes the related software and control. And there is very significant synergy with Dako Group, where we -- because of Dr. Coop's experience and know-how and also their position within the market. And we think that is actually we can receive significant orders from customers.

And so we're now in the phase of doing R&D and also the building of related manufacturing facilities. And the R&D team is now in place, and we continue to expect to have our prototype ready by year-end. -- and getting these products. So in terms of 2026 and 2027 is really a preparation period and introduction of the product into the market. And we think that the market will see a high growth phase from 2028 to 2030 and where we do expect a significant ramp-up of revenue during this period. for these related products and business.

For the $2 billion committed investment, we will spend in 2026.

Over the next 2 years, this year is only about I think it's only maybe USD 30 million to USD 40 million this year. And then the remaining will be over the next 2 years Yes. .

Sure. SP1 That's all from me. Thank you.

And then our CEO will make additional comments. [Interpreted]

Okay. And Mr. Xi will provide an update on our semiconductor polysilicon and business where the company has spent a total investment, including land and related equipment facilities of about RMB 1.2 billion into the business. And we've been doing a product trial production and also in terms of qualification with our customers. And the qualification cycle has been much longer than we anticipated, but we're continuing to do this. And he's very optimistic that he's looking at very significant market demand where specimen for seminate poly is roughly 75,000 tons per year.

While right now, the current industry production for semiconductor poly only about 57,000 tons per year. So it's letting a very significant growth for this product, this market sector. So we're going to wrap up and we integrate our activities for this.

This concludes our question-and-answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

Thank you, everyone, again, for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Daqo New Energy First Quarter 2026 Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jessie Zhao, Director of Investor Relations. Please go ahead.

Hello, everyone. 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 first 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 the business stream 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, 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 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 this 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, Mr. Anita Zhu. Ms. Zhu, please go ahead.

Thank you, Jessie. Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. Xu.

In the first quarter of 2026, market sentiment across the solar PV industry remained cautious amid seasonal softness and elevated inventory levels. It was further exacerbated by rising module prices driven by higher silver, aluminum, and glass costs, which led to a market slowdown in China. Geopolitical tensions in the Middle East also weighed on end market demand in the region.

Against this backdrop, persistent industry overcapacity continued to exert downward pressure on polysilicon prices, resulting in quarterly operating and net losses. Notwithstanding these headwinds, we continue to maintain a robust and healthy balance sheet with 0 debt.

As of March 31, 2026, we held a cash balance of USD 559.4 million, short-term investments of USD 288.3 million, bank notes receivable of $20.8 million, held-to-maturity investment of $50.3 million, and a fixed-term bank deposit balance of USD 1.1 billion. In total, these assets that can be converted into cash stood at USD 2 billion, providing us with ample liquidity. This solid financial position gives us the confidence and strategic flexibility to navigate the current market downturn.

On the operational front, we continue to take proactive measures to navigate challenging market conditions and weak selling prices with nameplate capacity utilization rate operating at approximately 57%.

Total production volume at our 2 polysilicon facilities was 43,402 metric tons for the quarter, exceeding our guidance range of 35,000 metric tons to 40,000 metric tons. With market prices for polysilicon experiencing a notable decline to be below production cost during the quarter, we adhered to the Chinese authorities' self-regulation guidelines by declining to engage in below-cost sales.

We adopted a disciplined wait-and-see approach, pending further implementation of the national anti-involution policies we highlighted last quarter. As a result, our sales volume dropped to 4,482 metric tons, while average selling price increased 2.3% sequentially to USD 5.96 per kilogram.

On the cost side, total production and cash costs increased marginally by 2% and 3% respectively on a sequential basis, primarily driven by exchange rate movements. However, despite higher silicon metal costs, manufacturing costs in RMB terms actually declined slightly on a sequential basis, reflecting our continued improvements in manufacturing efficiency.

In light of the current market dynamics, we expect total polysilicon production volume in the second quarter of 2026 to be approximately 35,000 metric tons to 40,000 metric tons. For the full year of 2026, we expect production volume to remain in the range of 140,000 to 170,000 metric tons.

With the solar market impacted by seasonality surrounding the Chinese New Year holidays and the absence of concrete updates on capacity rationalization policies, polysilicon transactions and shipment volumes remained low during the quarter. N-type polysilicon prices dropped from RMB 48 to RMB 55 per kilogram at the end of 2025 to RMB 35 to RMB 37 per kilogram by the end of the first quarter. However, polysilicon prices heading into the second quarter are showing signs of bottoming out with weekly declines gradually easing.

While producers await clear guidelines from authorities to tack overcapacity, a weak demand outlook, industry inventory buildup and financial pressure forced several peers to adjust their production pricing strategies toward a more market-oriented approach. As a result, industry-level polysilicon monthly supply fell to approximately 93,000 metric tons during the quarter, representing an industry average utilization rate of just 39%.

Looking ahead, we expect government authorities to strengthen the anti-involution policies necessary to address these industry-wide overcapacity issues. As an encouraging move on April 17, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the State Administration for Market Regulation, the National Energy Administration and other key national departments jointly had a symposium on regulating market competition within the solar PV sector, reinforcing the urgent need to address irrational competition and curb destructive revolution. Additionally, all relevant authorities are now required to deploy concerted measures to strengthen industry governance and promote the high-quality development of the solar PV industry, including in respect of capacity regulation, standards guidelines [Technical Difficulty]

Pardon me ladies and gentlemen, it appears we've lost connection to our speakers.

Sorry. Apologies, my line got disconnected.

So continuing with the April 17 symposium. All relevant authorities are now required to deploy concerted measures to strengthen industry governance and promote the high-quality development of the solar PV industry, including in respect of capacity regulations, standards guidance, innovation-driven development, price law enforcement, quality supervision, mergers and acquisitions, and intellectual property rights protection. More broadly, 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 0 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 the transition to clean energy, we are confident in our ability to play a leading role in shaping that future.

So 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 our earnings conference call today.

I will now go over the company's first quarter 2026 financial performance. Revenues were $26.7 million compared to $221.7 million in the fourth quarter of 2025 and $124 million in the first quarter of 2025. The decrease in revenue compared to the fourth quarter of 2025 was primarily due to a decrease in sales volume as the company reduced sales in light of the relatively low selling prices.

Gross loss was $139.4 million compared to a gross profit of $15.4 million in the fourth quarter of 2025 and gross loss of $81.5 million in the first quarter of 2025. Gross margin was negative 521% compared to 7% in the fourth quarter of 2025 and negative 65.8% in the first quarter of 2025. The decrease in gross margin compared to the fourth quarter of 2025 was primarily due to an increase in provision for inventory impairment.

Cost of revenue for the first quarter of 2026 includes $98.4 million of provisions for inventory impairment due to end of quarter market polysilicon pricing that is below production cost.

Selling, general and administrative expenses were $12.2 million compared to $18.7 million in the fourth quarter of 2025 and $35 million in the first quarter of 2025. The sequential decrease of SG&A expenses was primarily due to lower sales volume in the first quarter of 2026. The year-over-year decrease was also due to the company recognizing $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan in the first quarter of 2025.

R&D expenses were $0.8 million compared to $0.7 million in the fourth quarter of 2025 and $0.5 million in the first quarter of 2025. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter.

Loss from operations was $150.8 million compared to $20.9 million in the fourth quarter of 2025 and $114 million in the first quarter of 2025.

Operating margin was negative 564% compared to negative 9.4% in the fourth quarter of 2025 and negative 92% in the first quarter of 2025.

Net loss attributable to Daqo New Energy shareholders was $88.4 million compared to $7.3 million in the fourth quarter of 2025 and $71.8 million in the first quarter of 2025. Loss per basic ADS was $1.31 compared to $0.11 in the fourth quarter of 2025 and $1.07 in the first quarter of 2025. Adjusted net loss attributable to Daqo New Energy shareholders, excluding noncash share-based compensation costs, was $88.4 million compared to $7.3 million in the fourth quarter of 2025 and $53.2 million in the first quarter of 2025. Adjusted loss per basic ADS was $1.31 compared to $0.11 in the fourth quarter of 2025 and $0.80 in the first quarter of 2025.

EBITDA was a negative $83 million compared to $52.5 million in the fourth quarter of 2025 and negative $48 million in the first quarter of 2025. EBITDA margin was negative 311% compared to 23.7% in the fourth quarter of 2025 and negative 39% in the first quarter of 2025.

Now on the company's financial condition. As of March 31, 2026, the company had $559.4 million in cash, cash equivalents and restricted cash compared to $980 million as of December 31, 2025, and $792 million as of March 31, 2025. And as of March 31, 2026, short-term investments was $288 million compared to $114 million as of December 31, 2025, and $168 million as of March 31, 2025.

As of March 31, 2026, the notes receivable balance was $20.8 million compared to $135.5 million as of December 31, 2025, and $62.7 million as of March 31, 2025. Note receivables represent bank notes with maturity within 6 months. And as of March 31, 2026, held-to-maturity investment was $50.3 million compared to 0 as of December 31, 2025, and 0 as of March 31, 2025. As of March 31, 2026, the balance of fixed term deposit within 1 year was $1 billion compared to $972 million as of December 31, 2025, and $1.1 billion as of March 31, 2025.

Now the company's cash flow. For the 3 months ended March 31, 2026, net cash used in operating activities was $147.5 million compared to $38.9 million in the same period of 2025. And for 3 months ended March 31, 2026, net cash used in investing activities was $275.8 million compared to $211 million in the same period of 2025. Net cash used in investing activities in 2026 was primarily due to the purchase of short-term investments and fixed term deposits. And for the 3 months ended March 31, 2026, net cash used in financing activities was $7.8 million compared to 0 in the same period of 2025. Net cash used in financing activities in 2026 was primarily related to $7.8 million of share repurchases made by the company's subsidiary, Xinjiang Daqo, from its minority shareholders.

That concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

Our first question comes from Philip Shen with ROTH Capital Partners.

First one is on the state administration for market regulation. Tier 1 manufacturers submitted formal correction proposals. Can you walk us through how these specific proposals are practically shifting or may practically shift competitive dynamics on the ground today? Ultimately, do these commitments accelerate or delay the necessary industry consolidation needed to stabilize ASPs?

So you're kind of breaking up on our end. Can you repeat your question?

Yes, sure. So just wanted to understand what the submissions to the state administration for market regulation, those proposals, how could they practically improve the competitive dynamics to accelerate or delay the necessary industry consolidation needed to stabilize ASPs?

Anita, do you want to start first, and I can add to that? Or let me just start by -- our understanding is, I think that the government, especially at the most recent industry meeting with the Ministry of Industry Information Technology and NDRC and NEA and the Market Regulation Agency -- so basically, there is a consensus from the government that at the minimum, while maintaining some market competition, there's a need to enforce the price law. And now there is some details to be determined in terms of, for example, how to measure cost for all the different manufacturers. And our understanding is they're doing a new round of price determination. So this should come out, say, in the next 2 months or so. Our understanding is around midyear.

So once that new cost determination is being done and then there will be a renewed guidance on where the minimum price would be. And then at the same time, we're still monitoring in terms of how the enforcement can be done. There may be some enforcement actions that's being discussed, but that hasn't taken place yet. So at least for us, right, so we're in observation mode in terms of whether enforcement happens. I mean, if there's no enforcement, then we maybe need to sell wherever the market is, right? I mean, at least right now, we're enforcing the price only in our sales efforts, right? But obviously, that's having a negative impact on our sales volume, right?

So we're waiting for that to happen. But our expectation is that once the new cost determination comes out and manufacturers are now required to sell above production costs and then the market price should recover. So that's at least our -- yes.

In terms of enforcement actions, what could that look like and what kind of timing could that be? Do you think the probability of enforcement action is higher or lower or like greater than 50% or less than 50%?

Okay. Our understanding is rather than depending on the company's own reported cost, right, so the government is trying to have a cost model that is consistent across all the manufacturers in terms of like material cost, depreciation, labor and things like that, right? So once that is done, then we don't know if it's going to be one general price or there could be a different price for manufacturers. So that's to be determined. And then once that is done, then I think there will be enforcement or at least they will communicate how enforcement will be done.

Previously, right, this would be in the form of a fairly significant penalty or in a worst-case scenario, you could revoke your manufacturing license or shut down your electricity. So there are many ways that the government could enforce, but we're yet to see that right now.

Got it. And then final question for me. So given all that and with -- the reality is you guys still need to operate and participate in the market. And so what do you think is a practical outlook for ASPs for Q2, Q3? And what do you think your utilization rate might be in those quarters?

Okay. I mean, for Q2, then it will be optimistic, right? I mean, cash price is kind of in the RMB 35 to RMB 37 range. I think some producers, if they have cash issues, they might sell a little bit discount to that. And then there are opportunities in the futures market, for example, where you might be able to sell a little bit higher, maybe in the RMB 38 to RMB 41 per range depending on the contract period. So we're looking at that as well.

So let's say, if there is no price guidance and enforcement action, I think then the price range is maybe RMB 35 to RMB 40. Honestly, if price guidance does come out, it should be in the range of RMB 40 to RMB 45 or maybe even higher. And these are inclusive of VATs.

The utilization rate, do you have a sense for Q2 and Q3 yet?

For us or for the industry?

For you.

For us, it will be at roughly 50% to 55%. We're maintaining utilization for now because we're kind of at a fairly optimal operating condition in terms of both quality and cost, and production volume. And adjustments will generally -- our experience is will bring short-term volatility to both quality and cost. So at least in the short term we're maintaining the current production level. And obviously, either the new price guidance -- or enforcement, if it says below expectation, below what we would expect and price remain low, then we would make further adjustments in the second half. And this is subject to demand environment as well. Q1 was a really fairly negative demand environment overall, I would say.

Our next question comes from Alan Lau with Jefferies.

In terms of the sales volume and the revenue in first quarter is a bit of a surprise. I would like to know if I do the math and back the ASP in the first quarter, it seems to be at around RMB 41 or RMB 42, ex VAT. So does it mean that the company didn't sell anything maybe after February?

I think that is the right way to look at this in terms of -- yes, we did sell volume in January at the high 40s, inclusive of VAT, right? I think actually our Q1 recognized ASP is higher than Q4, while if you look at market ASP is actually, on average, is much lower than Q4. And I think the big change is really around Chinese New Year, especially after Chinese New Year, where with the new policy from the state administration of market regulators was that the anti-evolution policy that was counted on previously to reduce capacity and enforce price was kind of disrupted, right? So that's when we start to see price to come down fairly quickly and significantly, right? So once price fell below production cost, and then we stopped selling to the market.

The market generally in the first quarter was really -- I can characterize it by fairly high uncertainty, right? You have a number of things happening, the war in the Middle East, the high silver prices, right, that led to a lot of uncertainty for the downstream. Actually they were seeing fairly significant increase in their production costs, at the same time it was difficult for them to pass through all that increase while that's having a fairly negative impact to the Chinese end market as well. So these combined really led to a fairly low industry transaction volume for polysilicon in the first quarter.

I recall...

Let me add...

Anita go ahead.

No, I was just going to say, let me add a little bit more to that. So in terms of the industry-level inventory, it has accumulated to a relatively high level. So I would say in the first quarter has been above 500,000 metric tons, and it's now nearly 600,000 metric tons. So I would say Tier 1 manufacturers held roughly at least 3 months of stock. So that's why that led to a wait-and-see attitude from the downstream buyers. And for us, especially, we wanted to adhere to the Chinese authority self-regulation guidelines. So we were relatively reluctant to engage in below-cost sales. So we took this wait-and-see approach to see further implementation from the national policies level.

Understood. Sorry, how much did the Tier 1 producers are holding in terms of inventory? Is it 500,000?

Like in total?

That total is 500,000.

Yes, around that.

So how much is in Tier 1?

Including the downstream as well.

Including wafer players, okay.

[Indiscernible]

So I recall actually in January and February, actually demand was quite good because downstream players are having a rush export to catch the VAT deadline. So I wonder why the company didn't sell more in January or February maybe, like because 4,000 tons seems to be just 10% of the production?

Okay. Let me add more color and then maybe Anita can feel free to add more. So I think what happened was there's fairly strong demand for the modules, especially for the European market. But what happened was these integrated manufacturers, especially we were selling mostly their existing inventory of modules. And then they were also producing, but primarily, I would call it, using their own inventory, right? They had some inventory of poly and materials. And I think the uncertainty in cost especially after Chinese New Year led them to really hold off or delay their procurement of polysilicon, I think especially uncertainty related to demand after April 1, right? And then with the war that made even a little bit worse. Yes. So I would say the market probably had reasonable amount of transactions in January, but really February and March was lower.

Then you have this expectation of falling prices, especially for polysilicon because of the inventory issues. So that made it probably even worse or a little bit worse in terms of -- the customers, they buy when prices are rising, but they delay purchase when prices are falling.

Understood. So in terms of the price outlook, I think I just want to have a follow-up on Phil's question. So approximately, when you think there will be a guideline coming from the authority, like when do you think -- or like is it within a month or a quarter that price will start to rebound? Or like what is the time line there? And is there regular meetings with the authority to discuss the details on the enforcement? Or like what is the status now?

Our understanding should be around June. And then right now, they're redoing the cost model for all the different producers and then trying to make an alignment. So once that cost is done and then the next step would be an updated price guidance.

So to my understanding, that will be more like an enforcement of the price law, which means everyone should sell above their cost. But the previous acquisition incentives are -- is it basically rejected or it's still -- yes, or it's still aligned for, like what's the -- any updates on that?

There's no update to that as of now. There's no new guidance or development. They don't...

I would say we're open to different kinds of proposals, but we're not 100% sure how that might unfold. But we're engaging in conversations now to discover or to test different sorts of solutions. So anything that would benefit the industry as a whole and for manufacturers as well, we're willing to try out or at least try to come to a solution with concerted efforts towards that.

I would say that the general policy of the government is positive and promoting mergers and acquisition to, call it, for more consolidation, right? But in terms of how that might lead to actual policies or action, that's still yet to be seen.

So I wonder if you are seeing any uptick of demand recently because demand, I think, was quite poor in the past couple of months. But wondering if you are seeing any recovery in demand.

I would say on the module side and end market, certainly right now, Q2 is actually trending to look better than Q1. So we shall see. And then definitely, I think downstream inventory is coming down. So that's also a good sign.

Poly prices are also bottoming. So I would like to know if the company -- like because the sales was very low at first quarter, not sure if the strategy is the same in second quarter. If that's the case, then I would like to know if -- has the company considered maintaining an even lower utilization rate, like because the company was also running at like more than 50%. But I recall the company used to be running at 30%. So any consideration behind that, like running the utilization rate at a relatively high level?

I would say that the general framework for the company is we're monitoring the developments of the price law, especially. So if the companies do prefer the price law or not are required to sell above production cost, and we're fairly confident on where we are in terms of industry positioning, right, and then we should regain market share. And it will be a function of demand as well. So if that's the case, then we might maintain the current utilization level. But let's say, if it turns out to be more negative in terms of -- especially if prices remain where it is right now, then we would consider a lower utilization rate.

Our next question comes from Mengwen Wang with Goldman Sachs.

My question is about utilization as well. So my understanding now is that our current strategy is to maintain over 50% utilization and stop selling to external customers at below cost pricing. So this is based on the assumption of potential further regulation to drive poly price higher to RMB 40 per kilo and above. Is that correct?

That's generally the right thinking. So it's kind of a scenario, right? So the 2 major scenarios where if the government does what it says, right, enforce price law, right, penalties and all that and then have the manufacturer sell above cost, then we would maintain at the current utilization. On the other hand, if unfortunately, price laws have been forced for whatever reason, right, and the manufacturers continue to sell below cost, then we will lower our utilization.

So if we assume a scenario like no policy kicking and the pricing is likely to stay at the current level, then what's our sales strategy and production strategy in 2Q and in second half? Say -- is there any guidance on the utilization rate in this scenario? And on top of the utilization guidance, will we follow the rest of the industry to sell product at below cost pricing or we will continue to stop selling at the lower pricing level and continue to tie up the inventory and then wait for the sector turnaround?

Okay. So if we assume, right, the government, despite all the rhetoric, nothing happens, right? I think that's unlikely because -- I mean, there's a lot of pressure on my team right now as well. So by the way, let's assume that happens. And then obviously, we would lower our utilization and then start to sell at close to market pricing, right, whatever it takes to move volume. So I mean, then we would compete with our peers, right? And then obviously, we have a strong balance sheet.

So I mean, we expect we would be one of the last provider if not the last provider, right. Then we would actually in say, 2 or 3 years, we will see fairly significant exit of the industry where then we have a market-based, call it, capacity consolidation, right? And then the company will do fairly well after that. So it's a trade-off.

Yes. That's clear. So I recall you just mentioned like you expect the policy will kick in, in June, and that's the month where we would expect a potential price hike. So if to reconcile your expectations, can we assume like we will keep utilization at 50% above to June and then start selling at close to market pricing if no policy kick in?

I think that's the right assumption, yes. So there is no policy, right? If price remain low, then we would be at a reduced utilization. And if the government does enforce price law, then we would maintain at least the current utilization.

So June is the month we are waiting for any policy to kick in, right? And if not, they will switch our strategy.

In terms of communication with government -- go ahead Mengwen.

No worries, it's fine.

Yes. I understand June is the time line of the new government policy.

My final question is about cash cost. Is there any guidance about our cash cost in second quarter and in the second half of 2026?

I think based on our current utilization production level and the current silicon metal costs and material costs, for example, we're expecting our cash cost to be in line with Q2 in terms of RMB terms and trending slightly lower over the next quarters. So a fairly steady cost structure.

This concludes our question-and-answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Daqo Energy New (sic) [ Daqo New Energy ]Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. 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 fourth quarter of 2025, 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. Xu.

Today's call will begin with an update from Ms. Zhu on market conditions and company operations, 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 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 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 this translation 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.

Hello, everyone. This is Anita. Happy Year of the Horse. And I'll now deliver the remarks on behalf of our Chairman, Mr. Xu. In 2025, China's anti-involution initiatives supported the solar PV industry's gradual emergence from a cyclical downturn. As a result, solar product market prices rebounded from the third quarter onward with the polysilicon sector posting the most notable gains. Following with this trend, our utilization rate increased from 33% in Q1 to 55% in Q4, bringing our annual production volumes to 123,652 metric ton, in line with our guidance of 121,000 metric tons to 124,000 metric tons, representing a 39.7% year-over-year decrease from 205,068 metric tons in 2024. Furthermore, our 2025 sales volume reached 126,707 metric tons, exceeding production volume and reducing year-end inventory to a reasonable level.

In the second half of 2025, we strategically ramped up sales efforts to capitalize on favorable pricing dynamics. The strong market response highlighted growing customer confidence in our product quality and their continued preference for our brand in this new pricing environment. However, polysilicon ASPs decreased 7.2% from USD 5.66 per kilogram in 2024 to USD 5.25 per kilogram in 2025. This lower pricing, combined with reduced sales volume, resulted in revenue of USD 665 million in 2025 compared to USD 1 billion in 2024.

Despite the decline in our top line, we significantly have narrowed our losses during the year as compared to 2024. In particular, EBITDA swung to a positive USD 1.7 million in 2025 compared to a negative USD 337.4 million in 2024, while net loss attributable to Daqo New Energy Corp. shareholders narrowed to USD 170.5 million from USD 345.2 million in 2024. Moreover, we generated USD 56.1 million in positive operating cash flow in 2025, marking a notable debt turnaround from the USD 435 million outflow recorded in 2024.

We continue to maintain a strong balance sheet and ample cash reserves. At the end of 2025, we had a cash balance of USD 980 million, short-term investments of USD 114 million, bank notes receivable of USD 136 million and a fixed-term bank deposit balance of USD 1 billion. In total, these highly liquid assets stood at USD 2.27 billion, representing an increase of USD 57 million compared to the end of the previous quarter. This solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capitalize on long-term opportunities.

Operationally, we continue to implement proactive measures in the fourth quarter to mitigate market oversupply, including operating at a nameplate capacity utilization rate of 55%. Total polysilicon production for the fourth quarter was 42,181 metric tons, in line with our guidance range of 39,500 to 42,500 metric tons. And our sales volume for the quarter reached 38,167 metric tons.

In addition, we comprehensively reduced our production costs through process improvements, manufacturing efficiency gains and raw material cost optimization. Extending our ongoing cost reduction initiatives, total production costs declined by 9% to USD 5.83 per kilogram in Q4 2025 from USD 6.38 per kilogram in Q3 2025. Total idle facility-related costs, which consists primarily of noncash depreciation expenses alongside approximately USD 0.1 per kilogram in cash cost for maintenance, also fell to USD 0.74 per kilogram in Q4 from USD 1.18 per kilogram in Q3, driven by higher production levels. Notably, cash costs decreased by 2% from USD 4.54 per kilogram in Q3 to a new record low of USD 4.46 per kilogram in Q4.

In light of current market conditions, we expect our total polysilicon production volume in the first quarter of 2026 to be approximately 35,000 metric tons to 40,000 metric tons, and our full year 2026 production volume to be in the range of 140,000 metric tons to 170,000 metric tons.

Chinese authorities demonstrated strong resolve in tackling irrational competition and industry overcapacity, formally designating anti-involution as a national priority within China's 15th Five-Year Plan, and the solar PV industry was a key focus of these efforts. These initiatives have driven a structural shift from price-based competition to value-driven differentiation. To advance industry governance, authorities deployed targeted measures, including standards guidance, quality supervision, price enforcement and promotion of technological progress. Specifically, this involved updating legislative frameworks such as the revised Anti-Unfair Competition Law and the draft amendment to the Price Law, which mandates that sales shall not be below cost.

Furthermore, a new mandatory national standard was drafted to set strict energy consumption limits for polysilicon production on a per unit basis. Led by the China Photovoltaic Industry Association, major polysilicon manufacturers have proactively responded to these initiatives, enforcing self-discipline and exploring innovative market-oriented approaches to combat excess capacity and pricing violations. These coordinated efforts have yielded measurable results in curbing overcapacity. The overall production volumes fell by 28.4% to 1.32 million metric tons in 2025, and market prices surged more than 50% from the mid-2025 lows to RMB 50 to RMB 56 per kilogram by year-end.

Looking ahead, we expect anti-involution initiatives will remain a central theme for the solar PV industry, supporting a more balanced supply and demand dynamic and driving higher quality growth through 2026. More broadly, the solar PV industry continues to exhibit compelling long-term growth prospects. In 2025, China's newly installed solar PV capacity grew 14% year-over-year to 317 gigawatts, setting yet another record high and proving that market potential continues to exceed expectations.

As the global AI industry scales rapidly, space-based solar power is increasingly viewed as a vital solution to the immense and expanding energy demands of AI data centers, creating a significant new growth engine for the sector. Looking ahead, as one of the world's lowest cost producers of the highest quality N-type polysilicon with a strong balance sheet and no debt, we remain optimistic about the sector and believe we're ideally positioned to capitalize on the market recovery and these long-term growth opportunities.

We will 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 powering the future.

Now I'll turn the call to our CFO, Mr. Ming Yan, 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 fourth quarter 2025 financial performance.

Revenues were $221.7 million compared to $244.6 million in the third quarter of 2025 and $195.4 million in the fourth quarter of 2024. The decrease in revenue compared to the third quarter of 2025 was primarily due to a decrease in sales volume. Gross profit was $15.4 million compared to $9.7 million in the third quarter of 2025 and gross loss of $65.3 million in the fourth quarter of 2024. Gross margin was 7% compared to 3.9% in the third quarter of 2025 and negative 33% in the fourth quarter of 2024. The increase in gross margin compared to the third quarter of 2025 was primarily due to the decrease in production costs.

Selling, general and administrative expenses were $18.7 million compared to $32.3 million in the third quarter of 2025 and $29.4 million in the fourth quarter of 2024. The decrease was primarily due to the reduction in noncash share-based compensation costs related to the company's share incentive plan, which was $0 for the fourth quarter and $18.6 million in the third quarter of 2025. The company recognized $19.3 million in noncash expense related to allowance for credit loss in the fourth quarter, mainly due to the uncertainty regarding the recoverability of long outstanding other receivables. And let me give a little more color on this.

During the early development stage of the company's Inner Mongolia polysilicon project, funds were lent to a local government affiliated industrial park development entity for supporting the infrastructure building and development of our Inner Mongolia polysilicon site. The local government affiliated entity will repay these funds later. However, due to industry downturn that resulted in insufficient local tax revenue, the repayment has been delayed. As a result, we recorded an allowance for credit loss due to the delayed repayment of these funds. All amounts due has been reserved, and we do not expect any future related allowance for credit loss.

R&D expenses were $0.7 million compared to $0.6 million in the third quarter of 2025 and $0.4 million in the fourth quarter of 2024. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. As a result of the foregoing, loss from operations was $20.9 million compared to $20.3 million in the third quarter of 2025 and $300 million in the fourth quarter of 2024. Operating margin was negative 9.4% compared to negative 8.3% in the third quarter of 2025 and negative 154% in the fourth quarter of 2024.

Net loss attributable to Daqo New Energy shareholders was $7.3 million compared to $14.9 million in the third quarter of 2025 and $180 million in the fourth quarter of 2024. Loss per basic ADS was $0.11 compared to $0.22 in the third quarter of 2025 and $2.71 in the fourth quarter of 2024. Adjusted net loss attributable to Daqo New Energy shareholders, excluding noncash share-based compensation costs, was $7.3 million compared to adjusted net income attributable to Daqo New Energy Corp. shareholders of $3.7 million in the third quarter of 2025 and adjusted net loss attributable to Daqo New Energy shareholders of $170.6 million in the fourth quarter of 2024.

Adjusted loss per basic ADS was $0.11 compared to adjusted earnings per basic ADS of $0.05 in the third quarter of 2025, adjusted loss per basic ADS of $2.56 in the fourth quarter of 2024. EBITDA was $52 million compared to $45.8 million in the third quarter of 2025, a negative $235 million in the fourth quarter of 2024. EBITDA margin was 23.7% compared to 18.7% in the third quarter of 2025 and negative 120% in the fourth quarter of 2024.

Now I will go over the company's full year 2025 financial results. Revenues were $665 million compared to $1.03 billion in 2024. The decrease was primarily due to lower sales volume as well as lower polysilicon average selling prices. Gross loss was $137.9 million compared to $212.9 million in 2024. Gross margin was negative 20.7% compared to negative 20.7% in 2024. The decrease in gross loss was primarily due to lower revenue.

SG&A expenses were $118.2 million compared to $143 million in 2024. The decrease was primarily due to a reduction in noncash share-based compensation costs related to the company's share incentive plan, which was $55.8 million and $72.4 million in 2025 and 2024, respectively. R&D expenses were $2.6 million compared to $4.6 million in 2024. R&D expenses reflect R&D activities that take place during the period. As a result of the foregoing, loss from operations was $270 million compared to $564 million in 2024.

Operating margin was negative 40.6% compared to negative 54.8% in 2024. Net interest income was $9 million compared to $30.2 million in 2024. The decrease in interest income was due to lower cash bank balance as well as lower bank interest rate. In addition to the interest income, the company did record $24.1 million in gain on short-term investments for 2025 related to the purchase of bank short-term investment products. Net loss attributable to Daqo New Energy Corp. shareholders was $170.5 million compared to $245 million in 2024. Loss per basic ADS was $2.53 compared to $5.22 in 2024.

Adjusted net loss to Daqo New Energy shareholders was $114.7 million compared to $272 million in 2024. Adjusted loss per basic ADS was $1.70 compared to $4.12 in 2024. EBITDA was $1.7 million compared to negative $337 million in 2024. EBITDA margin was 0.3% compared to negative 32.8% in 2024.

Now on the company's financial condition. As of December 31, 2025, the company had $980 million in cash, cash equivalents and restricted cash compared to $551.6 million as of September 30, 2025, and $1.04 billion as of December 31, 2024. And as of December 31, 2025, short-term investment was $114 million compared to $431 million as of September 30, 2025, and $9.6 million as of December 31, 2024. And as of December 31, 2025, notes receivable balance was $135.5 million compared to $157 million as of September 30, 2025, and $55.2 million as of December 31, 2024. Notes receivables represent bank notes with maturity within 6 months. As of December 31, 2025, the balance of fixed term deposit within 1 year was $972.4 million compared to $1.03 billion as of September 30, 2025, and $1.08 billion as of December 31, 2024.

Now on the company's cash flows. For the 12 months ended December 31, 2025, net cash provided [ by ] operating activities was $56.1 million compared to net cash used in operating activities of $435 million in the same period of 2024. And for the 12 months ended December 31, 2025, net cash used in investing activities was $140.7 million compared to $1.48 billion in the same period of 2024. The net cash used in investment activities in 2025 includes $179.5 million for the purchase of property, plant and equipment, primarily related to the remaining capital expenditures of the company's Inner Mongolia polysilicon project.

For the year 2026, the company currently expects approximately $100 million to $150 million of capital expenditures for the year primarily related to the remaining payments for the Inner Mongolia project as well as maintenance CapEx. For the 12 months ended December 31, 2025, net cash used in finance activities was $0.9 million compared to $47.4 million in the same period of 2024. The net cash used in finance activities in 2025 was related to $0.9 million in stock repurchases made by the company's subsidiary, Xinjiang Daqo, to its minority shareholders.

And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

[Operator Instructions] The first question today comes from Alan Hon with JPMorgan.

It's great to see like a recovery for the company. I mean I have like -- the first question I have is regarding like a potential buyback because like it's great to see we are finally generating operating -- positive operating cash flow for the full year last year. And in this sort of environment, like how should we think about like a buyback strategy?

Thank you, Alan, for raising the question. So first, I would say that share repurchase is absolutely a topic that we've been monitoring closely as part of our capital allocation strategy, and we're taking a more prudent and informed approach, especially given the evolving landscape around China's anti-involution policies in the solar sector. While we definitely see tremendous value in terms of valuing our shares, especially amid the current market dynamics, we believe it's essential to wait for more clarity on the policy implementation and also the outcomes before proceeding. We believe that this wait-and-see stance would allow us to optimize the timing and also the impact of the repurchase program better.

And my next question is on the policy outlook. I guess we are aware that like a consolidation platform was formed in December, soon after followed by like a antitrust -- I mean, questions by some of the regulator. I mean, can you give us like a color? I mean -- or what do you think? How the industry consolidation would happen? I mean, should we just like discount the consolidation from the moment? Or how should we think about that? And also, I just noticed like one of your peers has just conducted like a M&A, I mean, on buying out some of the small players. I mean, is that part of your strategy as well?

Maybe I'll answer it -- I'll answer the question of the recent acquisition by our peers first and then move on to the anti-involution dynamics. So I would say that we see this as the individual player's strategic decision, especially -- reflecting their confidence in the sector's future and also their determination to further strengthen their competitive positioning. For us, I would say we are completely open-minded toward opportunities that could create value for the industry and also for our shareholders. And we do view such transactions as constructive that would drive the market consolidation the national anti-involution policy is designed to achieve.

And direct acquisition or consolidation via the SPV that you mentioned are both formed toward achieving the same goal essentially, shifting toward a more rational and a more efficient industry structure, something that we strongly support.

That being said, I just want to reiterate that the anti-involution is designated as a national priority within China's next Five-Year Plan. And as one of the major players in industry, we are determined to address the overcapacity challenge, which we believe will ultimately become a value-driven gain by innovations and also technological progresses instead of the current price-based competition and lead to a more healthier and more sustainable industry.

And indeed, the SPV for consolidation that many of you might be aware was successfully established by the end of 2025 in December, which marks the first step and also signaling our resolve to collaboratively tackle the overcapacity issue. But of course, it's not an easy task with lots of back and forth within the participants and also with the government entities. But I want to say that discussions are actively ongoing with a strong emphasis on maintaining a more market-oriented approach to ensure that we meet the competition and we are abiding by the guidelines, the regulatory guidelines.

And to provide more color, we will approach this in a more well-defined phases, potentially with initial investment injections anticipated in the near term, which would lay the foundation of the financial stability. And also we -- from there, we will gradually move towards the consolidation, allowing for more efficient resource allocation and enhance operational synergies across the value chain. And we believe that this structured progression would not only align with the current regulatory guidelines, but also position our company and the industry at large for longer-term resilience and profitability. So we are quite optimistic about these developments.

The next question comes from Phil Shen with ROTH Capital Partners.

As a follow-up to that last question from Alan, I was wondering if you might be able to share what are some of the key milestones that we should be looking for in the coming quarters that show progress on the mandatory national standard. There's a draft, but when does that become implemented, for example? And then with the Anti-Unfair Competition Law and the draft amendment to the Price law, like what are the milestones that we should be following so that we can see the progress in the industry structure as well as the competition or the industry consolidating?

I would say because there's not much information and there's a lack of clarity and transparency in the current dynamics, it's difficult for us to say exactly what you might be monitoring because not a lot of details are released until the policies land. But prices -- we definitely see a pricing recovery. And as part of the Price Law, sales should not be below the industry level cost. So that's a positive side. But yes, I would say we would have to be a bit more patient with the policies as the conversations are still ongoing.

So this is Ming. Let me just quickly follow up. So I think there's a very high level like government meeting coming up that will discuss the next Five-Year Plan. As part of that, I think there's a presentation by a key government agency on the progress of anti-involution. So I think after the top-level central government meeting, then I think more policies will come forward. So that's something to monitor.

Okay. Great. Okay. And then shifting over to the price outlook. I know there's not as much clarity on the milestones for policy. But what's your assumption for poly prices in Q1 and Q2? And if you have a view for the rest of the year, that would be great.

Okay. So like I just said, so as part of the pricing law, like sales are not -- should not be below the industry level cost. So I would say the lower band would be at least RMB 53, RMB 54 per kilogram, and we would remain around that level for the coming quarters. And it's hard for us to say what -- where prices would go in the coming quarters because that will essentially depend on how the SPV would evolve and what would be the pace of the consolidation.

Okay. Got it. And then for the things that you guys can control, costs were down and hit a record low in Q4. How much do you think you can lower your cash costs by the end of '26?

Phil, this is Ming. So I think we continue to make progress on both production costs and cash costs. I think this quarter, we benefited from lower energy price or cost as well as additional manufacturing efficiencies. I think we should continue to benefit. I do think that for probably Q1 and Q2, we're likely to see similar cash cost to the Q4 level and then with further reduction in the second half.

The next question comes from Emmett Lau with Jefferies.

I think it's a follow-up on the previous question. Basically, it's intertwined like -- if the price you have mentioned should be above RMB 50. So the question here is, but if the price is not allowed to push up to above RMB 60, then what is the incentive here for acquiring other capacities, like the plan before? I don't know like what was the thinking behind or the -- or acquisition will happen like what your peers are doing. Basically, each company are having a stand-alone basis. Or like I don't know like how is the whole coordination versus the prices coordinated.

Sorry, Alan. Can you repeat the question again? I don't think I caught all of the...

Yes. So I mean, previously, the incentive, to my understanding, is that you -- the remaining players can push prices above RMB 60. And then I think there was some -- the window guidance from the regulatory kind of saying that you cannot control prices. So if the industry or the major players are still going to acquire the smaller players, but then you can push up prices, then what is the point of acquiring smaller players? And how do you expect the price outlook going forward? Because like if you couldn't make money, then why would you acquire anyone?

Like I said, I think it would have to be done in phases, right? So first step is that you're not allowed to be selling below the cost. And then gradually, you would move on to the consolidation and phasing out the excess and outdated capacity. And it's hard for us to say how high prices can go because we want to focus on a more market-oriented approach to achieving this.

So do you -- like the acquisition will happen in phases, which probably last for a longer time?

Yes. I would say it would have to be done over a couple of years. Like it won't be done like all at once.

I see. So -- and I've noticed that prices actually have gone down a little bit recently from around RMB 60 to RMB 50-ish. I think futures price is below RMB 50 already. So like how -- what do you expect the price in first Q and second quarter?

I think Phil also touched upon the pricing outlook for the first half of 2026. And I would say it would be at least around RMB 53, RMB 54, given that's roughly the industry level cost currently. Yes. And moving forward, it will really depend on the pace of the consolidation. And that will determine how high this price would go.

Understood. And then in 4Q results, if I simply divide the revenue by the sales volume -- apparently, the ASP seems to be lower than the spot prices. I wonder if there's some delay recognition that might be delayed to first quarter and support prices in third quarter's result? Or like why was that -- the revenue in 4Q appears to be slightly lower than the spot prices?

You mean that the ASP in 4Q was below spot price?

Yes. Yes, sir.

Okay. I think in Q4, the mix is such that -- because we were ramping up additional volume, right, or production, and the initial batch of production from that initial ramp-up, I think -- it's consistent with our past experience that the qualities were not that great, okay? So those actually had a market discount, right? I think it's maybe December then we kind of normalized in terms of product quality. So it's that factor that led to a slightly lower ASP -- overall ASP.

I see. So investors understand this as a factor that would be normalized in first quarter, meaning that even if the spot market prices are marginally lower, but the ASP of the company will probably be more flattish than the decline in spot prices.

Yes, I think we would expect that. Yes.

I think my last question is on the more broader perspective from the industry. So like would you consider any acquisition? I've noticed that Anita has mentioned you're open-minded, but are you liaising with any other specific player already? Or it's still not on the schedule yet?

So like I mentioned at the beginning, so I think that we are open-minded toward these different opportunities either via acquisition or consolidation. But as part of the SPVs, we're quite confident that we'll see something in formation in the coming -- in the near term or in the coming quarters. So that would be our primary focus for now. However, in the worst case, of course, acquisition -- acquiring directly would also be something that we could consider.

The next question comes from Mengwen with Goldman Sachs.

I have 2 follow-up questions. The first is regarding to our M&A target. I heard Anita, you said you are open-minded for the acquisition opportunities. So could you elaborate from here, like, is there any market share target for us like from 10 plus to further higher in the future? And what kind of capacity do we prefer more in terms of acquisition on our own? That's my first question.

So first, I think we -- first, I would say that we are comfortable with where we are right now given the current market dynamics because essentially none of the players is operating at full utilization rate. Of course, in the future, like our peers, if we want to further strengthen our positioning by grasping more market share -- we don't have a specific number in mind as to how much we want to -- where we want to be. But I would say if it's aligned with the national anti-involution initiative, it's something that we would consider to do in the future.

Yes, sure. So that follows my second question. Can you help us to understand a bit more like based on our conversation with government and with the leading industry players, how we should define the success of the anti-involution in the poly sector from here? Because in the past, we saw when poly price increased to above our OP cost and then that concludes the success of the anti-involution. And it seems poly price continue increasing, and so a bit bumpy. And also there's some ongoing acquisitions. So what shall we look forward to in terms of the future anti-involution progress? And when we can call it a successful complete anti-involution in our poly sector?

So I -- first, I think that for the anti-involution initiative, it would extend over a number of years given that this round the excess problem is very deep rooted. So the main capacity of -- including everything, is more than 3 million metric tons, which is more than double the demand now. So I would say until the more outdated and smaller players exit and prices restore to a more healthier level so that the industry as a whole becomes profitable to support the overall renewable energy, the goal, yes, that's when we would say the anti-involution is completed.

So can we understand in this way, like the key target for the anti-involution is to sustain the poly price at over current level at least and then to help facilitate outdated capacity exit, and that would take longer time than expected. But ultimately, the key target going forward is to take the smaller players offline. Is that correct?

Yes, I would say that's the aim.

Sure. So the total outdated capacity to go offline is still around 1 million to 1.5 million tons. Is that right?

Yes, that's about the number.

The next question comes from Gordon Johnson with GIJ (sic) [ GLJ ] Research.

So I guess piggybacking off of a question that was touched on earlier, it seems like in the spot market polysilicon prices had surged and now they've come off. And specifically when I talk about the spot market, I'm talking about the futures market. And it also seems like due to the policy changes in China, demand has been I think somewhat subdued. So can you give us an outlook on what your expectations are with the puts and takes around anti-involution? What your outlook is on polysilicon prices in the first quarter and maybe the second quarter? And then I have a follow-up.

So you're asking about, first, the futures market and also the pricing outlook for the first and second quarter?

Yes, please.

Okay. For the pricing outlook, I already answered Phil and also Alan's question, but I can repeat it again. So for the first and second quarter for pricing, as mandated by the pricing law, sales should not be below the industry level cost. So I would say it should be at least RMB 53, RMB 54 per kilogram in the coming quarters. And for the futures market, I would say it's an area with the potential for risk management and also pricing stability in our industry. And we do see participation in the futures market as an extension of the current sales strategy, offering the chance to hedge against volatility and also to secure some profitable margins.

But similar to our approach on share repurchases, I would say we are prioritizing policy clarity around the anti-involution dynamics in China before diving in the futures market. We would definitely employ a more disciplined strategy in the futures strategy, gathering more insights as the policies unfold to ensure that our involvement is strategic and also value accretive.

So that's helpful. But I guess -- and I appreciate that. I didn't mean to re-ask the question, but looking at the futures price, [ RMB 46.315 ] right now, and looking at the recent comments from the government on anti-involution, is there any potential that prices could come in, in the first half below the RMB 53 to RMB 54 range you're targeting? Or is that something that you're pretty certain of?

I think that's the industry level cost at the moment. So given that we're not supposed to be selling below that cost due to the pricing law, I would say it should be somewhat sustained at that level.

Helpful. And then the last question is, you made significant improvement on your free cash flow -- congratulations -- in 2025. Do you have any thoughts on how you expect free cash flow to trend this year?

Gordon, let me answer that. This is Ming. Okay. So yes, I think free cash flow turned positive, especially in the second half of 2025. I think given our expectation for both volume and average selling price to be held more steady as well as cost to remain stable to lower, we do believe that -- and I think based on the Q4 level, free cash flow should -- without -- I mean, without giving a specific number, free cash flow should improve further I think from the Q4 level going forward for 2026.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and have an awesome day. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Hello, and welcome to the Daqo New Energy Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Stockholm New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the third quarter of 2025, 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, Ms. Ming Yang; and myself, our Chairman and CEO, Mr. Xiang Xu is on a business that now. So Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xu.

Today's call will begin with an update from Ms. Zhu on market conditions and company operations, and then Mr. Yang will discuss company's financial performance for the quarter. After that, we will open the floor to Q&A from the audience.

Before we begin with the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industrial 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 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.

Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. [indiscernible] So with the recovery of market prices across the solar PV value chain in the third quarter of 2025, we believe the industry is gradually recovering from a cyclical downturn.

In particular, the polysilicon sector reached an inflection point during the quarter with prices rebounding significantly. As a result, we're pleased to report that for the third quarter, Daqo New Energy recorded positive EBITDA of USD 45.8 million, as well as adjusted net income of USD 3.7 million.

Moreover, our strong balance sheet is further reinforced. As of September 30, 2025, the company had cash balance of USD 552 million, short-term investments of $431 million, bank notes receivables balance of $157 million and total fixed-term bank deposit balance of USD 1.1 billion.

In total, our bank deposit and financial investment assets readily convertible into cash as needed stood at $2.21 billion, representing an increase of USD 148 million compared to the end of the second quarter.

Our solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capture long-term opportunities. Operationally, the company implemented proactive measures to counteract the continued market oversupply, maintaining a nameplate capacity utilization rate of 40%.

Total polysilicon production for the quarter was 30,650 metric tons, slightly above our guidance range of 27,000 to 30,000 metric tons. We also capitalized on favorable pricing conditions to sell not only our current quarter's output, but also a significant portion of our existing inventory, leading to a sharp rise in our sales volume to 42,406 metric tons from 18,126 metric tons in the previous quarter. The strong increase in sales volume reflects both our customers' confidence in Daqo's product quality and their continued preference for product in the new pricing environment.

As a result, our sales volume far exceeded production, bringing our inventory down to a healthy level. Another positive note, production costs declined significantly during the third quarter, extending our ongoing cost reduction trend.

Total production costs declined by 12% to USD 6.38 per kilogram in Q3 2025 from USD 7.26 per kilogram in the second quarter of 2025. Total idle facility-related costs, primarily noncash depreciation expenses also fell to 1.18 in Q3 from 1.38 in Q2, driven by higher production levels. In particular, our cash cost decreased by 11% from USD 5.12 per kilogram in Q2 to USD 4.54 per kilogram in Q3, the lowest in the company's history.

Cash cost includes approximately USD 0.16 per kilogram of idle facility maintenance-related costs. In light of the current market conditions, we expect our total polysilicon production volume in the first quarter of 2025 to be approximately 39,500 metric tons to 42,500 metric tons.

As a result, we anticipate our full year 2025 production volume to be in the range of 121,000 to 124,000 metric tons. At the industry level, according to industry statistics, Monthly supply of polysilicon in Q3 remained in the range of approximately 100,000 to 130,000 metric tons. On September 24, President Xi announced China's new 2035 environmental target at the UN Climate Summit.

These targets include increasing the share of nonfossil fuels in total energy consumption to over 30% and expanding the installed capacity of wind and solar power to over 6x the 2020 level, aiming to reach an accumulative capacity to 3,600 gigawatts by 2035. The official announcement reaffirmed China's ambitious strategy to transition toward a new low-carbon energy structure with solar PV playing a pivotal role in the process.

Entering the third quarter, China's anti-involution initiative to restrict low-price competition in the polysilicon sector continued to impact the industry. Market expectations of consolidation, tighter supply have improved overall industry fundamentals.

In particular, on August 19, the Ministry of Industry and Information Technology, the Central Ministry of Social Work, the NDRC, the State Council State-owned Assets Administration Commission, the General Administration of Market Supervision and the National Energy Administration jointly held a symposium on the photovoltaic industry. The meeting emphasized the need to strengthen industrial regulation, curb disorderly low price competition, standardize product quality and promote industry self-discipline.

On September 16, the Standardization Administration of China released the draft of new mandatory national standards setting energy consumption limits per unit of polysilicon production.

Once implemented, poly manufacturers with unit energy consumption higher than 6.4 kilogram must implement corrective improvements within a specified period. Those failing to comply or meet the entry threshold after rectification will be ordered to cease operations.

According to China Silicon Industry Association, China's effective capacity of polysilicon production is expected to climb to 2.4 million metric tons per year, a decrease of 16.4% from the end of 2024 and of 31.4% from total installed production capacity. We expect the implementation of this new energy consumption standard will substantially ease the issue of industry overcapacity.

As a result of these more thoughtful measures, polysilicon price rose sharply to RMB 45 to RMB 49 per kilogram in July from RMB 32 to RMB 35 per kilogram in June and further climbed to RMB 49 to RMB 55 per kilogram at the end of the quarter. The solar PV industry continues to demonstrate strong long-term growth prospects. In the medium term, we believe that the combination of industry self-discipline and government anti-involution regulations will help foster a healthier and more sustainable industry.

In the long run, as one of the most cost-effective and sustainable energy sources globally. Solar power is expected to remain a key driver of the global energy transition and sustainable development.

Looking ahead, Daqo New Energy is well positioned to capture the long-term growth in the global solar PV market and further strengthen its competitive edge by enhancing its higher efficiency and type technology and optimizing its cost structure through this digital transformation and AI adoption.

As one of the world's lowest-cost producers of the highest quality and type product and with a strong balance sheet and no bank loan, we're confident in our ability to capitalize on the market recovery and emerge as an industry leader, well positioned to seize future growth opportunities.

So 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. 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 2025 financial performance.

Revenues were $244.6 million compared to $75.2 million in the second quarter of 2025 and $198.5 million in the third quarter of 2024. The increase in revenue compared to second quarter of 2025 was primarily due to an increase in both sales volume and average selling price. Gross profit was $9.7 million compared to gross loss of $81 million in the second quarter of 2025 and gross loss of $60.6 million in the third quarter of 2024.

Gross margin was 3.9% compared to compared to negative 108% in the second quarter of 2025 and negative 30% in the third quarter of 2024. The increase in gross margin compared to the second quarter of 2025 was primarily due to the increase in the average selling prices of polysilicon, a decrease in our production costs as well as write-off of provision for inventory impairment.

Selling, general and administrative expenses were $32.3 million compared to $32.1 million in the second quarter of 2025 and $37.7 million in the third quarter of 2024.

SG&A expenses during the third quarter included $18.6 million in noncash share-based compensation costs related to the company's share incentive plan compared to $18.6 million in the second quarter of 2025.

R&D expenses were $0.6 million compared to $0.8 million in the second quarter of 2025 and $0.8 million in the third quarter of 2024. R&D expenses vary from period to period like R&D activities that take place during the quarter. As a result of the foregoing loss from operations was $20.3 million compared to $115 million in the second quarter of 2025 and $98 million in the third quarter of 2024.

Operating margin was negative 8% compared to negative 153% in the second quarter of 2025 and negative 49% in the third quarter of 2024. Net loss attributable to Daqo New Energy shareholders was $14.9 million compared to $76.5 million in the second quarter of 2025 and $60.7 million in the third quarter of 2024. Loss per basic ADS was $0.22 compared to $1.14 in the second quarter of 2025 and $0.92 in the third quarter of 2024.

Adjusted net income attributable to Daqo New Energy shareholders, excluding noncash share-based compensation costs was $3.7 million compared to adjusted net loss attributable to Daqo New Energy shareholders of $57.9 million in the second quarter of 2025 and $39.4 million in the third quarter of 2024.

Adjusted earnings per basic ADS was $0.05 per share compared to adjusted loss per basic ADS of $0.86 in the second quarter of 2025 and $0.59 in the third quarter of 2024. EBITDA was $45.8 million compared to negative $48 million in the second quarter of 2025 and negative $34 million in the third quarter of 2024. EBITDA margin was 18.7%, compared to negative 64% in the second quarter of 2025 and negative 17% in the third quarter of 2024.

Now on the company's financial condition. As of September 30, 2025, the company had $551.6 million in cash, cash equivalents and restricted cash compared to $598.6 million as of June 30, 2025 and $853 million of September 30, 2024. And as of September 30, 2025, short-term investment was $431 million, compared to $418.8 million as of June 30, 2025 and $245 million September 30, 2025.

As of September 30, 2025, bank notes receivable balance was $157 million compared to $49 million as of June 30, 2025, and $83 million as of September 30, 2024. Not receivable balance represent bank notes with maturity within 6 months. And as of September 30, 2025, the balance of fixed term deposits within 1 year was $1.03 billion compared to $960.7 million as of June 30, 2025, and $1.2 billion as of September 30, 2024.

Now on the company's cash flows. For the 9 months ended September 30, 2025, net cash used in operating activities were $50 million compared to $356 million in the same period of 2024. And for the 9 months ended September 30, 2025, net cash used in investing activity was $448.9 million compared to $1.7 billion in the same period of 2024.

The net cash used in investing activities in 2025 includes $120.3 million for the purchase of PP&E and $328.6 million in net purchase of short-term investments and fixed-term deposits. For the 9 months ended September 2025, net cash used in financing activities was $32,000 compared to $48.5 million in the same period of last year. And that concludes our prepared remarks.

We will now open the call to Q&A from the audience. Operator, please begin.

[Operator Instructions] The first question comes from Philip Shen with ROTH Capital Partners.

First one is on the gross margins. It looks like you guys had positive gross margins for the first time in a while, maybe supported by the impairment. And so I wanted to get a feel for -- what kind of -- could we see positive gross margins in Q3 and/or Q4? And how would you expect that to trend in 2026?

Phil, this is Ming Yang, the CFO. Thanks for your question. And we're very pleased to report that we were able to record a positive gross margin for the third quarter. A lot of it is driven by the increase in selling prices. The quite significant increase that we saw in Q3 and as well as a significant reduction in our per unit cost and also helped by some of the benefits from an earlier write-down of inventory. But we do expect that our Q4 gross margin as of today should be positive as well, should be positive. I think based on our current expectation for trends for both ASP as well as for our cost -- continued cost reduction as well.

Great. And so maybe Q3 remains negative, Q4 flips positive. And then through '26, do you see potential for the year to be positive as well?

As of today, yes.

Okay. Great. Shifting over to some bigger picture questions. Last week, we hosted a couple of webinars, one with Clean Energy Associates and the other one with the crew group, the commodities research unit that acquired Exawatt based out of London.

In any case, they were talking about a lot of the overhaul efforts and the anti-evolution efforts in China for polysilicon and downstream, but they were saying that even after the overhaul in the polysilicon segment, there could still be, instead of maybe 3x overcapacity for poly, now just 2x, so still substantial overcapacity.

How do you guys continue to work to better match capacity with the lower levels of demand? What other actions can you and the industry take? And then how much capacity might you and the industry acquire over time and then shut down?

Thank you, Phil. So regarding the overall capacity. First of all, I think it's correct that even with the exit of some capacity, there would still be a relative oversupply compared to demand. However, I think how it's going to work is that although you still have more supply in terms of the nameplate capacity, they'll try to balance with demand in terms of the production volume. Meaning, none of the companies will the operating full utilization rate until demand climbs up again. I think that's what's going to happen at least in the short term to the to the midterm.

Okay. Got it. And do we -- or you guys expect any additional actions from the government or from the industry that maybe we're not all aware of that could also serve as a positive catalyst in addition to the lower utilization rate, what else can you and the industry and the government do?

I think the overall conversation on the consolidation in terms of the SPV, I bet that all the investors have seen a lot of news around that. And I would say the anti-involution initiatives are still ongoing and conversations -- all the companies are taking initiative to participate and are actively engaging in these conversations so that we would see a healthier and more sustainable industry going forward. And I think that's the key focus right now, at least in the near term.

And I would say, aside from the NT evolution in terms of the consolidation, the other one that might be worthy to mention is the draft on the new mandatory national standard, right? I think that would work as another positive catalyst like while the consolidation conversation is still ongoing, the government is also pushing out the national standard on energy consumption, and that would serve as a hard cutoff point for some of the industries -- for some of the companies and the industry.

The next question comes from Alan Lau with Jefferies.

First question I would like to follow up on Phil's question on the sales discipline in the industry. I would like to know if there -- when do you expect the whole consolidation agreement among the remaining players will be signed? And what exactly in terms of mechanisms to make sure the players to obey the quota or the volumes that are agreed upon by the parties. Is there any performance bond or some kind of mechanisms like that?

Thank you, Alan. So of course, like I just mentioned, the conversations are still ongoing. So we're waiting for more details before we can unveil it to the investors. But I would say, we're pushing towards meeting or having a consensus in terms of the consolidation.

And it's difficult for us to say exactly when that's going to turn out or when we can see an agreement signed. But of course, from our perspective, the sooner the better, right, so that, of course, we've seen a price recovery in the third quarter already, but, suppose we can get a consolidation done soon, we might see further uptick in the prices.

Yes. But of course, because there are many working out the consolidation, including the government entities and the companies in the industry. So it's taken some time. But of course, we are working very diligently and working very hard towards having consensus.

So my second question is to follow up on the company-specific matter. So I have noticed that actually the ASP achieved by the company is quite high relative to our peers. I would like to know what's your expectation on the prices, especially if the consolidation initiative is implemented? And then secondly, also look at from the cost perspective, both the production costs and the cash cost went down. So how do you see the trend in 4Q?

Okay. I'll address the cost trends first, and then Anita will talk about the ASP, especially what our expectation is after the consolidation initiative. So we did see a significant reduction in costs for this quarter, and it's actually, I would say, better than what we had originally anticipated. So costs went down about 12% quarter-over-quarter, overall cost and then especially cash cost declined by more than 11% quarter-over-quarter. And a significant portion of that is actually the reduction in energy usage, around efficiency.

So we did a lot of efforts in terms of improving our process and for further optimization. And I say that a lot of those efforts actually begin to materialize, especially in the third quarter and as well as the usage of silicon powder in terms of per unit. reduction.

And also this quarter, we benefited additionally from a decline in slick metal pricing. And also because of the increase in production. So this quarter, production is more than 10% higher than the previous quarter. So there's also a per unit reduction in terms of relatively fixed cost, for example, labor and benefits.

So the commission of these helped us to reduce our cost. And we actually expect -- currently expect Q4 costs to continue to decline compared to Q3, I think in the low single-digit range. So we should continue to see a low single-digit percentage range. So we continue to see benefit from our cost reduction efforts.

And in terms of the ASPs, so first of all, for the fourth quarter, as we're still undergoing the conversations to make the consolidation happen, we think the price change will remain relatively stable at the current level because prices has already picked up in the third quarter. Near the end of the quarter, it's already in the range of RMB 49 to RMB 55 per kilogram. So we think that's going to sustain in the third fourth quarter.

However, after the consolidation is completed, of course, the consolidation will be done in phases. So it's more likely going to be capacities exiting in different phases. And we do -- we should expect prices to tick up after the consolidation happens to rise around RMB 60 per kilogram first and perhaps ticking up further as we see more nameplate capacities exiting the industry. So perhaps in the range of RMB 60 to RMB 80 as we foresee it.

That's very clear. I think my last question is on the buyback because the company has announced the buyback program a couple of months back. I would like to know the progress of buyback since then and also combining the consideration of potential CapEx or acquisition spending, I would like to know what is the pace of buyback envisage by the company?

Thank you, Alan. So in terms of the share repurchase, after we announced the program, share prices actually increased to the highest to USD 31, which was about 35% higher than what was near the end of August. And because we wanted to purchase more shares, right, so we are waiting and monitoring the market closely.

And another thing is that we were waiting to see what would be the initial investment for the consolidation, right? So suppose the initial investment is around RMB 30 billion versus like RMB 10 billion, it means a huge difference to what we have to put in the consolidation. Hence, we're still waiting to see how that's going to unfold before we can confidently start the share repurchase again.

Okay. So assume the consolidation asset will materialize in 4Q then probably there will be more clarity on the amount that 3Q has to spend in that platform. And then probably the company will start buyback probably in 4Q or first Q next year, right? Is it a fair expectation?

What's the question?

It's on the timing. So if it's the consolidation effort is going to be in 4Q or first Q, then 3Q will start buyback in right after that, so which is a couple of months from now.

In terms of the timing of the share repurchase?

Yes.

I think that after we have a more clear picture of what the consolidation looks like, we can start the share repurchase.

The next question comes from Mengwen Wang with Goldman Sachs.

So my first question is regarding to the production cost. So I mean you just mentioned the lower cash cost is mainly due to our capacity upgrade. So therefore, less energy usage now. So I was wondering what's our unit electricity consumption per kilogram of the poly right now?

Okay. So it's actually different for our two facilities. But generally, it's in the range of, call it, 52 to 55 kilowatt hour per kilogram.

Sure. That's clear. And my second question is regarding to the production. So we raised our production plan by 30% plus in 4Q from 3Q level. So the direction is really going against with our peers.

So I was wondering how we fit our production left to current industry-wide production quota narrative? And also what drives our more positive demand outlook into 4Q? I think that's supposed to be a traditional weak demand season.

Thank you, Mengwen. So I would say that we were among the first to start lowering our utilization rate to around 30% initially, right? So I would say we have been very aggressive in doing that.

However, as prices have recovered in the third quarter, and we do foresee a more optimistic outlook going forward with the consolidation and also the proposal on energy consumption, we do see the direction to curb the vicious competition in the industry, right?

So we are more confident in the future outlook, and we have weighed our own current plan as well as in terms of the cost, if we increase our production volume now, we can further reduce our production costs. So I think that's the logic behind raising our production plan in the fourth quarter.

So can we use the over 50% utilization as the guidance of the production plan in 2026 and going forward?

Yes, I think that will be a reasonable assumption for 2026.

The next question comes from Gordon Johnson with GLJ Research.

So just, I guess, number one, focusing on your current production cost, $638. I'm looking at what PV Insights is reporting for polysilicon prices in Q4 so far, $6.53, that would suggest a margin of 2%. But when I look at the Guangzhou stock -- I'm sorry, Futures Exchange, it has polysilicon prices right now, futures at like around $840. So when we look at your Q4 gross margin, are we looking at a margin similar to what you reported in the 2% range or something higher? And then I have a follow-up.

I think for the poly futures market, you have to subtract by a 13% VAT. I think once you subtract that, I think you get maybe a ballpark -- mid- to high single-digit kind of gross margin, something like that. So let me just say just kind of a range of gross margins, maybe low to mid single-digit kind of gross margin, I think based on the current market environment.

Okay. That's helpful. And then are you -- you guys mentioned that you sold a lot out of inventory. Is that done? Or will you continue that? And then my last question is, given the new 5-year plan that's coming through in China, what is your expectation for installations, solar installations writ large in China in 2026 versus 2025?

Okay. So I think in terms of sales, I think it is still a little bit early, right? So we're at the end of October. There's two more months to go by. I think based on our latest customer orders and order trends, at this point, we do anticipate that the overall sales volume for the quarter should be similar to our expected production volume. I think that's the baseline for our sales. But we do also look for opportunities to sell down additional inventory. So that's what the current market condition looks like.

Okay. And then on total installs in China for next year versus this year?

And for installation, we think it will be relatively stable or low single digit compared to this year. Because this year, the forecast is in the range of around, I would say, 220 to 250 gigawatts for additional installations in China. So I think for next year, would be more likely in the range and perhaps for growth to around, I would say, 270 to 280 gigawatts.

This concludes our question-and-answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.