Daqo New Energy Announces Unaudited Second Quarter 2016 Results

Daqo New Energy Corp. (NYSE: DQ) (“Daqo New Energy”, the “Company” or “we”), a leading manufacturer of high-purity polysilicon for the global solar PV industry, today announced its unaudited financial results for the second quarter of 2016.

Second Quarter 2016 Financial and Operating Highlights

• Polysilicon production volume of 3,570 MT in Q2 2016, compared to 3,405 MT in Q1 2016
• Polysilicon external sales volume⁽¹⁾ of 2,931 MT in Q2 2016, compared to 2,905 MT in Q1 2016
• Polysilicon average total production cost⁽²⁾ of $9.43/kg in Q2 2016, compared to $9.65/kg in Q1 2016
• Polysilicon average cash cost⁽²⁾ of $7.42/kg in Q2 2016, compared to $7.62/kg in Q1 2016
• Average selling price (ASP) of polysilicon was $17.24/kg in Q2 2016, representing a 25.7% increase from $13.72/kg in Q1 2016
• Solar wafer sales volume of 25.0 million pieces in Q2 2016, representing a 13.1% increase from 22.1 million pieces in Q1 2016
• Revenue of $71.0 million in Q2 2016, representing a 23.1% increase from $57.7 million in Q1 2016
• Non-GAAP gross margin⁽³⁾ of 43.9% in Q2 2016, up from 32.6% in Q1 2016
• EBITDA (non-GAAP)⁽³⁾ of $34.7 million in Q2 2016, representing a 58.5% increase from $21.9 million in Q1 2016
• EBITDA margin (non-GAAP)⁽³⁾ of 48.9% in Q2 2016, up from 38.0% in Q1 2016
• Net income attributable to Daqo New Energy shareholders of $19.8 million in Q2 2016, representing an increase of 138.6% from $8.3 million in Q1 2016. The Company incurred net loss attributable to Daqo New Energy shareholders of $0.9 million in Q2 2015
• Earnings per basic ADS of $1.90 in Q2 2016, representing an increase of 137.5% from $0.80 in Q1 2016. The Company incurred loss per basic ADS of $0.09 in Q2 2015
• Adjusted net income (non-GAAP)⁽³⁾ attributable to Daqo New Energy shareholders of $22.0 million in Q2 2016, representing an increase of 88.0% from $11.7 million in Q1 2016 and 714.8% from $2.7 million in Q2 2015
• Adjusted earnings per basic ADS (non-GAAP)⁽³⁾ of $2.10 in Q2 2016, representing an increase of 87.5% from $1.12 in Q1 2016 and 707.7% from $0.26 in Q2 2015

Recent Corporate highlight

• On June 29, 2016, the Company’s subsidiary, Xinjiang Daqo New Energy Co., Ltd. (“Xinjiang Daqo”, New Third Board ticker: 837316) was listed on the National Equities Exchange and Quotations, an emerging over-the-counter market in China (the “New Third Board”).
• In June 2016, the Company received approval from Chongqing Rural Commercial Bank for an RMB500 million credit line of a seven-year project finance loan. The Company intends to use the proceeds of the loan for general corporate purposes, including the capital expenditures related to its Phase 3A expansion project, which is expected to increase the Company’s annual polysilicon manufacturing capacity from the current level of 12,150 MT to 18,000 MT by the end of the second quarter of 2017.

Outlook and Q3 2016 guidance

Since the ramp up of our Phase 2B capacity at the end of June 2015, we have produced a total of over 13,200 MT of polysilicon over the past four quarters, above our nameplate capacity of 12,150 MT.   As our Xinjiang polysilicon manufacturing facilities have been operating continuously for more than 12 months, it is necessary that we conduct our annual scheduled maintenance during the third quarter to ensure safe and smooth operations.  We also plan to take this opportunity to do preparation work for the interconnection between existing facilities and Phase 3A facilities which are expected to start pilot production early next year.  The entire annual maintenance schedule is expected to result in 15 to 20 days of suspension to polysilicon production for 2016.  Due to the long lead-time for procuring the specialty materials and equipment required for the annual maintenance, we anticipate that we would start the annual maintenance work in the second half of September 2016.  However, the start date of the annual maintenance work depends on the scheduled delivery of such specialty materials and equipment. Therefore, it is possible that the annual maintenance start date may be delayed.

As a result of the above mentioned factors, the Company expects to sell approximately 2,550 MT to 2,600 MT of polysilicon to external customers during Q3 2016.  The external sales guidance excludes shipments of polysilicon to be used internally by our Chongqing solar wafer facility, which is expected to utilize approximately 550 tons of polysilicon during the quarter for its wafer manufacturing operation.  Wafer sales volume is expected to be approximately 24.0 million to 25.0 million pieces for Q3 2016.

This outlook reflects our current and preliminary view as of the date of this press release and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. See “Safe Harbor Statement” at the end of this press release.

Second Quarter 2016 Results

Revenues

Revenues were $71.0 million, representing a 23.1% increase from $57.7 million in the first quarter of 2016 and 107.0% from $34.3 million in the second quarter of 2015.

Revenues from polysilicon sales to external customers were $50.5 million, compared to $39.9 million in the first quarter of 2016 and $21.7 million in the second quarter of 2015.  External sales volume was 2,931 MT in the second quarter of 2016, compared to 2,905 MT in the first quarter of 2016.  ASP of polysilicon was $17.24/kg in the second quarter of 2016, increasing from $13.72/kg in the first quarter of 2016. The increase in polysilicon revenues from the first quarter of 2016 was primarily due to higher external sales volume and higher ASP.

Revenues from wafer sales were $20.5 million, compared to $17.8 million in the first quarter of 2016 and $12.6 million in the second quarter of 2015. Wafer sales volume was 25.0 million pieces, compared to 22.1 million pieces in the first quarter of 2016 and 18.3 million pieces in the second quarter of 2015. The increase in wafer revenues from the first quarter of 2016 was primarily due to higher sales volume.

Gross profit and margin

Gross profit was $29.4 million, increasing 76.0% from $16.7 million in the first quarter of 2016 and 716.7% from $3.6 million in the second quarter of 2015. Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon operations in Chongqing, was approximately $31.2 million, compared to $18.8 million in the first quarter of 2016 and $6.7 million in the second quarter of 2015. Gross margin was 41.4%, compared to 29.0% in the first quarter of 2016 and 10.5% in the second quarter of 2015.

In the second quarter of 2016, total costs related to the non-operational Chongqing polysilicon plant including depreciation were $1.8 million, compared to $2.0 million in the first quarter of 2016 and $3.1 million in the second quarter of 2015. Excluding such costs, the non-GAAP gross margin was approximately 43.9%, compared to 32.6% in the first quarter of 2016 and 19.6% in the second quarter of 2015.

Selling, general and administrative expenses

Selling, general and administrative expenses were $3.7 million, compared to $4.1 million in the first quarter of 2016 and $2.8 million in the second quarter of 2015.

Research and development expenses

Research and development expenses were approximately $0.1 million, compared to $0.1 million in the first quarter of 2016 and $0.2 million in the second quarter of 2015.

Other operating income

Other operating income was $0.6 million, compared to $0.7 million in the first quarter of 2016 and $0.7 million in the second quarter of 2015. Other operating income mainly consists of unrestricted cash incentives that the Company received from local government authorities, the amount of which varies from period to period.

Income from operations and operating margin

Income from operations was $26.1 million, increasing 96.2% from $13.3 million in the first quarter of 2016 and was almost 21 times as compared to $1.2 million in the second quarter of 2015.

Operating margin was 36.8%, up from 23.1% in the first quarter of 2016 and 3.6% in the second quarter of 2015.

Interest expense

Interest expenses were $3.5 million, compared to $3.9 million in the first quarter of 2016 and $2.6 million in the second quarter of 2015.

EBITDA

EBITDA was $34.7 million, increasing 58.5% from $21.9 million in the first quarter of 2016 and 313.1% from $8.4 million in the second quarter of 2015. EBITDA margin was 48.9%, up from 38.0% in the first quarter of 2016 and 24.6% in the second quarter of 2015.

Net income / loss attributable to Daqo New Energy shareholders and earnings per ADS

Net income attributable to Daqo New Energy shareholders was $19.8 million, increasing 138.6% from $8.3 million in the first quarter of 2016. The Company incurred net loss attributable to Daqo New Energy Corp. shareholders of $0.9 million in the second quarter of 2015.

Earnings per basic ADS were $1.90, increased 137.5% from $0.80 in the first quarter of 2016. The Company incurred loss per basic ADS of $0.09 in the second quarter of 2015.

Financial Condition

As of June 30, 2016, the Company had $42.9 million in cash and cash equivalents and restricted cash, compared to $35.7 million as of March 31, 2016 and $95.1 million as of June 30, 2015.

As of June 30, 2016, the accounts receivable balance was $10.1 million, compared to $15.4 million as of March 31, 2016 and $7.0 million as of June 30, 2015.

As of June 30, 2016, the note receivables balance was $14.8 million, compared to $25.3 million as of March 31, 2016 and $38.3 million as of June 30, 2015.

As of June 30, 2016, total borrowings were $227.9 million, of which $118.4 million were long-term borrowings, compared to total borrowings of $241.3 million, including $114.8 million long-term borrowings, as of March 31, 2016, and total borrowings of $266.0 million, including $100.0 million long-term borrowings, as of June 30, 2015.

As of June 30, 2016, the note payables balance was $26.1 million, compared to $28.1 million as of March 31, 2016 and $42.4 million as of June 30, 2015.

Cash Flows

For the six months ended June 30, 2016, net cash provided by operating activities was $66.6 million, compared to $32.1 million in the same period of 2015.

For the six months ended June 30, 2016, net cash used in investing activities was $37.6 million, compared to $56.2 million in the same period of 2015.

For the six months ended June 30, 2016, net cash used in financing activities was $13.5 million, compared to net cash provided by financing activities of $75.7 million in the same period of 2015.