Daqo New Energy (NYSE: DQ) reported Q3 EPS of $0.69, $0.26 better than the analyst estimate of $0.43. Revenue for the quarter came in at $83.9 million versus the consensus estimate of $85.6 million.

Third Quarter 2019 Financial and Operating Highlights

• Polysilicon production volume of 9,437 MT in Q3 2019, compared to 7,151 MT in Q2 2019
• Polysilicon sales volume of 9,238 MT in Q3 2019, compared to 7,130 MT in Q2 2019
• Polysilicon average total production cost(1) of $6.97/kg in Q3 2019, compared to $8.12/kg in Q2 2019
• Polysilicon average cash cost(1) of $5.85/kg in Q3 2019, compared to $6.65/kg in Q2 2019
• Polysilicon average selling price (ASP) was $8.99/kg in Q3 2019, compared to $9.10/kg in Q2 2019
• Revenue from continuing operations was $83.9 million in Q3 2019, compared to $66.0 million in Q2 2019
• Gross profit from continuing operations was $18.1 million in Q3 2019, compared to $8.6 million in Q2 2019. Gross margin from continuing operations was 21.5% in Q3 2019, compared to 13.0% in Q2 2019
• EBITDA (non-GAAP)(2) from continuing operations was $19.7 million in Q3 2019, compared to $10.2 million in Q2 2019. EBITDA margin (non-GAAP)(2) from continuing operations was 23.5% in Q3 2019, compared to 15.5% in Q2 2019
• Adjusted net income (non-GAAP)(2) attributable to Daqo New Energy shareholders was $9.5 million in Q3 2019, compared to $2.3 million in Q2 2019 and $4.3 million in Q3 2018.
• Adjusted earnings per basic American Depository Share (ADS) (non-GAAP)(2) was $0.69 in Q3 2019, compared to $0.17 in Q2 2019, and $0.33 in Q3 2018.
• Net income from continuing operations was $4.9 million in Q3 2019, compared to net loss from continuing operations of $2.7 million in Q2 2019 and net income from continuing operations of $4.2 million in Q3 2018.
• Net income from discontinued operations was $0.1 million in Q3 2019, compared to net income from discontinued operations of $0.5 million in Q2 2019 and net loss from discontinued operations of $22.4 million in Q3 2018.
• Net income attributable to Daqo New Energy shareholders was $5.0 million in Q3 2019, compared to net loss attributable to Daqo New Energy shareholders of $2.2 million in Q2 2019 and net loss attributable to Daqo New Energy shareholders of $18.3 million in Q3 2018.
• Earnings per basic ADS was $0.37 in Q3 2019, compared to loss per basic ADS of $0.16 in Q2 2019, and loss per basic ADS of $1.39 in Q3 2018.

Management Remarks

Mr. Longgen Zhang, CEO of Daqo New Energy, commented, "We had an outstanding quarter in which we reached record-high production volume of 9,437 MT while achieving the lowest production cost in the Company's history of $6.97/kg. Our results for the quarter reflect the full production capacity and cost structure that our original 35,000 MT facility is able to generate. In mid-September, we successfully completed the construction and installation of our new Phase 4A expansion project and now are currently working to ramp up production of its additional 35,000 MT of capacity. We expect Phase 4A to reach full production capacity by the end of 2019, approximately three months ahead of schedule. With Phase 4A's additional capacity quickly coming online, we expect production volumes during the fourth quarter of 2019 to be approximately 14,000 to 15,000 MT. Our production costs would be further reduced to approximately $6.5/kg upon Phase 4A running at full capacity."

"We continue to enhance mono-grade product quality and are optimizing our product portfolio towards it in order to maintain higher ASPs. We sold approximately 86% of our products to mono-wafer customers during the quarter. Once Phase 4A is fully ramped up, we expect mono-grade products to account for approximately 90% of our total production volumes. With our downstream mono-wafer customers expected to rapidly expand their capacities for next year, we believe this will lead to continued increase in mono-grade polysilicon demand, which should lead to improvement in the price of mono-grade polysilicon for next year."

"During the first three quarters of 2019, China installed approximately 16 GW of new solar PV projects, significantly below the market's expectations. We believe the primary reason is the long-delayed announcement of a subsidy policy which has rippled downwards, forcing many project developers to postpone project completion dates and extend the time needed for planning, preparation, permit applications, and procurement. It is possible that many of the 22.8 GW of subsidized projects, which were originally expected to be installed in the fourth quarter of 2019, could be delayed to the first half of year 2020. Despite softening demand from China's downstream market, demand from overseas markets remains robust and could possibly reach 85 GW this year, a significant increase from approximately 60GW in 2018. With the Chinese downstream market expected to rebound next year and overseas demand continuing to grow, we believe global solar PV demand could exceed 140GW in 2020, a significant acceleration when compared to 2019."

"Solar energy is now one of the most competitive forms of energy generation, even when compared with traditional fossil fuel in many markets. When combined with efficient methods to store power, solar energy has the potential to become a sustaining baseload power. As the economics improve and governments pass more policies to tackle climate change, we believe we are at the cusp of major changes in the market which will create enormous opportunities for us over the next several years. We are confident in our ability to navigate this temporary downturn in the market and are ready to take advantage of the recovery next year when the market will continue advancing towards grid parity."

"As one of the lowest-cost polysilicon producers with the highest standards for quality, we are among the very few polysilicon manufacturers who are able to generate a profit in the current challenging market environment. For the first three quarters of this year, our net cash provided by operating activities was approximately $100 million. Once Phase 4A is operating at full capacity, we expect to make further improvements in product quality and cost structure so as to enhance our leadership position in the industry."

Outlook and guidance

The Company expects to produce approximately 14,000 to 15,000 MT of polysilicon during the fourth quarter of 2019 and sell approximately 12,500 to 13,500 MT of polysilicon to external customers during the fourth quarter of 2019.For the full year of 2019, the Company expects to produce approximately 39,300 to 40,300 MT of polysilicon, inclusive of the impact of the Company's annual facility maintenance.

For earnings history and earnings-related data on Daqo New Energy (DQ) click here.