Gongda Yao - Chief Executive Officer Bing Sun - Chief Financial Officer

Good day and welcome to the Daqo New Energy Corporation 2013 First Quarter Financial Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded. And I would now like to turn the conference over to Mr. Sun Bing, Chief Financial Officer. Please go ahead.

Thanks, Emily. Thanks everyone for joining us today for Daqo New Energy's first quarter unaudited financial results conference call. Daqo New Energy issued its financial results for the first quarter earlier today, which can be found on the company’s website. To facilitate in today’s conference call, we put together a PPT presentation. Today, attending the conference call, we have Dr. Yao, our CEO and myself. The call today will feature our remarks from Dr. Yao covering business and operational developments and then I will discuss the company's financial performance. After that, we will open the floor for Q&A session. With no further delay, I will turn the call over to Dr. Yao.

Thank you, Bing. Recently we have seen average selling price stabilizing across the solar PV value chain. The current improved financial performances of the downturn entities indicate that, that start of the stabilization in the market. As for the international trade conflict, we believe today's challenging situation is only temporary. China and the EU show much more common interest in set of the complex in solar PV industry. We are confident that political leaders of China and EU have confidence to manage the international trade conflict in the solar PV industry, so as to enable the industry to achieve a happy and sustainable growth in the future. In the first quarter of 2013, we have been running our Xinjiang polysilicon facility successfully and have achieved our initial targets for the cost structure, capacity and the quality. As a result, our Xinjiang facility has started to contribute positive cash flow in the challenging market. In April, we conducted several optimization projects in our Xinjiang facility. This will enable us to fuel the reduced total production cost of approximately $18 per kilo by the end of May. As for our facilities in Wanzhou, we are still in the process of technology improvements for their transition. We are also evaluating various technical improvement options for further cost reduction. In the first quarter of 2013, we shipped 706 metric ton polysilicon externally and around 200 metric ton internally for wafer use. In addition, we also shipped 2.21 million pieces of wafers and 72 metric ton of multi-crystal silicon blocks to our customers. As for the outlook for the second quarter of 2013, we estimate shipments of polysilicon to be around 920 metric ton, wafers to be 6.5 million prices and multi-crystal silicon blocks to be about 25 metric tons. I will now turn the call to Mr. Sun Bing for the financial performance update.

Thank you, Dr. Yao. Let’s look through the financial performance. Total revenue in the first quarter was $14.5 million, compared to $6.2 million in the fourth quarter of 2012. The company generated a revenue of $11.3 million from 676 metric ton polysilicon sold, compared to revenue of $4.7 million from 266 metric ton of polysilicon sold in the fourth quarter of last year. Note that in the first quarter of last year, our Xinjiang facility was still in the final stage of pilot production. Therefore, revenue and our cost of sales related to Xinjiang facility were not included in P&L in last quarter. Cost of sales in the first quarter of 2013 was $27.4 million, compared to $17.2 million in the first quarter of last year. Note that in both two quarters, cost of sales included our expenses related to the temporarily idle Wanzhou polysilicon facility. Such expenses were $10.4 million for the fourth quarter of last year and then $9.7 million for the first quarter of this year. Excluding Wanzhou polysilicon facility related cost of $9.7 million, the non-GAAP gross margin of Q1 was negative 22%, which we believe reflected the performance of our Xinjiang facility in Q1. Also please note that depreciation expense of Xinjiang facility of $5.9 million was recorded in the cost of revenue in the first quarter. Xinjiang facility was not depreciated during the pilot production in Q4 last year. Gross loss was $12.9 million, compared to $11.1 million in the fourth quarter. Gross margin was negative 89%. Note that all cost are related to the temporarily idle Wanzhou facility were reflected in this table. Also depreciation expense of Xinjiang facility of $5.9 million were included in Q1 table. SG&A expenses were $4.1 million in the first quarter, compared to $1.8 million in the fourth quarter of last year. The increase in SG&A expenses was primarily due to the $1.2 million increase in bad debts provision, combined with 400,000 increase in shipping expenses related to larger shipments in the first quarter. Net interest expense was $5.3 million in the first quarter, compared to $3.4 million in the fourth quarter last year. In the first quarter, the interest expense related to Xinjiang facility of $2 million was no longer being capitalized after such facility commenced its commercial production. Meanwhile the interest expense related to Wanzhou facility decreased by 300,000, due to the decrease in average outstanding loan balance. As a result of the net loss attributable to DAQO New Energy shareholders, were $18.7 million in the first quarter of 2013, compared to $75.6 million in the fourth quarter of last year. Earnings per fully diluted ADS were negative $2.70 in the first quarter, compared to negative $10.90 in the fourth quarter of last year. Financial condition. As of March 31 our overall debt ratio is about 61%. Our working capital was negative $189 million. Working capital by definition, I am referring to current asset minus current liability, included in the current liability, our financial support from Daqo Group of $54 million. Daqo Group has officially committed to providing us with financial support for up to $133 million in total for the year of 2013. By now we are in the process of renewing our credit facilities of $38 million and we are trying to obtain the remaining amount of $36.5 million project loan with Bank of China related to Xinjiang Phase II projects. In addition, we expect our Xinjiang poly facility to generate at least $6 million positive operating cash flow each quarter going forward. Now we will open for our Q&A section. Please Emily.

We will now begin the question-and-answer session. (Operator Instructions) And our first question will come from [Alex Lea] of Goldman Sachs. Please go ahead.

Hi. Hello. Thank you for taking my question. Could you please give us some geographic breakdown of your polysilicon achievement and also can you talk about your view about the pricing turnout polysilicon and we were in this year? Thank you.

Alex, this is Bing.

Hi.

If you are asking about the shipment in Q1, we actually shipped 706 metric ton to outside customers and in addition we shipped internally 200 metric ton for our wafer production, if that's what you are asking.

How about the geographic breakdown about how much percent is it shipped to domestic market?

Oh yes, it's all domestic market.

Yeah, okay. Okay, and can you talk about your view about the pricing trend this year?

We said that in the beginning of the conference that we believe the price is stabilizing and through the Q1 and to the current quarter as Q2 we see the price is stabilizing and about $17 to $18 range per kilo of polysilicon and wafer is very similar way to stabilize and it has slightly improved from the bottom and last quarter of 2012, but as you know the visibility for next two quarters, it will be very difficult getting the condition of your EU and the Chinese market, but we don’t see much change in last few days, but that's what we believe that price should be stabilized in the current level.

Okay. And do you have any further cost reduction plans in the future?

Yes, for the -- actually I believe that in the beginning of the conference that we did some optimization in the April for Xinjiang facility, which will enable us above the -- slightly above the capacity now for the Xinjiang, which is -- Xinjiang facility, which is 5,000 metric ton and in addition to that, we also have a plan, which approved by the Board meeting that we will add a small increment to enable our final capacity to the end of this year will be about 6,000 metric ton production.

Alex, I just want to add a few more points on the topic. As you know, like for the first quarter, our average cost for Xinjiang -- for our Xinjiang production is below $20 and as Dr. Yao has mentioned, by the end of May this year, our total cost is approximately -- was up approximately around $18 per kilo and there still plenty of room for improvement.

Okay. And what's your current utilization rate?

For Xinjiang facility, it's 100%. As you know, the total capacity for Xinjiang is 5,000 metric ton and the Wanzhou facility is still undergoing technical improvement and the project was not up until right now.

Okay. Got it. Okay. Thank you.

(Operator Instructions) At this time, I am not showing any questions, so this will conclude our question-and-answer session. I would like to turn the conference back over to Sun Bing for any closing remarks.

Okay. Thanks everybody. If you have any further questions after this conference, please feel free to call me directly or contact Kevin at any time. Thanks for your time. Okay. Bye, bye.

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