Daqo (DQ) Q1 2026 Earnings Call Transcript

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Date

Wednesday, April 29, 2026 at 8 a.m. ET

Call participants

• Deputy Chief Executive Officer — Anita Zhu
• Chief Financial Officer — Ming Yang
• Chairman and Chief Executive Officer — Xiang Xu
• Director of Investor Relations — Jessie Zhao

Takeaways

• Revenue -- $26.7 million, down sharply from $221.7 million in the prior quarter and $124 million a year ago due to reduced sales volume amid low selling prices.
• Gross loss -- $139.4 million, worsening from a $15.4 million gross profit sequentially and an $81.5 million gross loss in the prior year, driven by increased inventory impairment provision of $98.4 million.
• Gross margin -- Negative 521%, declining from 7% sequentially and negative 65.8% in the year-ago period due to below-production-cost market pricing and higher impairment charges.
• Operating loss -- $150.8 million, a deterioration from $20.9 million sequentially and $114 million a year prior.
• Operating margin -- Negative 564%, reduced from negative 9.4% sequentially and negative 92% in the prior year.
• Net loss (attributable to shareholders) -- $88.4 million compared to $7.3 million prior quarter and $71.8 million prior year.
• Loss per basic ADS -- $1.31 compared to $0.11 in the prior quarter and $1.07 a year earlier.
• Adjusted net loss -- $88.4 million, unchanged by share-based compensation, compared to $7.3 million prior quarter and $53.2 million prior year.
• EBITDA -- Negative $83 million, from $52.5 million sequentially and negative $48 million prior year.
• EBITDA margin -- Negative 311%, down from 23.7% in the prior quarter and negative 39% a year ago.
• Cash and highly liquid assets -- $2 billion at March 31, 2026, comprised of $559.4 million in cash, $288.3 million in short-term investments, $20.8 million in notes receivable, $50.3 million in held-to-maturity investments, and $1.1 billion in fixed-term bank deposits.
• Debt -- 0, with management emphasizing a "robust and healthy balance sheet."
• Nameplate capacity utilization -- Approximately 57%, with production volume for the quarter at 43,402 metric tons, exceeding guidance (35,000 to 40,000 metric tons).
• Sales volume -- 4,482 metric tons, reflecting the company’s policy to avoid below-cost transactions.
• Average selling price (ASP) -- $5.96 per kilogram, up 2.3% from the prior quarter.
• Total production and cash costs -- Increased sequentially by 2% and 3% respectively, mainly due to foreign exchange effects; however, manufacturing cost in RMB terms declined slightly sequentially due to efficiency gains.
• Polysilicon inventory level (industry-wide) -- Reached nearly 600,000 metric tons by end of quarter, with Tier 1 manufacturers holding at least three months of stock.
• Industry-wide polysilicon supply -- Fell to approximately 93,000 metric tons during the quarter, yielding industry average utilization of just 39%.
• Q2 company guidance -- Expected total polysilicon production volume: 35,000-40,000 metric tons; full-year guidance: 140,000-170,000 metric tons.
• Current utilization strategy -- Company is maintaining 50%-55% utilization, with adjustments contingent on the implementation of government price enforcement policies.
• Operating cash flow -- Net cash used in operating activities was $147.5 million for the three months ended March 31, 2026, compared to $38.9 million in the prior year.
• Cash cost outlook -- CFO Ming Yang said, "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."
• Management policy response -- Company refrained from below-cost sales, choosing a "wait-and-see" approach pending government enforcement of anti-involution policies and minimum price guidance.
• Government industry action -- On April 17, major national regulatory agencies held a symposium, with management noting, "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…"
• Policy enforcement timeline -- Management expects updated cost-model and price guidance from authorities around June, potentially reinforcing minimum selling prices above production cost.

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Risks

• Gross margin fell to negative 521%, attributed to a $98.4 million inventory impairment "due to end of quarter market polysilicon pricing that is below production cost."
• Revenues dropped by 88% sequentially in Q1 2026 compared to Q4 2025 as company limited sales volume amid "relatively low selling prices."
• Industry overcapacity and inventory build resulted in a significant drop in both market prices and company sales, as stated by Deputy CEO Anita Zhu: "persistent industry overcapacity continued to exert downward pressure on polysilicon prices, resulting in quarterly operating and net losses."
• Management acknowledged a possible need for further utilization rate reduction if government enforcement of minimum pricing does not occur, stating, "manufacturers continue to sell below cost, then we will lower our utilization."

Summary

Daqo New Energy (NYSE:DQ) recorded a substantial year over year and sequential contraction in revenue and profitability, emphasizing operating losses and negative margins amid severe industry overcapacity and price declines. Management highlighted a deliberate decision to restrict sales below production cost, awaiting government price enforcement measures anticipated in June, and reported maintenance of a strong liquidity position with no debt. Forward guidance provided specific production targets and reiterated a conditional strategy dependent on the implementation of national price regulation, while external factors—including high downstream inventory, volatile input costs, and uncertain demand due to geopolitical issues—were flagged as pivotal to near-term outlook.

• Management described government efforts to introduce a calibrated cost model and potentially enforce penalties, including "revoke your manufacturing license or shut down your electricity," but confirmed that no enforcement actions had occurred as of the call.
• CFO Ming Yang detailed that if anticipated policy interventions fail to materialize, the company "would lower our utilization and then start to sell at close to market pricing."
• Industry inventory levels reached nearly 600,000 metric tons by quarter-end, and average utilization at the industry level dropped to 39%, magnifying competitive pressure and downward pricing risk.
• Chairman and CEO Xiang Xu expressed optimism about eventual demand recovery and affirmed, "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," signaling potential sequential improvement if policy action materializes.

Industry glossary

• Anti-involution policies: Government-mandated industry self-regulation measures aimed at curbing irrational competition and enforcing minimum price standards above production cost in the polysilicon and solar PV sector.
• N-type polysilicon: High-purity polysilicon product type used in advanced photovoltaic cells offering higher conversion efficiency, referenced as a company competitive advantage.
• ASP (Average Selling Price): The average price at which a company’s product is sold, often cited in relation to volume-weighted contract and spot market transactions in the transcript.

Full Conference Call Transcript

Operator: 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.

Jessie Zhao: 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.

Anita Zhu: 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]

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

Anita Zhu: 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.

Ming Yang: 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.

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

Philip Shen: 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?

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

Philip Shen: 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?

Ming Yang: 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.

Philip Shen: 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%?

Ming Yang: 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.

Philip Shen: 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?

Ming Yang: 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.

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

Ming Yang: For us or for the industry?

Philip Shen: For you.

Ming Yang: 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.

Operator: Our next question comes from Alan Lau with Jefferies.

Alan Lau: 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?

Ming Yang: 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.

Alan Lau: I recall...

Anita Zhu: Let me add...

Ming Yang: Anita go ahead.

Anita Zhu: 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.

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

Anita Zhu: Like in total?

Alan Lau: That total is 500,000.

Anita Zhu: Yes, around that.

Alan Lau: So how much is in Tier 1?

Anita Zhu: Including the downstream as well.

Alan Lau: Including wafer players, okay.

Ming Yang: [Indiscernible]

Alan Lau: 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?

Ming Yang: 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.

Alan Lau: 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?

Ming Yang: 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.

Alan Lau: 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?

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

Anita Zhu: 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.

Ming Yang: 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.

Alan Lau: 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.

Xiang Xu: 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.

Alan Lau: 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?

Xiang Xu: 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.

Operator: Our next question comes from Mengwen Wang with Goldman Sachs.

Mengwen Wang: 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?

Ming Yang: 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.

Mengwen Wang: 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?

Ming Yang: 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.

Mengwen Wang: 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?

Ming Yang: 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.

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

Ming Yang: In terms of communication with government -- go ahead Mengwen.

Mengwen Wang: No worries, it's fine.

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

Mengwen Wang: 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?

Ming Yang: 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.

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

Jessie Zhao: 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.

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

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