Good day, and welcome to the Daqo New Energy First Quarter 2019 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

Hello, everyone. I’m Kevin He, the Investor Relations 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 2019, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the first quarter of 2019. 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 the preliminary view as of today and maybe 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. Without further ado, I now turn the call over to our Mr. Zhang, our CEO.

Hello everyone and thank you for joining us today for our earnings call. We are very pleased to report a solid operational and financial performance for the first quarter of 2019, during which we hit record high production and sales volumes, as well as our most competitive cost structure. During the call our Polysilicon facilities were running at full capacity and produced 8,764 metric tons and sold 8,450 metric ton of polysilicon. We were also able to successfully reduce our total production cost and a cash cost to $7.42 per kg and $6.20 per kg respectively, our lower cost ever. We are a currently undertaking a capacity debottlenecking project to gradually upgrade several old CVD furnaces with improved technology, allowing us to increase production capacity by an additional 5,000 metric ton. This project is progressing a trend and we expect to complete the project ahead of schedule in early June 2019. During the debottlenecking project, we also will finish our annual equipment maintenance. Therefore, the ramp-up process of this debottlenecking project and annual maintenance will temporarily impact production volumes and cost, and as a result we expect to produce approximately 7,200 metric tons to 7,400 metric tons of polysilicon at total production cost of $8.0 to $8.5 per kg during the second quarter of 2019. Once our facilities are fully ramped up in June, we anticipate our total annual production capacity will reach 35,000 metric tons in nameplate capacity and our production cost will return to the current level of approximately $7.5 per kg. Our Phase 4A project is also progressing smoothly and remains on schedule. The foundation work has been completed and the construction of various buildings and structures are progressing as planned. The initial equipment installation has already begun and is planned to continue through to the third…

Thank you, Longgen, and good day everyone. Thank you for joining our first quarter 2019 earnings conference call today. I will now discuss our company's financial performance for the quarter. Revenues for the quarter were $81.2 million, compared to $75.6 million in the fourth quarter of 2018. The sequential increasing revenue was primarily due to higher polysilicon sales volume, partially offset by lower ASPs. Gross profit was $18.3 million, compared to $16.9 million in the fourth quarter of 2018. Gross margin was 22.6%, compared to 22.4% in the fourth quarter of 2018. The sequential increase in gross margin was primarily due to lower average polysilicon production costs partially offset by lower ASPs. During the quarter, we successfully reduced costs by approximately 7%, compared to the previous quarter to $7.42 per kilogram, primarily as a result of reduced electricity utilization as silicon usage per unit of poly production, lower electric utility rates, as well as greater economies of scale. Selling, general, and administrative expenses were $7.9 million, compared to $8.2 million in the fourth quarter of 2018. Q1 SG&A expenses include approximately $4 million of non-cash share-based compensation costs related to the company's share incentive plan. Excluding such non-cash costs SG&A would have been approximately $4 million. R&D expenses were $1.3 million, compared to $1 million in the fourth quarter of 2018 and $0.1 million in the fourth quarter of 2018. The research and development expenses varied period to period and reflect R&D activities that took place during the quarter. Income from operations was $9.2 million, compared to $20.3 million in the fourth quarter of 2018. Operating margin was 11.3%, compared to 26.8% in the fourth quarter of 2018. Interest expense was $2 million, compared to $1.9 million in the fourth quarter of 2018. EBITDA from continuing operations was $20 million,…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Philip Shen with ROTH Capital. Mr. Shen Please go ahead.

Hi everyone, thanks for the questions. The first one is on the outlook for China. I know you gave some details in your remarks there, but it seems like consensus thinking is for a Q3 ramp-up of activity, and then Q4 is strength. But a lot of that is actually dependent on when the NDA announces the subsidized projects and when they're awarded. Do you have confidence that the NDA will be able to turn that around quickly, so that we actually get the Q3 strength or is that a reasonable scenario that we actually get instead of Q3 ramp-up, a Q4 ramp-up and then more strength and higher volumes in Q1 of next year? Thanks.

Philip, I think, you know, that's a good question. I think about China. I think a direct answer your question is, we believe, I think the NDA will announce the detail, I think a policy by the end of the May. And no later, we believe in the middle of the June. The reason is because of the government I think definitely were – you see now needed time to information that to finish – I think to carry out the targets RMB3 billion to subsidize. So, to answer your question – does that answer your question?

I think so, yes. Thanks, Longgen. So, you think they will announce the project details earlier. So, shifting gears to polysilicon ASPs and pricing ahead, can you talk about, let's say we get this – any announcement? Do you think – what do you expect the polysilicon pricing to do? How do you expect it to trend in Q3 specifically and Q4?

Okay. If you look right now you see the Q1 our polysilicon price I think is around a $9.55. Definitely also in terms of the foreign exchange, I think Reminbi continued to depreciation, and actually Renimbi our selling price is 74.75 per kg. Right per kg. So, basically, we believe in the second quarter right now, our mono-silicon price is continuing go up. So, if you look at our Q4 our mono account for percentage is around 74% as I remember that. Okay. I think Ming can continue to comment that. So, in the second quarter, right now in May, our mono-silicon growth accounted for 87%. By the today May 21 – 20, till yesterday our mono grade is around 88%. So, basically you always in the second quarter if you consider the multi-silicon price, yes, I think it will go down. Right now, it is around RMB63 per kg. But our percentage is lower, for this month I think we were below 15% is multi-silicon. So, to me I think – for ASP definitely in the second quarter, we think we can keep the same or even slightly equal to the first quarter. Okay. Then looking forward, I think that definitely we see Q3 and Q4 the price will bounce back. The reason why because right now the mono-grade, the demand is so hot. We didn't have too much available for sale. If you look our Q1 customer, LONGi and Jinko accounted for almost I think more than 70% is LONGi and Jinko. So, we see a lot of clients right now, potential clients asking for more, such as, [I'm going to mention] JA Solar, Canadian Solar and Chongqing and even LONGi is asking for more volume, because based on the contract long-term contract. For example, in April we…

So, let me just follow-up quickly.

Go ahead Ming. Thanks.

Yes. So, I think from market perspective based on supply and demand dynamic, the second half of this year is clearly going to be a much stronger than the first half. If you look at just our first quarter more or less as a baseline of pricing for this year. Secondly, second half should be higher than our Q1 ASP and particularly for mono. We think our mono pricing potentially could hit $10 or higher in the second half of this year because of the strong incremental demand. And that's where our core focus is. And there's very limited new supply of mono-grade that's coming this year into the market.

Great. Thank you, Ming. Thank you, Longgen. Shifting gears to your cost structure. I know in Q2 it's going to be higher for the reasons you stated. What do you expect the cost structure to look like for Q3 and Q4? Could you get back to Q1 levels or even lower since you were beyond the back end of your debottlenecking?

I think, maybe I'll say first and Ming will add the comment. Right now, we've given guidance in the second quarter is $8 and to $8.50. I think we are very conservative, okay. Just under, right now current foreign exchange rate without a change I think it is the third quarter and the fourth quarter definitely our costs would continue go down even below $7.50, especially in the fourth quarter. The reasons because all the electronics cost may continue go down. And the size – the ramping up you see the production output also continues to increase. So, we definitely – I think given the figure right now is very conservative. Ming maybe you can add comments.

Yes. So, I think Phil again using our Q1 as baseline where we did it is 8,764 metric tons at $7.42 per kg or cost. By Q3, we thought debottlenecking project should hopefully should be fully ramp up by then and we should get additional let's say 1,000 to 1,200 metric ton of incremental new capacity quarterly basis for that quarter. So, I think just on economies of scale, we already hit fairly significant. Reasonably good cost reduction from the current level. It's hard for us to guide to the specific cost right now, but we think there's very good opportunity for us to hit cost of Q1 costs or lower.

Philip, I think a second quarter we've given right now the cost the reason is because why is the debottlenecking project is going up. Secondly, as we also combine with any maintenance, usually we do any maintenance in August or September, but this time because of debottlenecking projects, so we combine with any maintenance together. So, that's why in the second quarter the output I think you can see is go down for the projection. So, the cost is we are very conservative because the scalability, because of any maintenance we always – some cost will come up. So, that's why we've given that figure.

Okay, great. One more if I may, and then I'll pass it on. As it relates to your Q2 guidance, just wanted to check, our numbers suggest that you could be negative EPS. Just want to kind of check in and see if that's directionally correct for the second quarter. Thanks.

I think Ming go ahead.

So, just to be consistent with what we've guided in the past, we've always consistently guided to our production volume and our external sales volume. So that's where we're only guiding to right now. Thanks.

Okay. Fair enough. Thanks very much Longgen and Ming and I'll pass it on.

Great. Thanks Philip.

Thank you, Philip.

[Operator Instructions] The next question comes from John Segrich with Luminus. Please go ahead.

Hi guys. Just wanted to touch on the discontinued operations. When should we expect there to no longer be an impact whether it's in the income statement or the cash flow and maybe can you talk about what accounted for the $5 million of cash outflow across all the discontinued through the cash flow in this quarter?

Okay. I think pretty much in the second half, there should be very limited impact on the discontinued operation. I think right now we're in the process of winding down that facility in terms of disposing the remaining assets. So, there's some lingering impact in the first half, but I think going to second half, I think the impact should be very low.

I think that John basically, right now the waiver capacity is only is building and the land is available in my book. You can see. I think so far only I have asset is around sitting in there. I think for the assets in Q1 ending I think it only $57 million there. The major is the building and the land. Okay? For the equipment’s, I think up to now we sell all the equipment, so that's why you see the Q1, Q2 we still have some cash flow in because we're selling all the equipment. So, we were down basically on the second quarter. So, only left is the land and the building. Okay? So, basically our second half of the year should be no more impact.

Okay. Great.

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

Thank you everyone again for attending the conference call today. Should you have any query please don't hesitate to contact us at any time. Thank you again. Bye-bye.

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