Earnings Call: Q3 2019

Nov 12, 2019

Good day, and welcome to the Daqo New Energy Third Quarter 2019 Conference Call and Webcast. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Kevin He of 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 Q3 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. Min 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 Q3 of 2019. After that, we will open the floor to Q and 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 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 Chinese rmb. We offer these translations into U. S. Dollars solely for the convenience for the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang. Please. Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We had an outstanding quarter in which we reached record high production volume of 9,437 metric tons, while achieving a lowest production cost in the company's history of $6.97 per kg. Our results for the quarter reflect the full production capacity and the cost structure of our original 35,000 metric tons facility. In mid September, we successfully completed the construction and installation of our new Phase 4A extension project and now are currently working to ramp up the production of these additional 35,000 metric tons plant. We expect Phase 4a to reach full production capacity by the end of 2019, approximately 3 months ahead of schedule. With Phase 4a's additional capacity quickly coming online, we expect production volumes during the Q4 of 2019 to be approximately 14,000 to 15,000 metric tons. Once our Phase 4a reaches full capacity, we believe our production costs should be further reduced to approximately $6.50 per kg. We continue to enhance motor grade production quality and 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 rapid 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 1st 3 quarters of 2019, China installed approximately 16 gigawatts of new solar PV projects, significantly below the market expectations. We believe the primary reason is the long delayed announcement of a subsidy policy, which has rippled downwards, causing many project developers to postpone project completion dates and expand the time needed for planning, preparation, permit applications and procurement. It is possible that many of the 22.8 gigawatts of subsidized projects, which were originally expected to be installed in the Q4 of 2019, could be delayed to the first half of twenty twenty. Despite softening demand from China's downstream market, demand from overseas markets remains robust and could possibly reach 85 gigawatts this year, a significant increase from approximately 60 gigawatts in 2018. With the Chinese downstream market expected to robust rebound next year and overseas demand continuing to grow, we believe global solar PV demand could exceed 140 gigawatts 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 efficiency methods to store power, solar energy has the potential to become a sustaining base load power as the economics improve and governments enacted more policies to address climate change, we believe we are at the cusp of major change in the market, which will create enormous opportunities for us over the next several years. We are confident in our ability to navigate these 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 producer who are able to generate profit in the current challenging market environmental. For the 1st 3 quarters of this year, our net cash provided by operating activities was approximately US100 $1,000,000 Once Phase 4a is operating at full capacity, we expect to make improvements in production quality and cost structure so as to further enhance our leadership position in the industry. In the month of September, our Xinjiang Daqoo subsidiary received certification from China's Ministry of Industry and Information Technology as a National Technological Innovation Model Enterprise, this certification brings national recognition that Xinjiang Daqan is a national leader in innovation and technological investment, application of new technology, innovative development strategies and a corporate culture that fosters innovation. We are very pleased to receive this certification as it further demonstrates the government's recognition that Daqo New Energy is a national leader in the industry. In our strategy to enhance our industry leadership, we continue to engage in R and D initiatives that improve product period in our manufacturing process. We are also working on cost reduction efforts, including energy efficiency projects, as well as improvements in our supply chain and material procurement that would bring further cost reductions. We are also pleased to announce that during the Q3, we have begun shipments of N type polysilicon to our strategic customers for production of N type wafers for trial, testing and qualification. N type polysilicon carry additional premium over the mono grade polysilicon and will be required to produce high efficiency solar cell technologies such as Topcon and HGT, which are currently undergoing initial development in the industry. We believe that in the future, Daqo will be well positioned as a key material supplier for this emerging technology. We are also planning digital transformation at Xinjiang Daqo and implementing a digital manufacturing system. We would become one of China's first specialty chemical companies to do the transformation that would be implemented throughout our entire manufacturing process and related management systems. This would include digital implementation, real time automated manufacturing data collection, real time monitoring and analysis of our manufacturing system and optimization. We believe that upon completion, this initiative will further bring further enhancements in safety, product quality and cost structure. Now let me discuss our outlook and guidance. We expect to produce approximately 14 1,000 to 15,000 metric tons of polysilicon during Q4 of 2019 and the sale of approximately 12,500 to 13,500 metric tons of polysilicon to external customers during the Q4 of 2019. For the full year of 2019, we expect to produce approximately 39,300 to 40,300 metric tons of polysilicon. Now, I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the Q3 of this year. Thank you, Langan, and good day, everyone. Thank you for joining our conference call today. Revenues for the Q3 of 2019 were $83,900,000 compared to $66,000,000 in the Q2 of 2019 and $67,400,000 in the Q3 of 2018. The increase in revenue was primarily due to higher polysilicon sales volume, which were offset by slightly lower ASPs. In RMB terms, the company's polysilicon ASP during the quarter were slightly higher than during the Q2 of 2019. In U. S. Dollar terms, the company's polysilicon ASP fell as a result of the depreciation of the rmb against the U. S. Dollar. Gross profit was RMB 18,100,000 compared to $8,600,000 in the Q2 of 2019 and $12,800,000 in the Q3 of 2018. Gross margin was 21.5% compared to 13% in the Q2 of 2019 and 19% in the Q3 of 2018. The increase in gross margin was primarily due to lower production costs despite a slight decrease in ASP. During the quarter, we achieved total production costs of $6.97 per kilogram and cash cost of $5.85 per kilogram. Successful cost reduction come from efforts to reduce energy usage per unit of polysilicon production, which is the result of our enhanced manufacturing process, better equipment and energy efficiency efforts. During the Q2, we installed new energy efficiency systems for waste heat recovery and heat exchange. And during the Q3, we're already seeing significant improvements in energy savings. Overall, when compared to a year ago, we estimate we're saving approximately 20% in energy usage per kilogram of polysilicon production. Other factors benefiting our cost reduction include economies of scale and our enhanced manufacturing efficiencies. As an example, our annualized polysilicon unit production per employee will increase from last year's average of approximately 16 metric ton per employee to currently approximately 22 metric ton per employee to an anticipated 38 metric ton per employee for next year. Our successful efforts in continuous cost reduction will allow us to remain a cost leader in the polysilicon industry with sustained profitability. SG and A expenses were $8,200,000 compared to $7,800,000 in the Q2 of 2019 and $7,600,000 in the Q3 of 2018. This quarter's SG and A expense includes $4,000,000 of non cash share based compensation costs related to the company's share incentive plan. The increase in SG and A for the quarter was primarily due to an increase in shipping costs as a result of higher sales volume. R and D expenses were $1,200,000 compared to $1,500,000 in the Q2 of 2019 and $1,400,000 in the Q3 of 2018. R and D expenses could vary from period to period to reflect R and D activities that took place during the quarter. Income from operations was US8.8 million dollars compared to loss from operations of US0.4 million dollars in the Q2 of 2019 and income from operations of CNY 4,000,000 in the Q3 of 2018. Interest expense was CNY 2,600,000 compared to CNY1.9 million in the Q2 of 2019 and CNY2.1 million in the Q3 of 2018. EBITDA from continuing operations was $19,700,000 compared to $10,200,000 in the Q2 of 2019 and RMB14.8 million in the Q3 of 2018. EBITDA margin was 23.5% compared to 15.5% in the Q2 of 2019 and 22% in the Q3 of 2018. Despite the market challenges, we continue to generate healthy EBITDA and EBITDA margins. Net income attributable to Daqo New Energy Corp. Shareholders was RMB5 1,000,000 in the Q3 of 2019 compared to net loss attributable to Daqo New Energy Corp. Shareholders of $2,200,000 in the Q2 of 2019 and $18,300,000 in the Q3 of 2018. Earnings per basic ADS were US0.37 dollars compared to loss per basic ADS of US0.16 dollars in the Q2 of 2019 and $1.39 in the Q3 of 2018. As of September 30, 2019, the company had $68,200,000 in cash, cash equivalents and restricted cash compared to $79,600,000 as of June 30, 2019. As of September 30, 2019, the accounts receivable balance was $100,000 compared to $100,000 as of June 30, 2019. As of September 30, 2019, the notes receivable balance was $4,300,000 compared to $9,400,000 as of June 30, 2019. As of September 30, 2019, total bank borrowings were $248,800,000 of which $163,500,000 were long term borrowings compared to total borrowing of $243,200,000 including RMB151.5 million of long term borrowings at September 30, 2019. For the 9 months ended September 30, 2019, net cash provided by operating activities was RMB 101,600,000 compared to RMB 63,600,000 in the same period of 2018. For the 9 months ended September 30, 2019, net cash used in investing activities was CNY 202,300,000 compared to CNY99,900,000 in the same period of 2018. The net cash used in investing activities in 2019 2018 were primarily related to the capital expenditures on our Xinjiang's Phase 3b and Phase 4a polysilicon projects. For the 9 months ended September 30, 2019, net cash provided by financing activities were $76,600,000 compared to net cash used in financing activities of $84,300,000 in the same period of 2018. This concludes our prepared remarks. We will now turn the call over to the operator to begin the Q and A session. Operator, please begin. We will now begin the question and answer Our first question comes from Philip Shen with ROTH Capital Partners. Please go ahead. Hey, guys. Thanks for the questions. I'm in transit right now, so I may have missed some of your prepared remarks. But that said, wanted to talk through what China's outlook is. It seems like the back half recovery in 2019 really hasn't happened and doesn't seem like it will. And then we'll have this carryover of the 23 gigawatts into next year. I was wondering if you could talk through how you expect and what you expect China's demand to look like by quarter through 2020? And I think you in your press release had a 140 gigawatt global demand for 2020. How much of that is China? Thank you. Thank you, Philip. I think as I just in talking on the speak, China this year so far because of announcements is delayed, subsidiary policy delay. So we believe most of the projects because it's already national planning, so around 23 gigawatts, we believe will expand to most of it in the first half of next year. So basically this year, we don't believe in China maybe I think around 25, maybe 30 gigawatts at the most. So next year basically I believe is China total maybe around 40 to 50 gigawatts, because some maybe delay from this year, then also next year will speed up. There's a lot of things happened, because the subsidy policy delay due to because I think a lot of if you want trade war then the government's policy delay, the adjustments in all those stuff. But anyway, we see the grid parity. Then next year, China, besides I think the subsidized projects and also a lot of grid parity projects is there. So basically then foreign markets, I think overseas markets also continue to grow. This year is around 80 gigawatts. Next year, we think is 90 to 100 gigawatts is possible. So that's why we come out right now is 140 gigawatts. But to us, I think for silicon materials, the most right now, I think a short term silicon price wise and still is status quo, like still didn't increase too much, still like just around $9 per kg. The reason is because I think the wafer capacity expansion is not fast as we expected or people claimed. If you look at LONGi, they are claiming I think around 60 gigawatts, but actually right now by the end of next year, but actually right now only around 35 to 30 gigawatts is extra capacity. Same as like Zhonghua, I think right now their extra capacity may be only 25 gigawatts. But from 25 to 50 gigawatts, I think most will be down, I think the next year, first half, first three quarters. So that's why I believe, I think silicon price right now is not temporary, short term is not determined by the end module price up and down or demand and supply. It's dependent on the I think the weaver capacity expansion. I think right now, for example, the mono, I think, wafer ingots furnaces supply is short. You need like 3 months to 6 months for the order period. So basically, I believe we see like Jinko, like Longy, like Zhongkuan, those are a lot of bigger player for the next year, especially the first half of the year, the capacity is installed. I think silicon price will go up next year, I think in Q1, end of Q1, beginning of next quarter Q2 of next year. We're back to $10 even $11 Okay. That's really helpful. Thank you, Logan. So $10,000,000 to $10,000,000 in Q1 and Q2. I was wondering if you could comment also on the outlook for supply. So you talked about the demand with the mono wafer coming online. But can you talk through some of what you're seeing with your competitors and what they're ramping up in terms of polysilicon production or capacity and how much of that do you think will be capable of producing mono grade polysilicon? Okay. Because since Daqo, most of the products right now is mono grade, 86% of our products right now is mono grade. So I'm not emphasis on the multi, because multi is not too much player there. So if you look at the Q3, basic as a major player, we still import, I think, from Wacker OCI still around like 30,000 tons for to China in Q3. Then the 2nd player, maybe I think the major I think today, I think Daku is the bigger player in China. Then also look at our competitors, I'm not going to mention the name, because I think like TVA maybe they also have the second they also have new projects starting production. But they still not reach purely I think, high percentage of mono silicon grade silicon coated product. Same as I think Tongwei. So basically I think Tongwei TBA today they may be around like 50%, The older plan maybe, okay, TBA, Frank speaking maybe around 60% to 70%. I'm talking about new plans. So they're still in the process of ramping up. I think today, I think a major bigger player is Daqoo, Tongwei and TBA. Then perhaps maybe some power portion is coming from New Hope because they basically power is almost they say the power is free, then the MGS, you see the silicon powder, the raw materials also is made by themselves. So even though the quality is poor, but their quantity step by step is improved and it's come to market. I think right now, New Hope is I think annual output maybe around 50,000 tons. So basically you can see what I can forecast by the end of this year, our capacity actually expected maybe reach 78,000 tons. So next year, our majority, 90% is mono grade. So I'm not comparing I'm not sure how much, but their claim, they may be around 80,000 tons come out. But I doubt the model grade maybe will be around below even 50% overall, okay? TVA maybe around 60% to 70%. The total output maybe around I think also 70,000 to 75,000 tons. That's the major players. So it's not really too much there. So basically, what I'm thinking right now, silicon price not go up because of, I think monographwave capacity is not as they are the extension is not we expected right now. So by the end of by the middle of next year, all the capacities catch up, for example, LONGi claim right now. By the middle of next year, they will go to 45 gigawatts. Then by the end of next year, we go to 60 gigawatts. Then Zhongkuan, by end of September, will reach to 50 gigawatts. So all these capacity come out, they need a lot of mono grade silicon. I don't think the foreign import silicon, the cost can be competitive with us. As you can see, we continue to reduce the cost. So we will continue even right now the price is a worst scenario, our gross margin still can reach around this quarter, 3rd quarter is around 21% to 23%. We think already give out our cost target is $60.50 So you can imagine the gross margin, how much we can improve. Great. Thank you. And one more, if I may. As it relates to Phase 4b, can you talk through what factors and conditions need to be in place for you to launch the Phase 4b? And is there a sense of timing yet or is that still unclear? Basically, right now, we think we still forecast Phase A because we're almost 1 quarter ahead to complete the construction put into the production. So I think by the end of this month, we were ramping to 70% to 80% our output of our capacity. So November December definitely will be 100% capacity running. Even based on our guidance, you can see that projected. So basically, based on our right now the balance sheet status and we still have some 4a capital equity ratio still is reasonable and debt to total assets is 49%. So we will see, I think the next year Q1 and the second quarter, we will see what the performance and continue to improve the balance sheet and then to make decision, also the market situation, whether we continue to do 4B or not. Okay. Thank you, Longgen. I'll pass it on. Great. Thank you, Phil. Our next question comes from Gary Zhou with Credit Suisse. Please go ahead. Hello, management. Thank you for taking my questions. This is Gary from Credit Suisse. I have three questions. So firstly, I noticed that your unit production cost for early next year is now at US6.5 dollars So I think this is probably lower than the US6.8 dollars you previously guided in September. So may I ask what is the reason behind this kind of a better than expected cost outlook? And secondly, may I ask the latest capacity utilization of your Phase 4a project? And how much of its current output is from the mono grade? And thirdly, so based on the current capacity expansion plans of your peers, we think that probably we won't see much kind of a new capacity from top tier producers in the next 12 months, if not longer. So I just wonder if management has an estimate on what kind of polysilicon price may be sustainable in the next 1 to 2 years? Thank you. Thank you, Kelly. I think first of all to answer your question, if you look at our Q3, our cost I think of the goods sold is $6.97 That's just based full capacity running on the existing capacity 35,000 tons. And we think if we're fully running 4a and not only the scalability, but also I think in October, we successfully signed the supply long term contract. So compared last year, all the supply almost cut 5% from, for example, like silicon powder and the rods and the package, everything. So we think dramatically cost cutting around $0.20 per kg. Then also, I think, scalability as you can see that next year we're around 78,000 metric tons. So we believe it's not only considered right now that it actually maybe continue to go down based on the contract we signed with the governments and also Asia company, the supply supposed to reduce to $0.24 to $0.20 to KWH. So we believe, I think, very confident $6.50 we can be achievable. To second question, I think answer your question 4a, what's the steps right now we're running? We actually starting trial production in September and right now, contrary almost 70% furnaces is running. So for this quarter, actually to I think to yesterday to 10th November 10th, our 4A output is around 8.50 tons. So all planning for this month, the 4A, I think a total of production maybe around 2,000 tons. So to answer your question, I think December, we will ramp up almost 100%. So then next year, you can see, I think we will give guidance, I think on the Q4 earnings release. So our 4A right now, the ramping up the speed and also the quality is very good. For example, right now the product almost 70% to 80% is right now the mono grades And our biggest supplier, I'm not naming, always testing right now. So I think for this month and also next month, so we can selling our 4A products, mono grade quality products. To the 3rd question, to answer your question for next year, I just also answered Philip, because I think if you look at today's silicon price, most right now the producer is loose money. Even though our gross margin is around 21%, the Q4 maybe gross margin is more improved. For our competitors, essentially I think a small player, their gross margin maybe below 12%, industrial maybe around 15%. So right now, majority of the producer is lose money. But I think as you see that the major four companies, I think TVA, Tongwei and also New Hope and us, I think that's the 4 major player. I think their capacity next year, I think we're almost I think we're fully around. The only is the quality. We believe 90% of our products is mono grade products. Then also if you look at if we add together all these, I think maybe mono grade products, maybe around the China producers, maybe around 25,000 250,000 tons to 300,000 tons next year. Then plus possible imports next year, what I think maybe around 80,000 tons. So I think on the supply side next year for the mono grades, maybe just around 300,000 to 350,000 tons. But for the demand side, you should be I think I just mentioned that majority, I think most of the mono wafer ingot, let's say, capacity expansion right now, they will reach their high capacity. For example, LONGi by the next year will be 60 grades, by the middle of next year will be 45 gigawatts. Zhongkuan will be by the end of September we go to 50 gigawatts. Then Changji, another Asia company will be 9 gigawatts. Jinko is claiming right now 25 gigawatts, all those capacity is coming. What I'm adding up next year, the mono whole capacity average, the whole year average is around like 100 to 110 gigawatts. So that's I think on demand side maybe around 350 to 400 gigawatts also. So I think supply even supply and demand maybe even. So then should the time period, I think maybe around I think the second quarter, I think the demand may be higher than supply, okay? So maybe cost the silicon price go up. But right now, I think $9 for monosilicon price is our average. Of course, you see our some products are selling higher because we're 90% right now is moderate. Our average selling price right now this quarter is $8.99 So I think mono grades maybe selling around $9.20, dollars 9.10 then some multi products right now selling maybe only like 7 point $0 whatever. So we believe I think the more great quality products right now the selling price should not continue to go down. We already see this quarter almost in our 4th quarter, the street is the price for the more great polysilicon price status quo right now. So we believe I think the Q4, the ASP should be the same as Q3. Gary, did I ask your question or Ming you have some comments to add? Yes. Thank you very much. Yes, I have no further questions. Thank you. Great. Thank you, Gary. Our next question comes from Lu Zheng with CICC. Please go ahead. Hey, management. Thanks for taking my question. I have three questions. The first that you have mentioned the electricity price you purchased next year will go down. So could you please give us some color on the DPP you are signing with the local power station in Xinjiang next year, because we have heard that some company in Xinjiang now have the pressure of the electricity price increase. And the second is that we have given the guidance, the cost will be at US6.5 kilograms. So may I understand what's the assumption of the electricity price for that cost? Is it the current cost or we already accounted the electricity price decline? And third is that consider we have no further capacity ramp up plan in 2020, we have stayed positive free cash flow in the next year, will we have any time to give dividend in the next year? Thank you. Okay. I think first of all, Mr. Liu, to answer your question, Mr. Liu from CIDC, I think he knows China better than me. First of all, about yesterday, I think all yesterday supply and the price are secured by specific terms in the investment agreement, filed with 4 parties, including 1 is Tianfu Company, it's a share Asia Company, it's a supplier. Then also, Sehe's government, then also Sehe's Economic Development Zone Administration Committee. So I think on that contract, if you base the finished 4A, our electricity should be from current price $0.24 per KWH down to $0.20 per KWH. According to NAND, the expected supply and price are secured for at least 10 years after Phase 4a running at full capacity. We believe the local governments and our supply will continue to follow the agreements and we're able to maintain our advantages in cost structure. In addition, if you know that, recently the State Council, the central government released regulations optimizing the business environmental in which it clearly states, I take out item 31, local governments at all levels and their relevant departments to fulfill the policy promise and all kinds of contracts and should not commit any breach and entirely disregard the obligations due to adjustments of administration jurisdiction, government transition, adjustments of institutes or their responsibilities, all charges of relevant officials in charge. So you can see that the government's regulation starting January 1, 2020. Yes. To answer your second question, we right now forecast next year at full capacity 4A, our cost of manufacturing cost is $6.50 We're not considering further to the current electric cost $0.24 per kWH. We now consider right now the electric continue to go down, maybe $0.04 per kwedge. If that's the case, the cost maybe continue to go down to $6.30 Then to your third question about the cash flow, yes, we see that year to date to end of December, our operating cash is almost $100,000,000 And we believe on the Q4, the cash flow operating cash continue to come in. But also I want to remember remind you that 4a, our total investment is around RMB2.95 billion, I think, RMB425 1,000,000. We still have some payments, still didn't pay, I think arrangement. So next year, we still have 4A, we still have around $120,000,000 payout. Then in 2021, we still have $20,000,000 payout. So we want to continue to run the business and to improve our balance sheet. Right now our total banking loans is around US248 $1,000,000 We still have banking facilities around like US500 $1,000,000 but we still want to prudently to make decision whether we continue to expansion 4B or not by the middle of next year. Our next Our next question comes from John Segarich with Luminus. Please go ahead. Hey, guys. Just a quick housekeeping. Depreciation has kind of been fairly flat. I assume now that you're ramped with the expansion, that depreciation will start flowing through the P and L. So just remind us kind of how much incremental depreciation we should be thinking about for next year, Ming? And what's the period over which the new plant is depreciated versus the old plant? Okay. I think, John, I think as you know that for 4A because our total investment is around RMB420 1,000,000. So if capitalized that, I think basically every month, right, is around US2 $1,000,000 will be depreciation, I think, into the P and L. So basically, we count that also on our cost of goods sold. So that $6.50 also including that. But if you look our total output next year, I'm not giving guidance. Our nameplate is 70,010, but we believe, okay, we can reach maybe around 75,000 to 78,000 tons. Okay. And then just one more. When you look at the guidance for 4Q, as you're ramping here, it's kind of the first time where you're not projecting to sell everything that you produce. And just wondering kind of is that a timing issue? Or as you bring on this new capacity, do you still need to find a home for it and we should expect to maybe build some inventory over the next couple of quarters? No, no, no, John. Because of some products we produce like this month, some maybe still is not good to call it, still in the trial production, still is not the production is still not ramping to 70% of our criteria for capitalization. So some products we still need capitalization. That's a partial maybe around like 100 tons. Then also I just remind you some products we may be used to making our RUTs, the RUTs, the silicon RUTs. So that's why we maybe use this month is around like 500 tons, right? We use to use inside used to our silicon rods. We're going to use the silicon to outsourcing OEM the ingots then asking people to cut into the ruts, so basically to reduce our cost. So our inventory still will keep around 3 days production at the end of the quarter. This concludes our question and answer session. I would like to turn the conference back over to Kevin Heath for any closing remarks. All right. Thank you again everyone for attending the conference call today. Should you have any further questions, please don't hesitate to contact us. Thank you and bye bye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.