Earnings Call: Q3 2019

Nov 12, 2019

Good day, and welcome to the Daqo New Energy third quarter 2019 conference call and webcast. 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 third quarter of 2019, which can be found on our website at 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, Mr. Yang will discuss the company's financial performance for the third 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 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. We undertake no duty to update such information except as required under applicable law. During the call, we will occasionally reference monetary amounts in US dollar terms. Please keep in mind that our functional currency is Chinese RMB. We offer these translations into US 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 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 this additional 35,000 metric tons plan. 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 fourth quarter of 2019 to be approximately 14,000-15,000 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 mono-grade production quality and are optimizing our product portfolio towards it in order to maintain higher ASPs. We sold approximately 86% of our products to mono wafer customers during the quarter. Once Phase 4A is fully ramped up, we expect mono-grade products to account for approximately 90% of our total production volumes. With our downstream mono wafer customers expected to 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 first 3 quarters of 2019, China installed approximately 16 gigawatts of new solar PV projects, significantly below the market's expectations. We believe the primary reason is the long-delayed announcement of a subsidy policy, which has rippled downwards, causing many project developers to postpone project completion dates and extend the time needed for planning, preparation, permit applications, and procurement. It is possible that many of the 22.8 gigawatts of subsidized projects which were originally expected to be installed in the fourth quarter of 2019 could be delayed to the first half of 2020. 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 become a sustaining base load power. As the economics improve and governments enact 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 this temporary downturn in the market and are ready to take advantage of the recovery next year when the market will continue advancing towards grid parity. As one of the lowest cost polysilicon producers with the highest standards for quality, we are among the very few polysilicon producer who are able to generate profits in the current challenging market environmental. For the first 3 quarters of this year, our net cash provided by operating activities was approximately $100 million. Once Phase 4A is operating at full capacity, we expect to make 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 Daqo 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 Daqo 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&D initiatives that improve product purity 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 third quarter, 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 HJT, 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 would bring further enhancements in safety, product quality, and cost structure. Now let me discuss our outlook and guidance. We expect to produce approximately 14,000 to 15,000 metric tons of polysilicon during the fourth quarter of 2019, and sell approximately 12,500 to 13,500 metric tons of polysilicon to external customers during the fourth quarter of 2019. For the full year of 2019, we expect to produce approximately 39,300-40,300 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 third quarter of this year. Thank you, Longgen, and good day, everyone. Thank you for joining our conference call today. Revenues for the third quarter of 2019 were CNY 83.9 million compared to CNY 66 million in the second quarter of 2019 and CNY 67.4 million in the third quarter 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 second quarter of 2019. In US dollar terms, the company's polysilicon ASP fell as a result of the depreciation of the renminbi against the US dollar. Gross profit was CNY 18.1 million compared to CNY 8.6 million in the second quarter of 2019 and CNY 12.8 million in the third quarter of 2018. Gross margin was 21.5% compared to 13% in the second quarter of 2019 and 19% in the third quarter 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 cost of $6.97 per kilogram and cash cost of $5.85 per kilogram. Successful cost reduction come from our 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 second quarter, we installed new energy efficiency systems for waste heat recovery and heat exchange. During the third quarter, 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 tons per employee to currently approximately 22 metric tons per employee to an anticipated 38 metric tons 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&A expenses were $8.2 million compared to $7.8 million in the second quarter of 2019 and $7.6 million in the third quarter of 2018. This quarter's SG&A expense includes $4 million of non-cash share-based compensation costs related to the company's share incentive plan. The increase in SG&A for the quarter was primarily due to an increase in shipping costs as a result of higher sales volume. R&D expenses were $1.2 million compared to $1.5 million in the second quarter of 2019 and $1.4 million in the third quarter of 2018. R&D expenses could vary from period to period to reflect R&D activities that took place during the quarter. Income from operations was $8.8 million compared to loss from operations of $0.4 million in the second quarter of 2019 and income from operations of $4 million in the third quarter of 2018. Interest expense was CNY 2.6 million compared to CNY 1.9 million in the second quarter of 2019 and CNY 2.1 million in the third quarter of 2018. EBITDA from continuing operations was CNY 19.7 million compared to CNY 10.2 million in the second quarter of 2019 and CNY 14.8 million in the third quarter of 2018. EBITDA margin was 23.5% compared to 15.5% in the second quarter of 2019 and 22% in the third quarter of 2018. Despite the market's challenges, we continue to generate healthy EBITDA and EBITDA margins. Net income attributable to Daqo New Energy Corp shareholders was $5 million in the third quarter of 2019 compared to net loss attributable to Daqo New Energy Corp shareholders of $2.2 million in the second quarter of 2019 and $18.3 million in the third quarter of 2018. Earnings per basic ADS were $0.37 compared to loss per basic ADS of $0.16 in the second quarter of 2019 and $1.39 in the third quarter of 2018. As of September 30, 2019, the company had $68.2 million in cash equivalents and restricted cash compared to $79.6 million as of June 30, 2019. As of September 30, 2019, the accounts receivable balance was $0.1 million compared to $0.1 million as of June 30, 2019. As of September 30, 2019, the notes receivable balance was CNY 4.3 million compared to CNY 9.4 million as of June 30, 2019. As of September 30, 2019, total bank borrowings were CNY 248.8 million, of which CNY 163.5 million were long-term borrowings compared to total borrowing of CNY 243.2 million, including CNY 151.5 million of long-term borrowings as of June 30, 2019. For the nine months ended September 30, 2019, net cash provided by operating activities was CNY 101.6 million, compared to CNY 63.6 million in the same period of 2018. For the nine months ended September 30, 2019, net cash used in investing activities was CNY 202.3 million, compared to CNY 99.9 million in the same period of 2018. The net cash used in investing activities in 2019 and 2018 were primarily related to the capital expenditures on our Xinjiang Phase 3B and Phase 4A polysilicon projects. For the nine months ended September 30, 2019, net cash provided by financing activities were CNY 76.6 million, compared to net cash used in financing activities of CNY 84.3 million 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&A session. Operator, please begin. We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. 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. 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. Then, we'll have this carryover of the 23 gigawatts into next year. Was wondering if you could, you know, talk through how you expect and what you expect China's demand to look like by quarter through 2020. 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, you know, subsidy policy delay. We believe, you know, most projects, because it's already national planning. Around the 23 gigawatts we believe were extend to most were, you know, first half of next year. Basically this year, we don't believe in China, maybe I think, you know, around the 25, maybe 30 gigawatts at the most. Next year, basically I believe is China total may be around 40-50 gigawatts because, you know, some may be delayed from this year, then also next year will speed up. That's a lot of things happened because, you know, the subsidy policy delay due to because I think a lot of is the world trade war then, the government's policy delay, you know, the adjustments in all those stuff. Anyway, we see the grid parity. Next year, China, besides the I think the subsidized projects and also a lot of grid parity projects is there. Basically, foreign markets, I think overseas markets also continue to grow. This year is around 80 gigawatts. Next year, we think is 90 gigawatts-100 gigawatts is possible. That's why we come out right now is 140 gigawatts. To us, I think for silicon materials, the most right now I think short-term the silicon price-wise still is cool, you know. Like, still didn't increase too much, still like just around CNY 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 LONGi, they're claiming I think around 60 gigawatts, but actually right now By the end of next year. Actually right now, only around 35-30 gigawatts is extra capacity. Same as like Zhonghuan. I think right now their actual capacity may be only 25 gigawatts. From 25 to 50 gigawatts, I think most will be done, I think, the next year, first half, first three quarters. 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 supply. It's dependent on the, I think the wafer capacity expansion. I think right now, for example, the Monier I think wafer ingot furnaces supply is short. You need like 3 months to 6 months for the order period. I believe you see like JinkoSolar, like LONGi, like Zhonghuan, those 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 first quarter, end of first quarter, beginning of next quarter, second quarter of next year. We're back to CNY 10, even CNY 11. Okay. That's really helpful. Thank you, Longgen. 10 to potential $11 in Q1 and Q2. Was wondering if you could comment also on the outlook for supply. You talked about the demand with the mono wafer coming online. 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? How much of that do you think will be capable of producing mono-grade polysilicon? Okay. Daqo, most of products right now is mono-grade. 86% of our products right now is mono-grade. I'm not, you know, emphasis on the multi because multi is not too much player there. If you look at the third quarter, the major player will still import from Wacker OCI still around like 30,000 tons for to China in third quarter. The second player, Daqo is the bigger player in China. Also look our competitors. I'm not gonna mention the name because I think like TBEA maybe they also have the second new project starting production. It's, they still not reach, you know, purely I think a high percentage of mono-grade silicon quality product. Same as I think Tongwei. Basically, I think Tongwei, TBEA today they may be around like 50%. The old plant may be okay. TBEA, frankly speaking, may be around 60%-70%. I'm talking about new plants. They're still in the processing of ramping up. I think today, I think a major bigger player is Daqo, Tongwei, and TBEA. Plus maybe, you know, some polysilicon is come from East Hope because they actually basically power is, is almost they say the power is free. The MG-Si, you see the silicon powder, the raw materials also is made by themselves. Even though the quality is poor, their quantity step by step is improved, then it come to market. I think right now East Hope's, I think, annual output may be around 50,000 tons. Basically, you can see what I'm can forecast by the end of this year, with our capacity, actual capacity maybe reach 78,000 tons. Next year, our majority, 90% is mono-grade. I'm not compare, you know, not Tongwei, I'm not sure, you know, how much, but their claim they may be around 80,000 tons, you know, come out. I doubt the mono-grade maybe will be, you know, around 50% below even 50% overall, okay? TBEA may be around 60%-70%. The total output may be around, I think, also, 70,000-75,000 tons. That's the major players. There's not really too much there. Basically, what I'm thinking right now, silicon price not go up because of mono-grade wafer capacity is not, you know, the expansion is not we expected right now. 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 GW. By the end of next year, we go to 60 GW. Jiangsu Zhongneng, by end of September, will reach to 50 GW. All these capacity come out, they need a lot of, you know, 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. We will continue even right now the price is the worst scenario. Our gross margin still can reach around this quarter, third quarter is around 21% to 23%. We think already give out our cost target is CNY 60.50. You can imagine the gross margin, how much we can improve. Great. Thank you. 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? Is there a sense of timing yet, or is that still unclear? Basically right now, we think we still forecast Phase 4A because we almost one quarter ahead to, you know, to complete the construction put into the production. I think, by the end of this month, we will ramping to 70%-80% our output, you know, of our capacity. November, December definitely will be 100% capacity running. Even you based our guidance, you can see that, you know, projected. Basically, you know, based on our right now the balance sheet status, and, we still have some 4A capital expenditures need to pay out next year. Today, I think as you can see, our debt equity ratio still is reasonable, and debt to total assets is 49%. We will see, I think the next year 1st quarter and 2nd quarter, we will see what the performance and continue improve the balance sheets and then to make decision. Also the market situation, whether we continue to do 4B or not. Okay. Thank you, Longgen Zhang. I'll pass it on. Great. Thank you, Philip. 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 3 questions. Firstly, I noticed that your unit production cost for early next year is now at $6.5. I think this is probably lower than the $6.8 you previously guided in September. May I ask what is the reason behind this kind of a better than expected cost outlook? 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. Thirdly, 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 or so, if not longer. I just wonder if management has an estimate on what kind of polysilicon price may be sustainable in the next 1-2 years. Thank you. Thank you, Gary. First of all, to answer your question, if you look our third quarter, our cost of the goods sold is $6.97. That's just based full capacity running on the existing capacity, 35,000 tons. We think, you know, if we're fully running Phase 4A, it's not only the scalability, but also in October, we successfully signed the supply long-term contract. Compare last year, all the supply almost cut, you know, 5% from For example, you know, like silicon powder and the rods and the package, everything. We think, you know, dramatically will cost cutting around $0.20 per kg. Also, scalability, as you can see there, next year we around 78,000 metric tons. We believe it's not only considering right now the electricity 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 per kWh. We believe, I think, very confident, $6.50 we can be achievable. The second question, I think, answer your question, 4A, what's the status right now we're running? We actually starting trial production in September, and, right now currently almost 70% furnace 50 is running. For this quarter, actually to, I think to yesterday, to the tenth, November tenth, our 4A output is around 850 tons. Our planning for this month, the 4A, I think total production may be around 2,000 tons. To answer your question, I think, you know, December we will ramp up almost 100%. Next year you can see, I think, we will give guidance, I think on the fourth quarter earnings release. Our Phase 4A right now, the ramping up, the speed and also the quality is very good. For example, right now the products almost 70%-80% is right now the mono-grades. And our biggest supplier, I'm not name, all is testing right now. I think, you know, this month and also next month, so we can sell our Phase 4A products, mono-grade quality products. To the third question, you know, to answer your question, for next year, I just also answer Philip, because I think if you look at today's silicon price, most right now the producer is lose money. Even though our gross margin is around 21%, the Q4 maybe gross margin is more improved. Our competitors, I think the small player, their gross margin may be below 12%. Industrial maybe around 15%. Right now, majority producer is lose money. I think as you see that, the major 4 company, I think, TBEA, Tongwei, and also East Hope and us, I think that's the 4 major player. I think their capacity next year, I think will almost I think will fully run. The only is the quality. We believe 90% of products is mono-grade products. Also if you look at, I think maybe mono-grade products, maybe around China producer, maybe around 25, I think 250,000-300,000 tons next year. Plus possible imports next year, what I think maybe around 80,000 tons. I think on the supply side next year, for the mono-grades, maybe just around 300,000-350,000 tons. For the demand side, you should be, you know I think I should mention 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 gigawatts. By the middle of next year will be 45 GW. Zhonghuan will be by the end of September will go to 50 GW. Shangji, so another Asia company, will be 9 GW. JinkoSolar is claimed right now 25 GW. All those capacity is coming. What I'm next year, the mono whole capacity average, the whole year average is around, like, 100-110 GW. That's I think the demand side may be around 350-400 GW, you know, also. I think the supply even, supply and demand may be even. Should time period, I think maybe around, I think second quarter, I think, the demand may be higher than supply. Okay? Maybe cost, the silicon price go up. Right now, I think $9 for mono-grade polysilicon price is our average. Of course, you see our sample price is selling higher because we're 90% right now is mono-grade. Our average selling price right now this quarter is $8.99. I think mono-grades may be selling around $9.20, $9.10. Some multi products right now selling maybe only like $7.50, whatever. We believe, I think, you know, the mono-grade quality products right now the selling price should not continue to go down. We already see this quarter, almost, you know, fourth quarter, the street is the price for the mono-grade polysilicon price stands core right now. We believe, I think, the fourth quarter, the FP should be the same as third quarter. Gary, did I answer your question or maybe you have some, you know, comments to add? Yes, thank you very much. Yeah, I have no further questions. Thank you. Great. Thank you, Gary. Our next question comes from Liu Chong with CICC. Please go ahead. Hey, Madness. Thanks for taking my question. I have 3 question. The first that you have mentioned the electricity price you will purchase next year will going down. Could you please give us some color on the PPA you are signed with the local power station in Xinjiang next year? Because we are heard that some company in Xinjiang now have the pressure of the electricity price increase. The second is that we have given the guidance where the cost will be at $6.5/kilogram. May I understand what's the assumption of the electricity price for that cost? Is the current cost, or we already account the electricity price decline? Third is that, consider we have no further capacity ramp up plan in 2020. We have, say, positive free cash flow in the next year. Will we have any plan to give dividend in the next year? Thank you. Okay. I think, first of all, Mr. Liu, to answer your question. Mr. Liu from CICC. I think he know China better than me. Yeah. Thank you. First of all, about electricity. I think all electricity supply and price are secured by specific terms in the investment contract. Yeah. Agreement signed with 4 parties, including 1 is Tianfu company. It's an A-share company, is a supplier. Also third government, then also third economic development zone administration committee. I think on that contract, if it based, we finish 4A, our electricity should be from current price CNY 0.24 per kWh down to CNY 0.20 per kWh. According to terms. Yeah. The electricity supply and the price are secured for the 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, 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 on optimizing the business environment in which it clearly states, I think on item 31, local governments at all levels and their relevant departments to fulfill the policy promise and all kinds of contracts should not commit any breach and in theory, in theory, disregard the obligations due to adjustments of administration jurisdiction, government transition, adjustments of institutes or their responsibilities or charges of relevant officials in charge. You can see that's the government's regulation starting January 1st, 2020. Yes. To answer your second question, you know, we right now forecast next year at full capacity, 4A, our manufacturing cost is $6.50. We're not considering further to the current electricity cost, $0.24 per kWh. We not consider right now the electricity continue go down, maybe, you know, $0.04 per kWh. If that's the case, the cost may be continue go down to $6.30. Yes. To the your third question about the cash flow. Yes, we see that, you know, year-to-date to end of December, our operating cash is almost $100 million. We believe on the fourth quarter, the cash flow, operating cash continue come in. Also I want to remind you that Phase 4A, our total investments is around RMB 2.95 billion. It's around $425 million U.S. dollars. We still have some payments still didn't pay, I think arrangement. Next year we still have Phase 4A, we still have around RMB 120 million payouts. In 2021, we still have RMB 20 million payout. We want to continue to run the business and to improve our balance sheet. Right now, our total banking loans is around $248 million. We still have banking facilities around like, you know, $100 million. We still want to prudently to make decision whether we continue to expansion Phase 4B or not by the, you know, the middle of next year. Our next question comes from John Segrich 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&L. Just remind us kind of how much incremental depreciation we should be thinking about for next year, Ming? 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 Phase 4A, because our total investment is around $420 million. If capitalize that, I think, basically every month, right, is around $2 million will be depreciation, I think into the P&L. Basically, you know, we count that also on our cost of goods sold. That's $6.50 also including that. If you look our total output next year, I'm not giving guidance. Our name plates is 70,000 tons. We believe, okay, is we can reach maybe around 75,000-78,000 tons. Okay, just one more. You know, when I look at the guidance for 4Q, you know, as you're ramping here, it's kind of the first time where you're not projecting to sell everything that you produce. Just wondering kind of, is that a timing issue? Or, you know, 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 quarters? No, no, no, John. Because of, you know, some products we produce like this month, some maybe still is not good quality, still in the trial production. Still is not, you know, the production still not ramping to 70% our criteria for capitalization. Some products we still need a capitalization. That's a partial, maybe around like, you know, 100 tons. I just remind you, some products we maybe used to making our rods. You know the rods? The silicon rods. That's why we maybe use this month is around like 500 tons, right? We use inside our silicon rods. We're going to continue, we're going to use the silicon to outsourcing OEM the ingots, then asking people to cut into the rods, you know. Basically, to reduce our cost. Our inventory still will keep around 3 days, you know, production. Okay. At the end of the quarter. This concludes our question and answer session. I would like to turn the conference back over to Kevin He 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 is now concluded. Thank you for attending today's presentation. You may now disconnect.