Denison Mines Corp. :DNN-US: Earnings Analysis: Q1, 2016 By the Numbers

Denison Mines Corp. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of Denison Mines Corp. – Cameco Corporation, Ur-Energy Inc., Uranium Resources, Inc. and Korea Electric Power Corporation Sponsored ADR (CCJ-US, URG-US, URRE-US and KEP-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 3.33 million, Net Earnings of USD -4.45 million.
  • Gross margins narrowed from -37.02% to -117.33% compared to the same period last year, operating (EBITDA) margins now -121.26% from -149.52%.
  • Year-on-year change in operating cash flow of 120.51% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2014-12-31 2015-03-31 2015-06-30 2015-09-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 2.74 2.33 2.93 3.53 3.33
Revenue Growth (%YOY) 13.39 7.08 24.22 49.98 21.71
Earnings (mil) -4.65 -9.79 -4.13 -21.43 -4.45
Earnings Growth (%YOY) 84.73 22.68 64.25 -660 4.45
Net Margin (%) -170.03 -420.7 -141.14 -607.83 -133.48
EPS -0.01 -0.02 -0.01 -0.04 -0.02
Return on Equity (%) -7.08 -16.17 -7.12 -38.42 -9.24
Return on Assets (%) -5.69 -12.81 -5.85 -31.49 -7.39

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Market Share Versus Profits

Revenues History
Earnings History

DNN-US‘s change in revenue this period compared to the same period last year of 21.71% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that DNN-US is holding onto its market share. Also, for comparison purposes, revenues changed by -5.56% and earnings by 79.26% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from -149.52% to -121.26%. For comparison, gross margins were -93.73% and EBITDA margins were -135.08% in the last period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DNN-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 378.51 days from 798.00 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

DNN-US‘s change in operating cash flow of 120.51% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The expansion in operating (EBIT) margins from -169.30% to -149.82% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from -155.19% to -213.18%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Denison Mines Corp. is a uranium exploration and development company with interests in exploration and development projects in Canada, Zambia and Namibia. The company was founded on May 9, 1997 and is headquartered in Toronto, Canada.

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