Denison Mines Corp. :DNN-US: Earnings Analysis: Q2, 2016 By the Numbers : August 11, 2016

Denison Mines Corp. reports financial results for the quarter ended June 30, 2016.

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

Highlights

  • Summary numbers: Revenues of USD 3.66 million, Net Earnings of USD -3.83 million.
  • Gross margins widened from -258.72% to -37.32% compared to the same period last year, operating (EBITDA) margins now -47.34% from -300.26%.
  • Year-on-year change in operating cash flow of 46.24% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2015-03-31 2015-06-30 2015-09-30 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 2.33 2.93 3.53 3.33 3.66
Revenue Growth (%YOY) 7.08 24.22 49.98 21.71 57.35
Earnings (mil) -9.79 -4.13 -21.43 -4.45 -3.83
Earnings Growth (%YOY) 22.68 64.25 -660 4.45 60.87
Net Margin (%) -420.7 -141.14 -607.83 -133.48 -104.61
EPS -0.02 -0.01 -0.04 -0.02 -0.01
Return on Equity (%) -16.17 -7.12 -38.42 -9.24 -8.63
Return on Assets (%) -12.81 -5.85 -31.49 -7.39 -6.76

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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 57.35% 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 10.00% and earnings by 13.79% compared to the immediate last period.

Revenues Growth Versus Earnings Growth


Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from -258.72% to -37.32% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -300.26% to -47.34% compared to the same period last year. For comparison, gross margins were -117.33% and EBITDA margins were -121.26% in the last reporting 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 improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 350.49 days from 734.20 days for the same period last year.

Gross Margin Versus Working Capital Days


Cash Versus Earnings – Sustainable Performance?

DNN-US‘s change in operating cash flow of 46.24% 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 company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -326.72% to -73.14% and (2) one-time items. The company’s pretax margins are now -121.18% compared to -548.93% for the same period last year.

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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