Diamondback Energy Inc. (NASDAQ:FANG)

The analysis of the current and deferred income tax expenses for the periods under review reveals notable fluctuations and distinct trends impacting the overall provision for income taxes.

Current income tax provision (benefit)

The current income tax provision shows variability, starting with a minimal positive value of 1 million USD in 2017, turning to a slight benefit of -1 million USD in 2018, and missing data for 2019. In 2020, the current tax provision sharply shifted to a significant benefit of -62 million USD, followed by a reversal to a positive provision of 25 million USD in 2021. This pattern indicates unstable current tax obligations, possibly influenced by changes in taxable income or tax planning strategies during these years.

Deferred income tax provision (benefit)

The deferred income tax component exhibits substantial variation and larger magnitudes compared to the current portion. It began with a benefit of -21 million USD in 2017, rose sharply to a significant provision of 169 million USD in 2018, and declined to 47 million USD in 2019. In 2020, it returned to a large benefit of -1042 million USD, indicating major deferred tax assets or reversals. This was followed by a substantial provision of 606 million USD in 2021. These erratic movements suggest considerable adjustments in deferred tax liabilities or assets, potentially due to shifts in temporary differences or tax rate changes affecting deferred tax calculations.

Provision for (benefit from) income taxes (Total)

The total income tax provision demonstrates a pattern dominated by changes in deferred taxes. Starting with a slight overall benefit of -20 million USD in 2017, it climbed to a significant provision of 168 million USD in 2018, held steady at 47 million USD in 2019, then swung dramatically to a large benefit of -1104 million USD in 2020 before reversing to a provision of 631 million USD in 2021. The total tax provision closely mirrors the deferred tax expense, underscoring the impact of deferred taxes on the company's tax expense volatility.

Overall, the data highlight important volatility in both current and deferred income tax expenses, with deferred income taxes being the primary contributor to significant swings in the total tax provision. The periods 2020 and 2021 display particularly pronounced reversals, suggesting that non-recurring tax events, adjustments in deferred balances, or changes in tax legislation may have played a crucial role in shaping the tax expense profile. These trends warrant closer attention for forecasting future tax obligations and understanding underlying tax strategies.

The analysis of the annual financial data reveals notable variations in the tax rates over the observed periods.

Federal Statutory Tax Rate

The federal statutory tax rate shows a significant decrease from 35% in 2017 to 21% starting in 2018 and remains stable at 21% through 2021. This indicates that the company was subject to a lower prescribed federal tax rate from 2018 onward, likely due to changes in tax legislation or tax policy that affected statutory rates.

Effective Income Tax Rate

The effective income tax rate exhibits considerable volatility throughout the period. In 2017, the rate was negative at -3.93%, suggesting possible tax benefits or losses carried forward that reduced taxable income. A pronounced spike occurs in 2018 with an effective tax rate of 151%, which is significantly above the statutory rate, indicating substantial non-recurring tax expenses, adjustments, or deferred tax impacts during that year. This high rate sharply declines in 2019 to 13%, staying below the statutory rate, before rising again in 2020 and 2021 to 19.1% and 21.7% respectively, approaching but slightly exceeding the federal statutory rate.

Overall, while the statutory rate remained constant from 2018 onward, the effective tax rate fluctuated significantly, reflecting underlying operational or financial factors affecting taxable income recognition. The negative and exceptionally high effective rates in 2017 and 2018 respectively point to unusual tax circumstances during those years, while the rates from 2019 to 2021 suggest a stabilization closer to the statutory baseline, albeit with some variability likely from timing or permanent differences in tax expense recognition.

The financial data reveals several notable trends over the five-year period ending in 2021. There is a consistent increase in net operating loss and other carryforwards, rising substantially from 75 million USD in 2017 to 682 million USD in 2021. This indicates growing tax loss carryforwards or similar deferred tax assets that could potentially offset future taxable income.

Deferred tax assets follow a similar upward trajectory, increasing from 101 million USD in 2017 to 948 million USD in 2021, signaling an expansion in timing differences or loss carryforwards recognized for tax purposes. Concurrently, the valuation allowance against these deferred tax assets increased in magnitude, moving from negligible in 2017 to a significant negative value of 315 million USD by 2021. This implies growing uncertainty or reduced likelihood of realizing certain deferred tax assets in the future. Consequently, the net deferred tax assets (deferred tax assets minus the valuation allowance) rose initially but then declined slightly, ending at 633 million USD in 2021, suggesting a more conservative approach in recognizing net deferred tax benefits.

Investments in associated entities showed specific patterns: Viper’s investment in Viper LLC increased consistently from 94 million USD in 2018 to 163 million USD in 2021, indicating a growing stake or valuation in that investment. Rattler’s investment in Rattler LLC appeared from 2020 onwards, recording 58 million USD in 2020 but declining to 40 million USD in 2021, suggesting either a partial divestment or valuation decrease.

Stock-based compensation expenses remained relatively stable, fluctuating modestly between 1 million USD and 7 million USD across the years, and slightly decreasing to 5 million USD in 2021. This indicates steady albeit minor equity compensation costs over the period.

Regarding property and equipment, oil and natural gas properties and equipment showed materially negative values throughout, with a significant decline in 2018 and 2019 to -1,825 million USD and -2,275 million USD respectively, partially recovering in 2020 but declining again in 2021 to -1,702 million USD. This pattern reflects substantial asset impairments or disposals during those years. Midstream investments also showed negative balances, worsening from -6 million USD in 2017 to -224 million USD in 2021, which may signify accumulated depreciation, impairments, or liabilities related to midstream assets.

Derivative instruments showed volatile figures, with values recorded in 2017 at 23 million USD, absent the following years until reappearing at 60 million USD in 2020 and decreasing to 36 million USD in 2021. The liabilities side of derivative instruments showed negative amounts in 2018 and 2019 but no recorded values in other years. This fluctuation reflects changing fair values of derivatives, possibly linked to hedging activities or market conditions.

Other items experienced irregular values without a clear trend, increasing modestly from 2 million USD in 2017 to 22 million USD in 2021 on the asset side, and minor negative amounts on the liability side.

Deferred tax liabilities decreased sharply from -209 million USD in 2017 to a peak negative value of -2,342 million USD in 2019, then partially recovered to -1,931 million USD by 2021. This movement aligns with large negative balances in property, equipment, and midstream investments, possibly reflecting temporary differences related to asset book and tax bases.

Overall, the net deferred tax position remained negative each year and showed a partial recovery after 2019, ending at -1,298 million USD in 2021. This suggests that deferred tax liabilities consistently outweighed net deferred tax assets, influenced by significant asset impairments, investments, and tax timing differences.

The financial data reveals notable fluctuations in deferred tax assets and liabilities over the five-year period analyzed.

Deferred Tax Assets, Net

Deferred tax assets, measured in millions of US dollars, first appear in 2018 at 97 million. They increased to 142 million in 2019, representing a significant rise. However, this upward trend reversed in subsequent years, with the assets declining to 73 million in 2020 and further dropping to 40 million by the end of 2021. This trajectory indicates a reduction in recognized deferred tax assets after peaking in 2019.

Deferred Tax Liabilities

Deferred tax liabilities presented a substantially different pattern. Starting at 108 million in 2017, these liabilities surged dramatically to 1,785 million in 2018 and continued to increase to 1,886 million in 2019. This sharp increase reflects potentially sizable temporary differences or changes in tax positions during this period. However, the liabilities then decreased noticeably to 783 million in 2020, before rising again to 1,338 million in 2021. Overall, the deferred tax liabilities demonstrate considerable volatility, with large increases followed by drops and subsequent partial recoveries within the timeframe.

The contrasting movements between assets and liabilities suggest changing tax circumstances affecting the company's deferred tax accounts. The considerable rise and subsequent partial decline in deferred tax liabilities, alongside the decline in deferred tax assets after 2019, may indicate shifts in tax planning strategies, asset valuations, or changes in tax laws impacting the company's deferred tax balances over time.

The data reveals significant variations across the reported and adjusted financial metrics over the five-year period from 2017 to 2021. Both total assets and total liabilities exhibit notable fluctuations, with corresponding changes reflected in stockholders' equity and net income figures.

Total Assets

Total assets increased markedly from approximately $7.8 billion in 2017 to around $21.6 billion in 2018, followed by a moderate rise in 2019 to about $23.5 billion. In 2020, there was a considerable decline to roughly $17.6 billion, before assets rebounded in 2021 to nearly $22.9 billion. The adjusted total assets closely mirror the reported figures, with minor differences, indicating consistent adjustments applied primarily in 2018 and 2019.

Total Liabilities

Reported total liabilities climbed substantially from $2.2 billion in 2017 to $7.4 billion in 2018, continuing to increase to $8.6 billion in 2019. A decline to approximately $7.8 billion occurred in 2020, followed by a rise again to nearly $9.7 billion in 2021. Adjusted liabilities show a somewhat smoother growth pattern, starting from $2.1 billion in 2017 and rising steadily to $8.3 billion in 2021, with lower values relative to reported liabilities in the intervening years. This suggests certain liabilities were adjusted downward in the adjusted figures.

Stockholders’ Equity

Reported stockholders’ equity expanded from about $5.3 billion in 2017 to approximately $13.7 billion in 2018, reaching its peak in 2019 at around $13.2 billion. A significant decrease was noted in 2020, dropping to roughly $8.8 billion, with a recovery to $12.1 billion in 2021. The adjusted equity figures are generally higher than reported values, especially from 2018 onwards, peaking at $15.0 billion in 2019, before declining to $9.5 billion in 2020 and then increasing to $13.4 billion in 2021. The adjustments appear to impact equity positively, reflecting reclassifications or corrections that increase equity figures.

Net Income (Loss)

Reported net income demonstrated growth from $482 million in 2017 to $846 million in 2018 but fell sharply to $240 million in 2019. In 2020, the company reported a substantial loss of approximately $4.5 billion, followed by a return to profitability with net income of $2.2 billion in 2021. Adjusted net income aligns closely in 2017 at $462 million but shows a higher profit of $1.0 billion in 2018 and a modest increase to $287 million in 2019. The adjusted figures reflect a larger loss in 2020 of $5.6 billion, indicating adjustments amplified the reported loss, and a stronger recovery in 2021 with adjusted net income exceeding $2.7 billion. This pattern suggests that adjustments are notably material in periods of loss, potentially reflecting deferred tax impacts or other accounting considerations.

The financial data demonstrates notable volatility in profitability and efficiency metrics over the analyzed periods. Key insights are summarized as follows:

Net Profit Margin

The reported net profit margin decreased significantly from 40.65% in 2017 to a negative figure of -163.9% in 2020, before rebounding to 32.34% in 2021. The adjusted net profit margin follows a similar pattern, though generally presenting higher margins than reported, with a low point of -201.71% in 2020 and a recovery to 41.32% in 2021. This indicates a period of substantial loss in 2020, followed by a strong recovery.

Total Asset Turnover

The reported total asset turnover ratio shows fluctuations, declining from 0.15 in 2017 to 0.1 in 2018, then increasing to 0.17 in 2019, slightly decreasing to 0.16 in 2020, and rising sharply to 0.29 in 2021. The adjusted ratio closely mirrors these values, but with a slightly higher figure of 0.3 in 2021. This trend suggests improved asset utilization starting 2021 after a period of relative stagnation.

Financial Leverage

Reported financial leverage increased steadily from 1.48 in 2017 to 2.0 in 2020, then decreased to 1.89 in 2021. Adjusted financial leverage exhibits a similar pattern but with slightly lower values, rising from 1.45 in 2017 to 1.85 in 2020, and then falling to 1.71 in 2021. This indicates an increasing reliance on debt financing until 2020, followed by some deleveraging in 2021.

Return on Equity (ROE)

Reported ROE declines markedly from 9.18% in 2017 to -51.36% in 2020, before recovering to 18.05% in 2021. The adjusted ROE exhibits slightly stronger performance in most years, dropping to -58.49% in 2020 then improving to 20.83% in 2021. The data reflects extreme challenges impacting equity returns in 2020 with a significant rebound the following year.

Return on Assets (ROA)

The reported ROA decreases from 6.21% in 2017 to -25.64% in 2020, subsequently recovering to 9.53% in 2021. Adjusted ROA values are generally higher, moving from 5.94% in 2017 to -31.68% in 2020, then rising to 12.2% in 2021. This pattern confirms diminished asset profitability in 2020 followed by recovery.

Overall, the data portrays a period of severe financial distress in 2020, with all profitability and return ratios turning sharply negative. The following year shows a strong recovery in these metrics, accompanied by improved operational efficiency as indicated by asset turnover and reduced financial leverage. The adjusted figures generally present a more optimistic scenario than reported metrics, suggesting the influence of deferred income tax adjustments on financial performance interpretation.

The financial data exhibits significant fluctuations in reported and adjusted net income and corresponding net profit margins over the five-year period from 2017 to 2021.

Net Income Trends

The reported net income shows a strong growth from 482 million US dollars in 2017 to a peak of 846 million in 2018. However, it sharply decreases in 2019 to 240 million and then turns into a substantial loss of 4,517 million in 2020. This negative trend reverses in 2021 where net income rebounds to 2,182 million. The adjusted net income follows a similar pattern but with amplified values, rising from 462 million in 2017 to 1,015 million in 2018, dipping to 287 million in 2019, experiencing a more severe loss of 5,559 million in 2020, and recovering to 2,788 million in 2021.

Net Profit Margin Trends

The reported net profit margin aligns with the income pattern, starting strong at 40.65% in 2017 and slightly declining to 39.71% in 2018. It drastically falls in 2019 to 6.17% and plummets further into negative territory in 2020 at -163.9%. The margin recovers noticeably in 2021 to 32.34%. Adjusted net profit margins display a similar trajectory but maintain generally higher percentages, peaking at 47.66% in 2018 before dropping to 7.38% in 2019 and plunging to -201.71% in 2020, then recovering to 41.32% in 2021.

Insights

The data indicates that 2020 was an outlier year characterized by severe financial losses and negative profitability, which could be attributed to extraordinary events or impairments during that period. The recovery seen in 2021 suggests a substantial turnaround in financial performance. Both reported and adjusted figures reveal consistent patterns, with the adjusted figures typically presenting a more pronounced effect, implying that adjustments made to reported figures highlight the severity of underlying economic factors impacting the company in certain years.

The analysis of the annual financial data reveals several notable trends in the total assets and asset turnover ratios over the five-year period under review.

Total Assets

Reported total assets experienced a significant increase from 7,771 million US dollars in 2017 to 21,596 million US dollars in 2018. Following this sharp growth, the asset base continued to expand, reaching 23,531 million by the end of 2019. However, a contraction occurred in 2020, with assets declining to 17,619 million, before recovering to 22,898 million in 2021.

Adjusted total assets followed a similar pattern as reported assets, starting at 7,771 million in 2017 and increasing to 21,499 million in 2018. The adjusted asset values then rose to 23,389 million in 2019, decreased to 17,546 million in 2020, and finally rebounded to 22,858 million in 2021. The adjustments made for deferred income taxes thus appear to have a minimal impact on the reported asset values, with only slight reductions in each corresponding year after 2017.

Total Asset Turnover

The reported total asset turnover ratio started at 0.15 in 2017 but decreased to 0.10 in 2018, indicating a reduced efficiency in asset utilization possibly due to the rapid asset growth in 2018. Thereafter, the ratio improved to 0.17 in 2019 and stabilized slightly lower at 0.16 in 2020. By 2021, a significant increase to 0.29 was observed, suggesting a notable enhancement in asset turnover and operational efficiency during that year.

Adjusted total asset turnover closely mirrors the reported ratio, with identical values up to 2020 and a marginally higher value of 0.30 in 2021. This close alignment implies that adjustment for deferred income taxes had negligible impact on the assessment of asset turnover efficiency across the years.

Overall, the data indicates that the company underwent rapid asset growth between 2017 and 2019, followed by a downturn in 2020, potentially reflecting external market or operational challenges. However, efficiency in asset utilization improved notably by 2021, as evidenced by the sharp rise in total asset turnover ratios, coupled with a substantial rebound in asset base. The minimal difference between reported and adjusted figures suggests that deferred income tax adjustments do not materially alter the financial position or operational performance assessments based on these metrics.

The analysis of the annual financial data reveals several notable trends in the company's asset base, equity, and financial leverage over the five-year period.

Total Assets

Reported total assets increased significantly from 7,771 million US dollars in 2017 to a peak of 23,531 million in 2019, followed by a decline in 2020 to 17,619 million, and then a recovery to 22,898 million in 2021. Adjusted total assets followed a similar pattern, staying slightly below reported figures but showing consistent trends throughout the years.

Stockholders’ Equity

Reported stockholders’ equity demonstrated strong growth from 5,255 million US dollars in 2017 to 13,699 million in 2018, but then exhibited a gradual decline through 2020, dropping to 8,794 million, before rebounding to 12,088 million in 2021. Adjusted equity values were generally higher than reported equity, with a peak of 14,993 million in 2019, a decrease to 9,504 million in 2020, and a rise to 13,386 million in 2021. This pattern suggests adjustments related to deferred or reported tax impacts had material effects on equity levels.

Financial Leverage

Reported financial leverage showed an increasing trend from 1.48 in 2017 to 2.0 in 2020, indicating the company increased reliance on debt relative to equity up to 2020, then slightly reduced leverage to 1.89 in 2021. Adjusted financial leverage was consistently lower than the reported measure, increasing from 1.45 in 2017 to a peak of 1.85 in 2020, followed by a reduction to 1.71 in 2021, reflecting the influence of tax adjustments on leverage ratios.

Overall Trends and Insights

The company experienced significant growth in asset size and equity between 2017 and 2019, with a contraction during 2020 likely reflecting challenging market conditions or strategic adjustments. The recovery in 2021 suggests improved operational or market performance. The divergence between reported and adjusted figures highlights the impact of deferred income tax adjustments on the company's financial position, particularly evident in the equity and leverage metrics. The upward trend in leverage until 2020 may indicate increased borrowing or changes in capital structure, while the subsequent reduction suggests a move toward de-risking or strengthening the equity base.

Net Income Analysis

Reported net income exhibited significant volatility over the five-year period. It increased from 482 million USD in 2017 to a peak of 846 million USD in 2018, then sharply declined to 240 million USD in 2019. A substantial loss of 4,517 million USD occurred in 2020, followed by a strong recovery to 2,182 million USD in 2021. Adjusted net income followed a similar pattern, with values slightly differing from reported figures but maintaining the same trend. The adjusted net income started at 462 million USD in 2017, peaked at 1,015 million USD in 2018, then dropped to 287 million USD in 2019, reached a low of negative 5,559 million USD in 2020, and rebounded to 2,788 million USD in 2021.

Stockholders’ Equity Trends

Reported total stockholders’ equity showed an overall upward trend from 5,255 million USD in 2017 to 13,699 million USD in 2018, remaining relatively stable at 13,249 million USD in 2019 before declining to 8,794 million USD in 2020. A recovery was noted in 2021, with equity rising to 12,088 million USD. Adjusted equity consistently remained higher than reported equity each year, starting at 5,363 million USD in 2017, increasing substantially to 15,387 million USD in 2018, and maintaining higher values through 2021. Adjusted equity experienced a decline in 2020 to 9,504 million USD but rose again to 13,386 million USD in 2021. This pattern suggests adjustments positively influence the assessment of the company's equity position.

Return on Equity (ROE) Observations

Reported ROE moved from 9.18% in 2017 down to 6.17% in 2018, and further decreased to 1.81% in 2019. It then turned sharply negative to -51.36% in 2020, aligning with the large reported net loss observed that year, before rebounding strongly to 18.05% in 2021. Adjusted ROE demonstrates a parallel trajectory with slightly different values; it decreased from 8.61% in 2017 to 6.6% in 2018, dropped to 1.91% in 2019, then declined more steeply to -58.49% in 2020, and recovered to 20.83% in 2021. The ROE fluctuations correspond closely to the trends in net income and equity, emphasizing a period of significant financial stress in 2020 followed by recovery.

Overall Insights

The company's financial performance and equity structure experienced substantial variability over the examined period, with particularly sharp downturns in 2020 followed by marked improvement in 2021. Adjusted figures consistently show a more optimistic financial position compared to reported numbers, indicating the impact of adjustments, possibly related to deferred income taxes or other accounting considerations. The recovery in 2021 highlights resilience after a year of significant loss, while trends in ROE emphasize variability in profitability relative to equity investment. These patterns underline the importance of analyzing adjusted metrics alongside reported data for a comprehensive financial assessment.

The financial data indicates significant fluctuations in income and asset performance over the analyzed periods. Net income, both reported and adjusted, demonstrates volatility starting from a positive performance in 2017, peaking in 2018, experiencing a sharp downturn in 2019, followed by a substantial loss in 2020, and recovering to strong positive results in 2021.

Net Income Trends

Reported net income rose from $482 million in 2017 to $846 million in 2018, before declining to $240 million in 2019. A marked loss occurred in 2020 with a reported net loss of $4.517 billion, followed by a recovery to $2.182 billion in 2021. Adjusted net income follows a similar pattern but shows a higher peak in 2018 ($1.015 billion) and deeper loss in 2020 (-$5.559 billion) with a robust rebound to $2.788 billion in 2021.

Assets

Total assets, both reported and adjusted, expanded substantially from about $7.7 billion in 2017 to over $21 billion in 2018. The asset base remained relatively stable through 2019 and 2021, peaking at $23.5 billion in reported figures in 2019 and slightly decreasing during 2020 amid challenging conditions, before increasing again in 2021. Adjusted total assets track closely with reported values, showing minor differences but following the same trend.

Return on Assets (ROA)

ROA data reflects the volatility in profitability. Reported ROA declined from 6.21% in 2017 to 3.92% in 2018 and further to 1.02% in 2019, turning strongly negative in 2020 at -25.64%, before recovering to 9.53% in 2021. Adjusted ROA follows a similar pattern but reveals a deeper negative impact in 2020 with -31.68% and a more pronounced recovery to 12.2% in 2021. This indicates that adjusted measures capture additional factors affecting profitability more sensitively.

Overall, the data exhibits a cycle of growth and contraction with a severe impact around 2020, likely linked to extraordinary circumstances during that period. The subsequent recovery in 2021 is notable, suggesting operational resilience or significant positive adjustments. The close alignment between reported and adjusted asset values signals consistent asset measurement, while differences in income and ROA highlight the importance of adjustments in assessing financial performance.