StealthGas(US:GASS)2025-04-28 20:06Forward-Looking Information This report contains forward-looking statements regarding future events and financial results, subject to risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements regarding future events and financial results. These statements are based on current views and are subject to risks and uncertainties that could cause actual results to differ materially1213 - Key areas covered by forward-looking statements include future operating results, global economic and political conditions (such as conflicts in Ukraine and Gaza), business strategy, capital spending, shipping market trends, vessel acquisitions, and financial liquidity14 PART I Item 3. Key Information This section details significant risks associated with the company's business, industry, and stock, covering market cyclicality, geopolitical impacts, regulatory challenges, operational hazards, financial risks from debt and market volatility, and risks related to corporate structure and taxation Risk Factors The company faces a multitude of risks categorized by industry, business operations, taxation, corporate structure, and common stock investment, including market cyclicality, geopolitical instability, stringent environmental regulations, customer dependency, debt covenants, reliance on its manager, potential U.S. income tax and PFIC classification, Marshall Islands incorporation risks, and stock price volatility with suspended dividends - Industry risks include cyclical demand for LPG transport, geopolitical events like conflicts in Ukraine and Gaza, potential over-supply of ships, fluctuating vessel values, and stringent environmental regulations27 - Business risks involve dependence on a few key charterers, exposure to the volatile spot market, restrictive covenants in loan agreements, and reliance on its manager, Stealth Maritime Corporation S.A2731 - Taxation risks include potential U.S.-source income tax and classification as a passive foreign investment company (PFIC), which has adverse consequences for U.S. shareholders28 - Risks related to common stock include historical price fluctuations, dividend suspension since 2009, and anti-takeover provisions31 Item 4. Information on the Company StealthGas Inc., incorporated in the Marshall Islands, provides seaborne transportation services for LPG producers and users, operating a fleet of 31 LPG carriers as of April 1, 2025, managed by Stealth Maritime globally on a mix of period charters and spot market employment, subject to extensive international and national regulations History and Development of the Company StealthGas Inc. was incorporated in the Marshall Islands in December 2004, completed its IPO on Nasdaq in October 2005, significantly grew its fleet, and spun off its tanker business in December 2021 to focus solely on LPG carriers, with its fleet comprising 31 LPG carriers as of April 1, 2025 - The company was incorporated in the Marshall Islands in December 2004 and completed its initial public offering on Nasdaq in October 2005174175 - In December 2021, the company completed the spin-off of its tanker business by distributing shares of the newly formed Imperial Petroleum Inc. to its stockholders, thereby separating the tanker fleet from the core LPG carrier business177 - As of April 1, 2025, the company's operating fleet consisted of 31 LPG carriers, including three vessels owned through joint ventures, with a total capacity of 349,170 cbm19178 Business Overview The company owns and operates an LPG carrier fleet with an average age of 10.4 years as of April 2025, managed by Stealth Maritime, employing a chartering strategy balancing period charters and spot market employment, while adhering to extensive environmental and safety regulations and maintaining comprehensive insurance in a competitive, seasonal LPG market Fleet Composition (as of April 1, 2025) | Category | Number of Vessels | Total Capacity (cbm) | | :--- | :--- | :--- | | Owned LPG Carriers | 28 | 298,082 | | JV LPG Carriers | 3 | 51,088 | | Total Fleet | 31 | 349,170 | - As of April 1, 2025, the company had 67% of its available fleet days for the remainder of 2025 and 33% for 2026 covered by period charters193 - For the year ended December 31, 2024, the company's three largest customers accounted for 32.3% of its revenues195 - The company is subject to significant environmental regulations, including the IMO's MARPOL Annex VI for air pollution, the Ballast Water Management (BWM) Convention, and the EU's Emissions Trading Scheme (ETS), which now includes maritime transport201212228 - The LPG carrier market is seasonal, typically experiencing stronger demand and rates during the fall and winter months due to increased consumption of propane and butane for heating260 Item 5. Operating and Financial Review and Prospects This section analyzes the company's financial performance and condition, detailing FY2024 revenues of $167.3 million and net income of $69.9 million driven by improved market conditions, and discussing key operational metrics, results of operations, liquidity, cash flows, debt facilities, and critical accounting estimates, particularly vessel impairment Operating Results For the year ended December 31, 2024, StealthGas reported a significant increase in profitability, with revenues growing by 16.6% to $167.3 million and net income rising to $69.9 million from $51.9 million in 2023, primarily due to higher charter rates, with the average Time Charter Equivalent (TCE) rate increasing to $16,080 per day and fleet utilization at 97.3% Key Financial Performance (Year Ended Dec 31) | Metric | 2023 | 2024 | Change | | :--- | :--- | :--- | :--- | | Revenues | $143.5 million | $167.3 million | +16.6% | | Income from Operations | $45.8 million | $59.9 million | +30.8% | | Net Income | $51.9 million | $69.9 million | +34.7% | | Equity Earnings in JVs | $12.3 million | $15.6 million | +26.8% | Fleet Operational Data (excluding JV Vessels) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Average Number of Vessels | 29.3 | 27.2 | | Fleet Utilization | 98.8% | 97.3% | | Average TCE Daily Rate | $12,334 | $16,080 | - The increase in revenues in 2024 was primarily driven by higher earnings from the existing fleet due to improved market conditions, despite a smaller average fleet size305 - General and administrative expenses increased by $5.0 million in 2024, mainly due to higher stock-based compensation expense309 - Equity earnings from joint ventures rose by $3.3 million in 2024, largely attributed to a profitable sale of a Medium Gas Carrier by one of the joint ventures315 Liquidity and Capital Resources As of December 31, 2024, the company maintained a solid liquidity position with $80.7 million in cash and cash equivalents, primarily funding operations, vessel acquisitions, and debt service through cash from operations and bank borrowings, having significantly reduced its net debt to $84.9 million at year-end and remaining in compliance with all financial covenants Cash Flow Summary (Year Ended Dec 31) | Cash Flow | 2023 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $77.4 million | $103.5 million | | Net Cash (Used in)/Provided by Investing Activities | $111.3 million | ($64.5 million) | | Net Cash Used in Financing Activities | ($174.2 million) | ($38.3 million) | - As of December 31, 2024, the company had $80.7 million in cash and cash equivalents and $84.9 million in outstanding debt, net of deferred finance charges318333 - The company has a share repurchase program, increased to $30 million in February 2025, with $20.5 million used to repurchase 4.1 million shares as of April 1, 2025325 - Key financial covenants include maintaining a maximum leverage ratio of 80%, a minimum vessel value to loan ratio of 120%-130%, and an EBITDA to interest expense ratio of over 2.5x, all of which the company complied with as of December 31, 2024338 Critical Accounting Estimates The company's most critical accounting estimate is vessel impairment assessment, triggered by events indicating non-recoverable carrying amounts, using an undiscounted cash flow test with assumptions on future charter rates (based on a nine-year historical average), operating expenses, and scrap values, resulting in no impairment recorded in 2024 despite 8 of 28 owned vessels having carrying values exceeding market values - The company reviews its vessels for impairment whenever indicators suggest the carrying amount may not be recoverable, using an undiscounted future net cash flow analysis349 - Key assumptions in the impairment test include future charter rates, which are estimated using a nine-year historical average for periods without existing charters, along with vessel utilization, operating costs, and scrap values350351 - As of December 31, 2024, 8 of the 28 owned vessels had carrying values exceeding their market values by an aggregate of $9.5 million, but no impairment loss was recognized as the undiscounted cash flow test indicated their carrying values were recoverable358 - The impairment test is highly sensitive to future charter rate assumptions. A sensitivity analysis shows that using different historical average periods (e.g., 1, 3, or 5 years) would not have resulted in an impairment charge for any vessels in 2024356357 Item 6. Directors, Senior Management and Employees This section provides information on the company's leadership and governance structure, detailing a four-member board with three independent directors, Harry N. Vafias as President, CEO, and CFO, executive compensation paid via Stealth Maritime, independent director fees, a classified board structure, and Audit, Nominating, and Compensation committees composed of independent directors, along with an equity compensation plan - The Board of Directors consists of four members: Harry N. Vafias (President, CEO, CFO), Michael G. Jolliffe (Chairman), Markos Drakos, and John Kostoyannis. The latter three are independent directors362371 - Executive compensation is reimbursed to the manager, Stealth Maritime, and totaled $0.9 million in 2024. Independent directors receive annual fees368 - The company has a classified Board of Directors with three-year staggered terms. It maintains an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee, each composed entirely of independent directors370376 - The company adopted a new Equity Compensation Plan in 2024, allowing for awards up to 10% of outstanding shares. In 2024, share-based compensation expense was $7.3 million369385 Item 7. Major Shareholders and Related Party Transactions This section details the company's ownership structure and related party transactions, identifying CEO Harry N. Vafias as the largest beneficial owner with 31.03% of common stock as of April 1, 2025, and highlighting significant transactions through its management agreement with Stealth Maritime, including management fees, brokerage commissions, executive compensation reimbursement, and vessel acquisitions from affiliated entities Major Shareholders (as of April 1, 2025) | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | Harry N. Vafias (CEO) | 31.03% | | Glendon Capital Management L.P. | 15.97% | | TowerView LLC | 7.31% | - The company has a management agreement with Stealth Maritime, a related party controlled by the Vafias family, for a comprehensive range of services393394 Fees Paid to Stealth Maritime (FY 2024) | Fee Type | Amount | | :--- | :--- | | Management Fees | $4.3 million | | Brokerage Commissions | $2.1 million | | Executive Compensation Reimbursement | $0.9 million | - In January 2024, the company took delivery of two newbuilding Medium Gas Carriers acquired from companies affiliated with the Vafias family for a total of $117 million405641 Item 8. Financial Information This section confirms the company is not currently a party to any material legal proceedings and reiterates its dividend policy, noting cash dividends have been suspended since March 2009 to preserve liquidity, with any future declarations at the Board's discretion and subject to financial performance, cash requirements, and credit facility restrictions - The company is not currently a party to any material legal proceedings that would have a significant effect on its financial position or results409410 - The company has not paid a cash dividend since March 2009. The Board of Directors suspended dividends due to market conditions and to preserve cash resources. The declaration of future dividends is at the Board's discretion and is subject to various factors, including loan covenants412413414 Item 10. Additional Information This section details the company's share capital structure, including authorized common and 'blank check' preferred stock, outlines anti-takeover provisions in its corporate documents like a classified board, and provides a comprehensive overview of material tax consequences for the company and its shareholders under Marshall Islands and U.S. federal law, including the Section 883 exemption and potential PFIC status Share Capital & Corporate Documents The company's authorized capital consists of 100 million common shares and 5 million 'blank check' preferred shares, with 37.0 million common shares outstanding as of April 1, 2025, and its corporate documents include anti-takeover provisions such as a classified board with staggered three-year terms, prohibition on cumulative voting, and board authority to issue preferred stock without shareholder approval - Authorized capital stock consists of 100,000,000 shares of common stock and 5,000,000 shares of 'blank check' preferred stock, which can be issued by the Board without further stockholder action416419 - The company has a classified Board of Directors with three-year staggered terms, which could discourage hostile takeovers431 - Other anti-takeover provisions include advance notice requirements for stockholder proposals, allowing only the Board to call special meetings, and prohibiting business combinations with 'interested stockholders' for three years, subject to certain exceptions433434436 Tax Considerations As a Marshall Islands corporation not conducting business there, the company is not subject to Marshall Islands income, capital gains, or withholding taxes, and expects U.S.-source shipping income to be exempt under Section 883 of the Code, contingent on meeting the 'Publicly-Traded Test' but potentially lost under the '5% Override Rule', while also facing the risk of Passive Foreign Investment Company (PFIC) classification, which would result in adverse U.S. tax consequences for U.S. shareholders - As a Marshall Islands corporation not conducting business there, the company is not subject to Marshall Islands income, capital gains, or withholding taxes442 - The company expects to be exempt from U.S. federal income tax on its U.S.-source shipping income under Section 883 of the Code, but this is contingent on satisfying the 'Publicly-Traded Test', which can be challenged by the '5% Override Rule'451457 - There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC), which would subject U.S. Holders to a disadvantageous tax regime on distributions and gains unless they make a QEF or mark-to-market election474483 Item 11. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are adverse movements in LPG carrier freight rates and vessel values, with exposure to interest rate, currency, and bunker price risks managed through interest rate swaps covering $19.2 million of its $85.9 million debt as of December 31, 2024, and minimal foreign exchange risk due to U.S. dollar revenues - The company's main market risks are from fluctuations in LPG charter rates and vessel values499 - To manage interest rate risk on its floating-rate debt (based on SOFR), the company uses interest rate swaps. As of December 31, 2024, one swap agreement was in place covering a notional amount of $19.2 million501502 - A hypothetical one percentage point increase in interest rates would increase the company's annualized interest expense by approximately $0.8 million, based on its debt and swap positions at year-end 2024502 - Foreign exchange risk is limited because all revenues are in U.S. dollars, and only about 20.3% of expenses in 2024 were in other currencies503 PART II Item 15. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and its internal control over financial reporting were effective as of December 31, 2024, a conclusion affirmed by an unqualified opinion from the independent registered public accounting firm, Deloitte Certified Public Accountants S.A. - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024509510 - Management assessed the internal control over financial reporting using the COSO framework and concluded that it was effective as of December 31, 2024514515 - The independent auditor, Deloitte, issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting as of December 31, 2024516518 Item 16. Other Disclosures This section covers various governance and disclosure topics, including Markos Drakos as the Audit Committee financial expert, the adoption of a Code of Business Conduct and Ethics, $286,000 in fees paid to Deloitte for 2024, an active share repurchase program, an exemption from certain Nasdaq governance standards as a foreign private issuer, and the company's cybersecurity risk management strategy and governance Principal Accountant Fees and Services The company's independent auditor is Deloitte Certified Public Accountants S.A., with total fees billed for fiscal year 2024 amounting to $286,000, entirely for audit services, compared to $308,000 in 2023, with all services pre-approved by the Audit Committee Accountant Fees (in thousands) | Service Category | 2023 | 2024 | | :--- | :--- | :--- | | Audit fees | $308 | $286 | | Assurance/audit related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | Total | $308 | $286 | Purchases of Equity Securities The company has an active share repurchase program, increased to a total of $30 million in February 2025, having repurchased 4,114,749 shares for $20.5 million at an average price of $4.98 per share as of April 1, 2025, with repurchases made at management's discretion - The Board of Directors authorized a share repurchase program, which was increased to a total of $30 million in February 2025537 - As of April 1, 2025, a total of 4,114,749 shares had been repurchased for $20.5 million, leaving $9.5 million authorized for future repurchases325537 Cybersecurity The Board of Directors holds ultimate oversight for cybersecurity risks, with day-to-day management handled by Stealth Maritime, which has implemented an industry-standard cybersecurity risk management program including risk assessments, monitoring, employee training, and an incident response plan, and while threats have not materially affected the company to date, it remains a recognized risk - The Board of Directors has ultimate responsibility for overseeing cybersecurity risks552 - The company's manager, Stealth Maritime, has implemented a comprehensive cybersecurity risk management program that includes risk assessments, monitoring, employee training, and an incident response plan547548550 - To date, risks from cybersecurity threats have not materially affected the company's business, operations, or financial condition555 PART III Item 18. Financial Statements This section contains the company's audited consolidated financial statements for the three years ended December 31, 2024, prepared in accordance with U.S. GAAP, including an unqualified opinion from Deloitte, which identifies vessel impairment as a critical audit matter, and comprises the Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes Report of Independent Registered Public Accounting Firm The independent auditor, Deloitte, issued an unqualified opinion on StealthGas Inc.'s consolidated financial statements, confirming fair presentation in conformity with U.S. GAAP, and highlighted 'Vessel Impairment' as a Critical Audit Matter due to the complex and subjective judgments involved in estimating future charter rates for the undiscounted cash flow analysis - The auditor issued an unqualified opinion on the company's consolidated financial statements for the three years ended December 31, 2024569 - The Critical Audit Matter identified was 'Vessel Impairment – Future Charter Rates used in the undiscounted future cash flows for vessels with impairment indication'574 - The auditor identified this as a critical matter because estimating future charter rates involves complex judgments and has a significant impact on the impairment analysis. Audit procedures included testing controls, evaluating the methodology, and comparing assumptions to historical data and third-party information577579