ReTo Eco-Solutions, Inc. Reports Full Year 2018 Audited Financial Results

BEIJING–(BUSINESS WIRE)–ReTo Eco-Solutions, Inc. (NASDAQ:RETO) (“ReTo” or the “Company”), a
manufacturer and distributor of eco-friendly construction materials as
well as equipment used for the production of these eco-friendly
construction materials, and consultation, design, project implementation
and construction of urban ecological environments including those for
the purpose of capturing, controlling and reusing rainwater, commonly
called “sponge cities”, today announced its audited financial results
for the twelve months ended December 31, 2018.

• Revenues increased by 5.7% to $37.57 million. The increase in revenues
  was mainly attributed to sales increases in our machinery and
  equipment and municipal construction projects business segments,
  partially offset by sales decreases in our construction materials and
  technological consulting and other services business segments.
• Gross profit decreased by 3.7% to $17.20 million while gross margin
  decreased by 4.4 percentage points to 45.8% for 2018. The decrease in
  gross profit was primarily due to the increase in per unit costs
  related to our construction materials business segment.
• Operating income decreased by 29.8% to $7.20 million and operating
  margin decreased by 9.6 percentage points to 19.2% for 2018. The
  decrease in operating income was primarily due to the decrease in
  gross profit and the increases in operating expenses.
• Net income attributable to ReTo was $4.48 million, or $0.20 per basic
  and diluted share, for 2018, compared to $5.98 million, or $0.35 per
  basic and diluted share, for 2017.

Full Year 2018 Financial Results

Revenues

For the year of 2018, total revenues increased by $2.02 million, or
5.7%, to $37.57 million from $35.55 million for 2017. The increase in
revenues was attributed to sales increases of machinery and equipment
and municipal construction projects business segments, partially offset
by sales decreases of construction materials and technological
consulting and other services.

Revenues from our machinery and equipment segment increased by $2.97
million, or 20.5%, to $17.45 million for 2018 from $14.49 million for
2017. The increase in revenues from our machinery and equipment segment
was due to increased market demand for our products as a result of
improved brand awareness following our successful IPO at the end of
2017. We also benefited from more stringent environmental regulations in
China that forced many companies to eliminate outdated equipment and
replace it with more environmentally friendly and more advanced
machinery and equipment.

Revenues from our environmental-friendly construction materials
decreased by $0.65 million, or 3.3%, to $18.81 million for 2018 from
$19.46 million for 2017. The decrease in revenues from construction
materials was related to certain regions that implemented more stringent
environmental protection regulations during 2018.

Revenues from municipal construction projects increased by $0.47
million, or 187.6%, to $0.72 million for 2018 from $0.25 million for
2017.

We started to provide environmental-protection related consulting
services to customers in the second half of 2016. Our subsidiaries
Beijing REIT and Dingxuan provided such services to customers by
assisting them in planning the environmental-protection projects,
providing market research and feasibility reports review and assisting
customers to finalize the design, installation, testing and inspection,
as well as providing employee training services. Revenues from
technological consulting and other services decreased by $0.77 million,
or 56.6%, to $0.59 million for 2018 from $1.36 million for 2017. This
decrease resulted from less consulting contacts being obtained in 2018.

Revenues from machinery and equipment, construction materials, municipal
construction projects and technological consulting and other services
accounted for 46.5%, 50.0%, 1.9% and 1.6%, respectively, of total
revenues in 2018, compared to 40.8%, 54.7%, 0.7% and 3.8%, respectively,
of total revenues in 2017.

On a geographical basis, China remained the largest market for the
Company and contributed $15.87 million, or 90.9% of total revenues in
2018, compared to $12.24 million, or 84.5% of total revenues in 2017.
North Africa was the second largest market and contributed $1.14
million, or 6.5% of total revenues in 2018.

Cost of goods sold

Total cost of goods sold increased by $2.67 million, or 15.1%, to $20.37
million for 2018 from $17.70 million for 2017. The increase was mainly
due to increase in per unit costs related to our construction materials
business segment. As a percentage of revenues, total cost of goods sold
were 54.2% for 2018, compared to 49.8% for 2017.

Costs of goods sold for machinery and equipment, construction materials,
municipal construction projects and technological consulting and other
services were $8.05 million, $11.60 million, $0.54 million and $0.18
million, respectively, in 2018, compared to $6.74 million, $10.37
million, $0.16 million and $0.43 million, respectively, in 2017.

Gross profit and gross margin

Overall gross profit decreased by $0.65 million, or 3.7%, to $17.20
million for 2018 from $17.85 million for 2017. Gross profits for
machinery and equipment, construction materials, municipal construction
projects and technological consulting and other services were $9.40
million, $7.21 million, $0.18 million and $0.41 million, respectively,
for 2018, compared to $7.75 million, $9.09 million, $0.09 million and
$0.93 million, respectively, for 2017.

Overall gross margin was 45.8% for 2018, compared to 50.2% for 2017.
Gross margins for machinery and equipment, construction materials,
municipal construction projects and technological consulting and other
services were 53.9%, 38.3%, 25.4% and 69.4%, respectively, for 2018,
compared to 53.5%, 46.7%, 36.0% and 68.2%, respectively, for 2017.

Operating expenses

Selling expenses increased by $0.13 million, or 7.1%, to $1.99 million
for 2018 from $1.85 million for 2017. The increase in selling expenses
was mainly due to higher sales commissions and increased marketing
expenses in 2018. As a percentage of revenues, selling expenses were
5.3% for 2018, compared to 5.2% for 2017.

General and administrative expenses increased by $1.04 million, or
24.7%, to $5.27 million for 2018 from $4.22 million for 2017. The
increase in general and administrative expenses was mainly due to
increased salaries and benefits, as well as increased consulting and
professional fees. As a percentage of revenues, general and
administrative expenses were 14.0% for 2018, compared to 11.9% for 2017.

Bad debt expenses increased by $1.08 million, or 122.7%, to $1.95
million for 2018 from $0.88 million for 2017. As a percentage of
revenues, bad debt expenses were 5.2% for 2018, compared to 2.5% for
2017.

Research and development expenses increased by $0.15 million, or 23.5%,
to $0.80 million for 2018 from $0.65 million for 2017. The increase was
due to more research and development activities for our environment
friendly equipment business segment in 2018. As a percentage of
revenues, research and development expenses were 2.1% for 2018, compared
to 1.8% for 2017.

As a result, total operating expenses increased by $2.40 million, or
31.6%, to $10.00 million for 2018 from $7.60 million for 2017. As a
percentage of revenues, operating expenses were 26.6% for 2018, compared
to 21.4% for 2017.

Operating income and operating margin

Income from operations decreased by $3.05 million, or 29.8%, to $7.20
million for 2018 from $10.25 million for 2017. Operating margin was
19.2% for 2018, compared to 28.8% for 2017.

Other income (expenses)

Net other expenses were $1.05 million, including interest expense of
$1.07 million and other expense of $0.02 million, for 2018. As a
comparison, net other expenses were $0.85 million, including interest
expense of $1.01 million and other income of $0.16 million, for 2017.

Income before income taxes

Income before income taxes decreased by $3.26 million, or 34.6%, to
$6.15 million for 2018 from $9.41 million for 2017. The decrease was
primarily due to a decrease in gross profit and increases in operating
expenses as discussed above.

Provision for income taxes

Provision for income taxes was $1.58 million for 2018, compared to $2.76
million for 2017. The effective tax rates were 25.7% and 29.3% for 2018
and 2017, respectively.

Net income and EPS

Net income decreased by $2.08 million, or 31.3%, to $4.57 million for
2018 from $6.65 million for 2017. After deducting for non-controlling
interest, net income attributable to RETO was $4.48 million, or $0.20
per basic and diluted share, for 2018, compared to $5.98 million, or
$0.35 per basic and diluted share, for 2017.

Financial Conditions

As of December 31, 2018, the Company had cash and cash equivalents,
including restricted cash, of $1.56 million, compared to $10.86 million
at the end of 2017. Accounts receivable, Advance to suppliers,
inventories were $14.73 million, $4.05 million and $4.63 million,
respectively, as of December 31, 2018, compared to $18.50 million, $1.85
million and $1.61 million, respectively, at the end of 2017. The company
had bank loans totaling $17.44 million as of December 31, 2018, compared
to $14.95 million at the end of 2017. Total working capital was $8.84
million as of December 31, 2018, compared to $7.05 million at the end of
2017.

Net cash used in operating activities was $0.90 million for 2018,
compared to net cash provided by operating activities of $2.53 million
for 2017. Net cash used in investing activities was $11.55 million for
2018, compared to $7.37 million for 2017. Net cash provided by financing
activities was $3.46 million for 2018, compared to $14.00 million for
2017.

About ReTo Eco-Solutions, Inc.

Founded in 1999 and headquartered in Beijing, ReTo is a manufacturer and
distributor of eco-friendly construction materials (aggregates, bricks,
pavers and tiles), made from mining waste (iron tailings) and fly-ash,
as well as equipment used for the production of these eco-friendly
construction materials. The Company also provides a full range of
eco-friendly project solutions, including consultation, design, project
implementation and construction, relating to all stages of sponge-city
projects for customers. The Company’s clients are located in mainland
China, and internationally, including Canada, the United States,
Mongolia, Middle East, India, South Asia, North Africa, Maldives and
Brazil.

Forward-Looking Statements

This press release contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events or performance, and underlying assumptions and
other statements that are other than statements of historical facts.
When the Company uses words such as “may,” “will,” “intend,” “should,”
“believe,” “expect,” “anticipate,” “project,” “estimate” or similar
expressions that do not relate solely to historical matters, it is
making forward-looking statements. Specifically, the Company’s
statements regarding its business outlook are forward-looking
statements. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that may cause the
actual results to differ materially from the Company’s expectations
discussed in the forward-looking statements. These statements are
subject to uncertainties and risks including, but not limited to, the
following: the Company’s goals and strategies; the Company’s future
business development; product and service demand and acceptance; changes
in technology; economic conditions; the growth of the call center
business process outsourcing market in China; reputation and brand; the
impact of competition and pricing; government regulations; fluctuations
in general economic and business conditions in China and assumptions
underlying or related to any of the foregoing and other risks contained
in reports filed by the Company with the Securities and Exchange
Commission. For these reasons, among others, investors are cautioned not
to place undue reliance upon any forward-looking statements in this
press release. Additional factors are discussed in the Company’s filings
with the U.S. Securities and Exchange Commission, which are available
for review at www.sec.gov.
The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise
after the date hereof.

Contacts

At the Company:
Email: [email protected]

Investor Relations:
Tony Tian, CFA
Weitian Group LLC
Email:
[email protected]
Phone:
+1-732-910-9692