Gafisa S.A.

Sandro Gamba - Chief Executive Officer Carlos Eduardo Moraes Calheiros - CFO and IRO Gerson Cohen - Operational Executive Officer

Good morning, everyone and thank you for being with us on our second quarter 2018 earnings conference call. This quarter was marked by combination of factors.

A good performance of launches, inventories delivered with better margin, ongoing for institute of increasing operational and administrative efficiency and the new launch for this solution and net debt. These results are aligned with what we have been filing in the last quarter.

That we would we remain observing the process of gradual inflection of the key of financial and operational performance over the course of the year. So now let's start with launches.

Three targets were successful launched in the second quarter, two of them in the city of Sao Paulo and one in the metropolitan region of Greater Sao Paulo, [Indiscernible]. PSV of these projects in the second quarter totaled R$400 million with a SoS of 52.5%.

Again, assessing our rigorous execution of launches. In the first half, we launched R$539 million in PSV practically the same PSV we launched during the entire year of 2017 of R$554 million.

Sales performance of this launched project, coupled with inventory sales positively impacted gross sales in the quarter which totaled R$406 million, up 38% versus the first quarter of 2018 and 68% versus the second quarter in 2017. The solution totaled R$60 million in the second quarter meaning a sharp drop of 47% year-over-year and 4% less quarter-over-quarter, marking a new low for the solution.

This positive trend in the solution and good sales performance resulted in net pre sales of R$346 million this quarter, up 172% compared to the second quarter of 2017. In the accumulated over the year, there was 138% variation totaling $502 million, such good performance was also reflected in higher SoS of sales contracted in the last 12 months, which range 43%.

The highest level of this index over the last three years. Concerning eventually we continue focusing on gradually reducing them, seeking to maintain a balance between sales of our recent projects and the finished unit.

This strategy can be seen when analyzing inventory turnover in the last 12 months ended in the second quarter of 2018 which advances a reduction in the number of months for procuring asset inventory sales. Again, I reinforce that we can see an evolution of our operational performance this first half of the year with optimism.

However, we are aware that the recovering in the real estate sector which was affected for early this year has not yet happened. Even though we are clearly in a better position than we were one year ago.

Now discussing our financial results. We can see a gradual upturn of Gafisa's financial performance with net revenue growing in all basis of comparison.

We highlight here the impact of higher inventory sales, as well as the success for sales of Upside de Pinheiros, a project launched in the first quarter which alone contributed to R$68 million to total net revenue totaling R$302 million in the quarter. The sales of more recent project was better margin such as the Upside bolstered adjusted gross profit in the first half of 2018, a fourfold increase against the same period last year, and reached an adjusted gross margin of 31.7%.

Another relevant indicator is the backlog results which reached a balance of R$263 million in the first half of this year. This means an increase of 63% when compared to the same period last year.

And a gross margin of 37.5%. This indicates a favorable outlook both for revenue and margins over the upcoming quarters essentially due to a large share from more recent projects with higher margins in recognition of future results.

In terms of expenses, we continue adopting a rigorous position and finding opportunities to maximize the efficiency of our processes. Thus general and administrative expenses totaled R$39.5 million in the first half of 2018, a 16% decrease when compared to the first half of 2017.

By contrast, selling expenses were 23% higher due to the resumption of launches, however, I'd like to highlight that this increase was lower than the increment in gross sales in the order of 68.5%, adjusting the efficiency of our sales model and their respective campaign. All of these factored led adjusted to total R$29.2 million in the quarter in line with the positive trend seen in the previous quarter.

And this consolidate the amount of R$32.4 million in the first half. This is the highest amount of adjusted EBITDA recorded at the second quarter of 2016, and one of the main indicators we used to test the gradual inflection point in the company's financial results.

Another highlight in the first half of 2018 is a reduction of the Gafisa's net debt. In the first half of 2018, the net debt reached R$752 million, 32% lower than the R$1.1 billion reported in the same period last year, leading to a leverage measured by net debt to shareholder equity ratio to 83% at the end of period which means a sharp drop when compared to the 126% reported at the end of 2017.

Out of the total R$277 million, or 29%, a short -term debt compared to 34% at the end of the previous quarter. This amount is also practically half of our net debt in 2016.

The main reason for such drop were the capital increase included in February and renegotiation made throughout the first quarter. They had an impact on debt decrease and increase cash position in the period.

Finally, deliveries in the quarter also positively impacted cash generation which totaled R$27 million. In the first half of the year, cash generation was negative at R$45 million reflecting the cash burn of the previous quarter.

It is worth mentioning here that throughout the entire year of 2017, Gafisa generated cash in all quarter and the amount recorded in the first quarter was one off as a result of launches resumption coupled with a lower volume of deliveries during the period and a consequent decrease in transfer. We would like to highlight the good operational results we obtained in the first six months of the year and the positive outlook for the next month in an uncertain economic scenario.

The real estate sector has a long-term cycle and the results of the strategies adopted, require time to mature. In this regard, we are cautiously optimistic as to the news release earlier this month on the certain measures adopted by the Brazilian National Monetary Council, which theoretically having proved the lines of credit for properties acquisition.

So even consequent of these changes will take effect from January next year. We understand that these measures are worked for the business environment for the real estate sector and country with the turnover allowing for an increasing the liquidity of a relevant portion of our inventory and future launches.

With that I conclude my comments. And I am available to answer your questions.

Thank you for the call first of all. I have two questions.

The first that there was significant recovery in gross margins. And in margin and extra margin of 37%, so I like to understand what is your gross margin in the inventory?

Because it is - it has improved. And the second question refers to page 10 where you had result of R$4 million.

Does that something very specific and isolated tax? Thank you very much.

Rebecca, good morning. This is Sandro.

I would like to ask you to repeat the second question please.

You had an increase in expenses was legal lawsuit. So I would like to know whether this is something specific and worth mentioning.

Thank you, Rebecca. I am going to answer your first question and then the second question will be answered by Gerson.

Regarding the gross margin in the second quarter, it is obvious that the inverted curve was a new project with better margin and relevant SoS. So we knew that there would be an impact in our revenues.

So this includes our income and our margin. And then when take into account; we will continue to observing the some results.

So the results and increment of the gross margin due to the greater relevance of the more recent project launched by Gafisa in the last three years, where we already have relevant SoS in this project. So as the project move on these margins will be identified.

And so this is what we are doing. This is a trend for the upcoming quarters and more and more the significance of these projects will increase, resulting the growth margin of finished inventory.

It is very low so the impact is inverted. So there is an impact in the consolidated margin but as we reduce the relevance of the project and our revenues will improve our margin.

So there are two factors there. One of them is the increment of new projects on our revenue.

And also the reduction of finished project in our margin. So it will also improve that, Rebecca.

This is it. I'll now turn over to Gerson to answer your second question

Good morning, Rebecca. This is Gerson Cohen.

And response to your question, you are analyzing the variation between the first and second quarter 2018 where provisions were continue to see - were in the order of R$4 million where other reflect our policy to provision for a risk of lawsuit, labor lawsuit and civil lawsuit. It does not have any impact on our cash.

And the positive aspect in the same - is that there was a reduction of 41%. So this is a result of our management.

We try to conclude them as fast as possible, so have the least possible impact on our cash. I hope to have answered your question.

Good morning, everybody. Thank you for the call.

In terms of your launches I would like to know if you intend to continue launching in the second half of the year. So I would like to know what's your pipeline is for the rest of the year?

Also in terms of the launches what can we expect from now on? Thank you very much.

Gabriel, good morning. Thank you for question.

For the second half, Gabriel, we can develop the number of projects and launches very similarly to what happened in the first half in terms of work separation and project development. But we will only confirm that as the scenario allowed us to launch.

We have some indicators that we will be monitored. Macroeconomic indicators so that we can place these projects in the market.

But what I can tell you are that we can develop the same level of launches in the first half of the year but this is going to be confirmed if the economic scenario allows us to. We have tried to launch as long as we can have adequate SoS.

Now regarding landbank. We have worked with new purchaser.

Our results show that we have purchase new lot in the first half. And we will continue doing that so that can replace our landbank.

Well, so it will remain at the same level.

We are trying to replace the landbank according to the projection of the launches we intend to have in 2019 and 2020. And so the landbank we are purchasing right now is for the launches for 2019 and 2020 as well.

And so according to the market and the possibility of our macroeconomic scenario we will adjust to the land bank as we see opportunities for new project.

Good morning, everyone. I have two questions.

One of them is about the cash generation of R$26 million for the half- for the consolidated amount for this - where is half negative so what do you think about the number of deliveries? And now regarding the rules for real estate financing.

I would like you to give us a little bit more details about this positive outlook. You commented within your call and also regarding the company's inventory.

What is percentage of inventory, which would suffer an impact of these changes in the road?

Georgia, good morning. This is Gamba.

In response to your question. Regarding inventory, we now understand that any measure that will unlock the business scenario for the real estate segment is positive.

We suffered a lot from the credit reduction and so in terms of increasing liquidity and transactions. So we see this as a very positive movement.

We know that there is scander for implementation and the effects will not be observed immediately but it is positive. In terms of Gafisa's inventory, 90% of Gafisa's stock may be affected by the new regulations.

And so this is very relevant. Above all in terms of cash generation in the third quarter, as we commented in the call for the first quarter, it is not follows our standard because we didn't have any significant deliveries.

There was a lower volume of transactions and we think that in the second quarter we'll have results in line.

I'd like to thank you all for their presence in this call. And I'd like to highlight that the results presented in for this quarter confirm our performance.

Of course, we will continue working hard to maintain this trend to recover our results. We are very optimistic in to our sector.

The results are due to the launches and mid and long-term activities that are taking place by means of rev and the successful launches. And so we are very optimistic that this inflection is going to continue.

Thank you very much. Have a great day.

And we are available to clarify further questions.