Craig Safian
Chief Financial Officer at Gartner
Thank you, Gene, and good morning.
Second quarter results were excellent with strength in contract value growth, revenue, EBITDA and free cash flow. We are increasing our 2021 guidance to reflect our strong Q2 performance. Second quarter revenue was $1.2 billion, up 20% year-over-year as reported and 16% FX neutral. In addition, total contribution margin was 70%, up more than 300 basis points versus the prior year. EBITDA was $355 million, up 85% year-over-year and up 75% FX neutral. Adjusted EPS was $2.24. Free cash flow on the quarter was $563 million. Free cash flow includes $150 million from insurance proceeds related to cancelled 2020 conferences.
Research revenue in the second quarter grew 15% year-over-year as reported and 11% on an FX neutral basis. We saw strong retention and new business in the quarter. Second quarter research contribution margin was 74%, up about 170 basis points versus 2020. Contribution margins reflect both improved operational effectiveness, continued avoidance of travel expenses and lower than planned headcount. However, some of the margin improvement compared to historical levels is temporary and will reverse as we resume normal travel and increased spending to support growth. Total contract value grew 11% FX neutral year-over-year to $3.8 billion at June 30.
Quarterly net contract value increased or NCVI was $114 million, significantly better than the pandemic lows in the second quarter of last year and a new record high for second quarter NCVI. Quarterly NCVI is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric.
Global technology sales contract value at the end of the second quarter was $3 billion, up 9% versus the prior year. GTS CV increased $75 million from the first quarter. The selling environment continued to improve in the second quarter. By industry, CV growth was led by technology, manufacturing and services. While retention for GTS was 101% for the quarter, up about 110 basis points year-over-year. While retention isn't yet fully back to normal because it's a rolling four quarter measure. GTS new business was up 38% versus last year with strength in new logos and continued improvement in upsell with existing clients. Our regular full set of metrics can be found in our earnings supplement.
Global Business Sales Contract Value was $770 million at the end of the second quarter, up 18% year-over-year, which is above the high-end of our medium term outlook of 12% to 16%. GBS CV increased $39 million from the first quarter. Broad-based CV growth was led by the health care and technology industries. All of our practices including marketing delivered year-over-year and sequential CV growth.
HR, finance, sales and supply chain each grew 20% or more year-over-year. While retention for GBS was 110% for the quarter, up more than 950 basis points year-over-year. GBS new business was up 76% over last year, led by very strong growth across the full portfolio. As with GTS our regular full set of GBS metrics can be found in our earnings supplement. Conferences revenue for the second quarter was $58 million compared to no revenue in the year-ago quarter. Contribution margin in the quarter was 73% driven by strong top line performance. We held 13 virtual conferences in the quarter. We also held a number of virtual Avanta meetings.
Second quarter consulting revenues increased by 9% year-over-year to $106 million. On an FX neutral basis, revenues were up 4%. Consulting contribution margin was 40% in the second quarter, up almost 600 basis points versus the prior year quarter. Labor-based revenues were $86 million, up 25% versus Q2 of last year and up 20% on an FX neutral basis. Labor-based billable headcount of 740 was down 7%. Utilization was 70%, up more than 1,100 basis points year-over-year. Backlog at June 30 was $108 million, up 7% year-over-year on an FX neutral basis after another strong bookings quarter.
Our Contract Optimization business was down 31% on a reported basis versus the prior year quarter and down 33% FX neutral. The prior year period was the highest ever revenue quarter for Contract Optimization and as we have detailed in the past, this part of the consulting segment is highly variable. Consolidated cost of service has increased 9% year-over-year and 6% FX neutral in the second quarter. Cost of services increased due to the reinstatement of annual merit increases and to support growth in the business. SG&A decreased 1% year-over-year and 4% FX neutral in the second quarter. Compared with the prior year period, SG&A declined due to lower severance and conference related expenses partially offset by higher personnel costs. E&E remains close to zero.
Operating expenses were lower than planned in part because net headcount growth was below our targets. While our rate of hiring continues to ramp up, turnover remains modestly above normal levels due to tighter labor market conditions. As Gene said, we're rapidly growing our recruiting capacity to keep pace with our accelerating growth rates. EBITDA for the second quarter was $355 million, up 85% year-over-year on a reported basis and up 75% FX neutral. Second quarter EBITDA again reflected revenue above the high-end and cost towards the low-end of our expectations. Depreciation in the quarter was up about $3 million versus 2020, reflecting real estate and software which went into service since the second quarter of last year. Net interest expense excluding deferred financing costs in the quarter was $26 million, roughly flat versus the second quarter of 2020.
The Q2 adjusted tax rate which we use for the calculation of adjusted net income was 29.9% for the quarter. The tax rate for the items used to adjust net income was 24.6% in the quarter. Adjusted EPS in Q2 was $2.24. The weighted average fully diluted share count for the second quarter was 86.6 million shares. We exited the second quarter with 85.1 million fully diluted shares. Operating cash flow for the quarter was $575 million, up 68% compared to last year. Q2 operating cash flow includes $150 million of proceeds from insurance related to 2020 conference cancellations. Excluding the insurance proceeds, operating cash flow improved by 24% versus the prior year quarter. Cash flow strength continues to be driven by EBITDA growth and improved collections. Capex for the quarter was $12 million, down 44% year-over-year. Lower capex is largely a function of lower real estate investments.
Free cash flow for the quarter was $563 million, which was up about 75% versus the prior year. Excluding the insurance proceeds, free cash flow improved by 28% versus the prior year quarter. Free cash flow growth continues to be an important part of our business model with modest capital expenditure needs and upfront client payments. Free cash flow as a percent of revenue or free cash flow margin was 27% on a rolling four quarter basis. Excluding the insurance proceeds, free cash flow was 23% of revenue, continuing the improvement we've been making over the past few years. Free cash flow was well in excess of both GAAP and adjusted net income.
At the end of the second quarter, we had $796 million of cash. During the quarter, we issued $600 million of new 8-year senior unsecured notes with a 3.625% coupon. We used the proceeds from this new issuance to repay $100 million of the existing term loan A. The balance is available for general corporate purposes including share repurchases. Our June 30 debt balance was $2.5 billion. At the end of the second quarter, we had about $1 billion of revolver capacity. Our reported gross debt to trailing 12-month EBITDA was about 2.3x. Our expected free cash flow generation and excess cash remaining on the balance sheet provide ample liquidity and cash to deliver on our capital allocation strategy of share repurchases and strategic tuck-in M&A.
During the quarter, we made a small acquisition with net cash paid at closing of $23 million. Year-to-date, we've repurchased more than $1 billion in stock, including $685 million during the second quarter. In July, the Board increased our share repurchase authorization for the third time this year, adding another $800 million. As of August 1, we have more than $1 billion available for share repurchases. We expect the Board will continue to refresh the repurchase authorization as needed. As we continue to repurchase shares, we expect our capital base will shrink. This is accretive to earnings per share, and combined with growing profits also delivers increasing returns on invested capital over time.
We are updating our full year guidance to reflect Q2 performance and an improved and increased outlook for the remainder of the year. For Research, the strong start to the year in CV performance and improvement to non-subscription revenue are contributing to higher than previously expected research revenue.
For Conferences, our guidance is still based on being virtual for the full year. With the uptick in COVID and shifting government directives, there is much more uncertainty around our ability to run in-person conferences during the balance of the year. We continue to operationally plan for some in-person conferences. Our updated guidance reflects some additional cancellation related costs for conferences where we have been planning to run in-person, but may need to cancel. If we are able to run in-person conferences, we expect incremental upside to both our revenue and profitability for 2021.
For expenses, we have reinstated benefits which were either cancelled or deferred in 2020. This includes our annual merit increase, which took effect April 1. We are investing in expanding our recruiting capacity, drive additional hiring across the business. The additional hiring will continue into 2022 and beyond to support current and future growth. Our current plan is to increase quota-bearing headcount in the mid-single digits for GTS and low double digits for GBS by the end of 2021. Additionally, we continue to invest in a number of programs with a focus on improving sales productivity. As you know, travel expenses were close to zero from April 2020 through June 2021. Our current plans continue to assume a ramp up in travel related expenses. Over the course of the rest of this year, we add more to the fourth quarter. If travel restrictions remain in place for longer than we've assumed, we'd see expense savings.
For our revenue guidance, we now expect research revenue of at least $4 billion, which is growth of 11%. We still expect Conferences revenue of at least $170 million, which is growth of 41%. We still expect Consulting revenue of at least $400 million, which is growth of 6%. The result is an outlook for consolidated revenue of at least $4.57 billion, which is growth of 11%. Based on current foreign exchange rates and business mix, the consolidated growth includes an FX benefit of about 200 basis points. The year-over-year FX benefit was more pronounced in the first half of the year. With the ongoing business momentum, we are seeing we will continue to restore growth spending as we move through the year.
We now expect full year adjusted EBITDA of at least $1.16 billion, which is an increase of about 42% versus 2020 and reflects reported margins of 25.4%. We expect a reasonable baseline for thinking about the margins going forward is around 18% to 19% consistent with our comments last quarter. We expect our full year 2021 adjusted net interest expense to be $113 million.
Looking out to 2022, as the balance sheet stands today, we expect interest expense to be around $115 million. We expect an adjusted tax rate of around 22% for 2021. We now expect 2021 adjusted EPS of at least $7.60. For 2021, we now expect free cash flow of at least $1.13 billion. This includes the $150 million of insurance proceeds received in the second quarter this year. All the details of our full year guidance are included on our Investor Relations site.
Turning to the second half of the year. For Research, we have more visibility into revenue the farther we get into the year. This is because NCVI earlier in the year has more of an effect on the full year revenue. Seasonally, Conferences and Consulting are also both typically later in Q3. Finally, at the start of 2021, there was a lot of uncertainty in the world and we began with a prudently conservative plan. More than halfway through the year and with less macro uncertainty, there's a lower likelihood of the kind of upside we've seen in the past few quarters. As a result, we expect reported numbers to be closer to our guidance than earlier in the year. Any upside is more likely to come from lower costs than higher revenue. For Q3, we expect to deliver at least $250 million of EBITDA. We also expect the tax rate for the quarter in the high 20s.
Looking out over the medium term, our financial model and expectations are unchanged. With 12% to 16% Research CV growth, we will deliver double-digit revenue growth. With gross margin expansion, sales cost growing in line with CV growth over time, and G&A leverage, we can modestly expand margins from a normalized 2021 level of around 18% to 19%. We can grow free cash flow at least as fast as EBITDA because of our modest capex needs and the benefits of our clients paying us up front. We will repurchase shares over time, which will lower the share count. With a strong first half, with momentum across the business, we have meaningfully updated our outlook for 2021 to reflect the stronger demand environment and our enhanced visibility.
We are restoring certain expenses and investing to ensure we are well-positioned to continue our momentum. We repurchased more than $1 billion worth of stock this year, and remain committed to returning excess capital to our shareholders.
With that, I'll turn the call back over to the operator and we'll be happy to take your questions. Operator?