Craig Safian
Executive Vice President and Chief Financial Officer at Gartner
Thank you, Gene, and good morning. Third quarter results were again excellent with acceleration in contract value growth and strength in revenue, EBITDA, and free cash flow. We are increasing our 2021 guidance to reflect our strong Q3 performance. Third quarter revenue was $1.2 billion, up 16% year-over-year as reported and 15% FX-neutral. In addition, total contribution margin was 69%, up more than 200 basis points versus the prior year. EBITDA was $305 million, up 82% year over year and up 80% FX neutral. Adjusted EPS was $2.03, and free cash flow in the quarter was $331 million. Research revenue in the third quarter grew 16% year over year as reported and 15% on an FX neutral basis. We drove both strong retention and new business in the quarter.
Third quarter Research contribution margin was 74%, up over 200 basis points versus 2020. Higher-than-normal contribution margins reflect improved operational effectiveness, continued avoidance of travel expenses, and lower-than-planned headcount. Total contract value grew 14% FX neutral year over year to $4 billion at September 30. Quarterly net contract value increase or NCVI was a very strong $146 million. 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 was $3.2 billion at the end of the third quarter, up almost 12% versus the prior year. GTS CV increased $102 million from the second quarter. CV growth was led by the technology, manufacturing, and retail industries, while retention for GTS was 104 % for the quarter, up 490 basis points year-over-year. GTS new business was up 25% versus last year with strong growth in new logos and expansion with existing client enterprises. GTS quota-bearing headcount increased from the second quarter. We are beginning to see the positive effects of our investments to ramp up recruiting capacity. We continue to be successful recruiting new sales people. Turnover among GTS frontline sellers is stable at the modestly elevated range we saw in the second quarter. With increased recruiting capacity and stable turnover, we expect to see continued expansion of the GTS sales team in Q4 and into 2022 and beyond. Our regular full set of metrics can be found in our earnings supplement.
Global Business Sales contract value was $814 million at the end of the third quarter, up 22% year-over-year, which is above the high end of our medium-term outlook of 12% to 16%. GBS CV increased $43 million from the second quarter. Broad-based CV growth included particular strength in the healthcare, technology, and services industries. All of our GBS practices achieved double-digit growth rates with a majority growing more than 20% year-over-year. Growth in the third quarter was led by the supply chain, HR, and sales practices. While retention for GBS was 113% for the quarter, up more than 14 percentage points year over year, GBS new business was up 38% compared to last year, reflecting strong growth across the full portfolio. GBS quota-bearing headcount increased sequentially and is up 8% year over year. As with GTS, our regular full set of GBS metrics can be found in our earnings supplement.
Conferences' revenue for the third quarter was $24 million with reported growth of 92% and 93% FX neutral. Contribution margin in the quarter was 47%. We held 18 [Phonetic] virtual conferences in the quarter. We also held a number of virtual event and meetings. We were able to reintroduce in-person event and meetings in the quarter and plan to ramp those up in Q4. Attendance is up significantly year over year as we've launched more virtual conferences to cover additional roles. Third quarter Consulting revenues increased by 6% year-over-year to $95 million. On an FX-neutral basis, revenues were also up 6%. Consulting contribution margin was 33% in the third quarter, up more than 110 basis points versus the prior year quarter. Labor-based revenues were $78 million, up 5% versus Q3 of last year and up 4% on an FX neutral basis. Labor-based billable headcount of 749 was up 2%. Utilization was 62%, up more than 130 basis points year-over-year. Backlog at September 30 was $126 million, increasing 27% year-over-year on an FX-neutral basis after another strong bookings quarter. Our contract optimization business was up 13% on a reported basis versus the prior year quarter and up 12% FX-neutral. As we have detailed in the past, this part of the consulting segment is highly variable. Consolidated cost of services increased 9% year-over-year and 8% FX-neutral in the third quarter.
SG&A decreased 2% year-over-year and 3% FX-neutral in the third quarter. The year-over-year decline is largely related to the timing of certain prior-year expenses. We expect SG&A expenses to increase over time as our hiring across the business continues to ramp. Total operating expenses were lower than planned. Because conferences continue to be virtual, we are resuming business travel and reopening offices at a very deliberate pace, and we are still ramping up our net growth [Phonetic] hiring to our target levels. EBITDA for the third quarter was $305 million, up 82% year-over-year on a reported basis and up 80% FX-neutral. Third quarter EBITDA again reflected revenue above the high end and costs 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 third quarter of last year. Net interest expense, excluding deferred financing cost in the quarter, was $30 million, up slightly versus the third quarter of 2020 due to an increase in total debt balances.
The Q3 adjusted tax rate which we used for the calculation of adjusted net income was 25.2% for the quarter. Tax rate for the items used to adjust net income was 25.4% in the quarter. Adjusted EPS in Q3 was $2.03. The weighted average fully diluted share count for the third quarter was 84.8 million shares. We exited the quarter with 84.2 million fully diluted shares. Operating cash flow for the quarter was $345 million, up 41% compared to last year. Cash flow strength continues to be driven by EBITDA growth and improved collections. Capex for the quarter was $14 million, down 5% year over year. Lower capex is largely a function of lower real estate investments. Free cash flow for the quarter was $331 million.
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 25% on a rolling four-quarter basis adjusted for the $150 million of insurance proceeds received in the second quarter. Free cash flow is well in excess of both GAAP and adjusted net income. At the end of the third quarter, we had $766 million of cash. Our September 30th debt balance was $2.5 billion dollars. Our reported gross debt to trailing 12-month EBITDA was about 2 times. Our expected free cash flow generation and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of share purchases and strategic tuck-in M&A. Through the end of October, we have repurchased more than $1.6 billion in stock this year, including $355 million during the third quarter. Year to date we have repurchased over 7 million shares, reducing our net share count by around 7%. As of November 1, we have around $600 million remaining on our repurchase authorization, which we expect the board will refresh 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 Q3 performance and an improved and increased outlook for the remainder of the year. For revenue guidance, we now expect Research revenue of at least $4.07 billion, which is growth of 13%. We now expect Conferences revenue of at least $190 million, which is growth of 58%. 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 $4.66 billion, which is growth of 14%. Based on current foreign exchange rates and business mix, the consolidated growth includes an FX benefit of about 190 basis points. This reflects modest headwinds from FX in the fourth quarter.
For expenses, we are investing in expanding our recruiting capacity to drive additional hiring across the entire business, including our sales teams. The additional hiring will continue into 2022 and beyond to support current and future growth. We plan to exit the year with quota-bearing headcount about flat for GTS. We expect low-double-digit growth for GBS by the end of 2021. Additionally, we continue to invest in a number of programs with a focus on improving sales productivity and cost effectiveness. We are also incurring some conference cancellation fees in the fourth quarter and are in the process of reopening dozens of offices as well.
We now expect full-year adjusted EBITDA of at least $1.26 billion, which is an increase of about 54% versus 2020 and reflects reported margins of 27%. Consistent with our comments last quarter, we estimate that the normalized 2021 margins would be around 19% if this had been a more typical year. About two-thirds of the adjustments are headcount related with most of the rest from travel and real estate. 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 $8.54. For 2021, we now expect free cash flow of at least $1.225 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.
We had a strong third quarter with momentum across the business. Contract value growth accelerated, and we had very strong revenue, EBITDA, and free cash flow in the quarter. We've put our capital to work, repurchasing more than $1.6 billion worth of our stock this year through the end of October, and we've updated our guidance to reflect continuing strength and momentum in the business. 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 costs growing in line with CV growth time and G&A leverage, we can modestly expand margins from a normalized 2021 level of around 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 upfront, and we'll continue to deploy our capital on share of purchases, which lower the share count over time, and strategic, value-enhancing, tuck-in M&A.
With that, I'll turn the call back over to the operator and we'll be happy to take your questions. Operator
