Craig W. Safian
Executive Vice President & Chief Financial Officer at Gartner
Thank you, Gene, and good morning. Second quarter results were strong, with double-digit growth in contract value, revenue and adjusted EPS. With results above our expectations, we are again increasing our 2022 guidance. The improved outlook reflects the better-than-expected second quarter top line results, strong demand for second half conferences and a successful balance between cost discipline and investing for future growth.. Second quarter revenue was $1.4 billion, up 18% year-over-year as reported and 22% FX neutral. In addition, total contribution margin was 69%, down 70 basis points versus the prior year as costs return towards normal. EBITDA was $389 million, up 10% year-over-year and up 14% FX neutral. Adjusted EPS was $2.85, up 27%, and free cash flow in the quarter was $395 million. Adjusting for insurance proceeds received last year, free cash flow was down 2% year-over-year for the quarter and up 5% on a rolling 4-quarter basis. Research revenue in the second quarter grew 14% year-over-year as reported and 17% on an FX-neutral basis, driven by our strong contract value growth. Second quarter Research contribution margin was 74%, about in line with 2021. Higher-than-normal contribution margins reflect improved operational effectiveness, increased scale, continued temporary avoidance of travel expenses and continuing to catch up on headcount to support the Research business. Contract value, or CV, was $4.3 billion at the end of the second quarter, up 15% versus the prior year. As we discussed previously, CV reflects our decision to exit the Russian market, which contributed about $13 million in the second quarter 2021 number. This reduced the headline growth by about 40 basis points. Quarterly net contract value increase, or NCVI, was $97 million. Quarterly NCVI is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric.
The sequential increase in CV of $97 million was driven by the combination of continued strong retention rates and near record new business of close to $250 million. We saw broad-based CV growth across all of our practices. Our technology practice grew 14%, and all of our business practices grew at double-digit growth rates, with many of them growing more than 20% year-over-year. From an industry perspective, retail, media and manufacturing led our CV growth. Global Technology Sales contract value was $3.4 billion at the end of the second quarter, up 14% versus the prior year. GTS had quarterly NCVI of $60 million, driven by strong retention and near record levels of new business for our second quarter. While retention for GTS was 107% for the quarter, up about 530 basis points year-over-year and near record levels.
GTS new business was down 1% versus last year, up against a very tough compare. The 2-year compound annual growth rate was about 16%. GTS quota-bearing headcount was up 9% year-over-year. We are on track to get to double-digit growth by the end of 2022 as we have successfully brought turnover down and our investments in recruiting are delivering results. We will continue to invest in our sales team to drive long-term sustained double-digit growth while also delivering strong margins. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement. Global Business Sales contract value was $936 million at the end of the second quarter, up 23% year-over-year, which is above the high end of our medium-term outlook of 12% to 16%. GBS CV increased $37 million from the first quarter. Wallet retention for GBS was 115% for the quarter, up about five percentage points year-over-year. GBS new business was up 3% compared to last year, reflecting robust growth across the full portfolio and against a very strong compare. The 2-year compound annual growth rate for new business was 35%. GBS quota-bearing headcount increased 17% year-over-year. Headcount we hire in 2022 will help to position us for sustained double-digit growth in the future.
As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement. Conferences revenue for the second quarter was $114 million, ahead of our expectations as attendees and exhibitors enthusiastically return to in-person. Contribution margin in the quarter was 65%. We held six in-person conferences and eight virtual conferences in the quarter. We held Evanta meetings in both virtual and in-person formats. We plan to run 19 in-person conferences for the balance of the year. Second quarter Consulting revenues increased by 14% year-over-year to $121 million. On an FX-neutral basis, revenues were up 20%. Consulting contribution margin was 42% in the second quarter, up 120 basis points versus the prior year with better-than-expected revenue, higher utilization rates and a mix benefit from strong growth in contract optimization. Labor-based revenues were $95 million, up 11% versus Q2 of last year and up 18% on an FX-neutral basis. Backlog at June 30 was $152 million, increasing 45% year-over-year on an FX-neutral basis with another strong bookings quarter. The inclusion of multiyear contracts, a change we described last quarter, contributed about 12 percentage points to the year-over-year growth rate. Our contract optimization business was up 28% as reported and 31% on an FX-neutral basis versus the prior year. As we have detailed in the past, this part of the Consulting segment is highly variable.
Consolidated cost of services increased 21% year-over-year in the second quarter as reported and 25% on an FX-neutral basis. The biggest driver of the increase was higher headcount to support our continued strong growth and the return to in-person destination conferences. SG&A increased 24% year-over-year in the second quarter as reported and 27% on an FX-neutral basis. SG&A increased in the quarter as a result of increased hiring and sales and G&A functions, higher commission expense following strong CV growth in 2021 and the $12 million onetime real estate charge. We expect SG&A expenses to increase as a percentage of revenue over the near term as our catch-up hiring continues. EBITDA for the second quarter was $389 million, up 10% year-over-year on a reported basis and up 14% FX neutral. Second quarter EBITDA upside to our guidance reflected revenue exceeding our forecast and expenses at the low end of our expectations. Depreciation in the quarter of $23 million was down modestly versus 2021. Net interest expense, excluding deferred financing costs in the quarter, was $29 million, up $2 million versus the second quarter of 2021 due to an increase in total debt balances. The Q2 adjusted tax rate, which we use for the calculation of adjusted net income, was 25.7% for the quarter. The tax rate for the items used to adjust net income was 25% for the quarter. Adjusted EPS in Q2 was $2.85, growth of 27% year-over-year.
The average share count for the second quarter was 81 million shares. This is a reduction of about 5.6 million shares or about 6.5% year-over-year. We exited the second quarter with about 80 million shares outstanding on an unweighted basis. Operating cash flow for the quarter was $416 million. Adjusting for the insurance proceeds we received in the second quarter of 2021, operating cash flow was down 2% compared to last year. capex for the quarter was $21 million, up 76% year-over-year as a result of an increase in capitalized software, laptops and other infrastructure. Free cash flow for the quarter was $395 million. Free cash flow growth continues to be an important part of our business model, with modest capex needs and upfront client payments. As many of you know, we generate free cash flow well in excess of net income. Our conversion from EBITDA is very strong with the differences being cash interest, cash taxes and modest capex, partially offset by strong working capital cash inflows. Adjusting for the insurance proceeds we received last year, free cash flow as a percent of revenue or free cash flow margin was 21% on a rolling 4-quarter basis. On the same basis, free cash flow was 81% of EBITDA and 146% of GAAP net income. At the end of the second quarter, we had $360 million of cash.
Our June 30 debt balance was $2.5 billion. Our reported gross debt to trailing 12-month EBITDA was under 2 times. Our expected free cash flow generation, unused revolver and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of share repurchases and strategic tuck-in M&A. We repurchased around $930 million of stock through the first half of this year. We had about $700 million remaining on our authorization at the end of June. We expect the Board to continue to refresh the repurchase authorization as needed going forward. Since the end of 2020 through the end of this June, we have reduced our shares outstanding by nine million shares. This is a reduction of 11%. 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. Our medium-term outlook is for double-digit revenue growth. While margins have been very strong in the past two years, we are continuing to catch up hiring and to resume travel spending. We estimate our underlying margins to be in the low 20s, well above pre-pandemic levels, and we expect them to increase modestly over time.
We will give 2023 specific guidance in February, consistent with our usual practice. Strong top line growth, modest margin expansion, low capital intensity and working capital as a source of cash will allow us to deliver strong free cash flow now and in the future. We are increasing our full year guidance to reflect strong Q2 performance and an improved outlook for the second half despite incremental FX headwinds. We now expect an FX impact to our revenue growth rates of about 370 basis points for the full year. This is up from 260 basis points based on rates when we guided in May. As we discussed in the last two quarters, 2021 Research performance benefited from several factors, including QBH tenure mix and CVI phasing within the quarters and the year, record retention rates and strong non-subscription growth. We continue to assume that those benefits do not persist at the same levels through 2022. The growth compares will continue to be challenging as we move through the year.
We continue to take a measured approach based on historical trends and patterns, which we've reflected in the updated guidance. For Conferences, we assume we will be able to run all the in-person conferences as planned. Consistent with our commentary the past couple of quarters, our assumptions for consolidated expenses continue to reflect significant headcount increases during the year to support current and future growth. We have modeled higher labor costs and T&E well above 2021 levels, as we've previously indicated. We also have higher commission expense during 2022 due to the very good selling performance we delivered in 2021. Finally, we continue to invest in our tech, both client-facing and internal applications, as part of our innovation and continuous improvement programs. Our updated guidance for 2022 is as follows. We expect Research revenue of at least $4.575 billion, which is FX-neutral growth of about 15%. The FX-neutral growth is up about 120 basis points from our prior guidance due to strong NCVI performance in the second quarter. We expect Conferences revenue of at least $335 million, which is growth of about 63% FX neutral.
We expect Consulting revenue of at least $440 million, which is growth of about 11% FX neutral. The result is an outlook for consolidated revenue of at least $5.35 billion, which is FX-neutral growth of almost 17%. The FX-neutral growth is up about 290 basis points from our prior guidance due to strong performance in the second quarter. Without the strengthening U.S. dollar since May, our revenue guidance would have been about $138 million than previous guidance. We now expect full year EBITDA of at least $1.235 billion, up $100 million from our prior guidance and an increase in our margin outlook as well. Without the strengthening U.S. dollar since May, our EBITDA guidance would have been about $120 million higher than previous guidance. We now expect 2022 adjusted EPS of at least $8.85. For 2022, we now expect free cash flow of at least $985 million. Our guidance is based on 81 million shares outstanding, which reflects year-to-date repurchases. All of the details of our full year guidance are included on our Investor Relations site. Finally, for the third quarter of 2022, we expect to deliver at least $255 million of EBITDA. Our strong performance in 2022 continued in the second quarter with momentum across the business. Contract value growth was very strong at 15%.
Adjusted EPS grew 27%, fueled by the significant reduction in shares over the past year. We repurchased around $930 million in stock this year through June and remain committed to returning excess capital to our shareholders. 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 and G&A leverage, we can modestly expand margins. 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 repurchases, which will lower the share count over time and on 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?