Zeta Global (ZETA) Q2 2023 Earnings Call Transcript

Zeta Global (ZETA 3.53%)
Q2 2023 Earnings Call
Aug 02, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, ladies and gentlemen, and welcome to the Zeta's second-quarter 2023 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schmitz, senior vice president of investor relations. You may begin, sir.

Scott Schmitz -- Senior Vice President of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's second-quarter 2023 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com where you will also find links to our SEC filings, along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's co-founder, chairman, and chief executive officer; and Chris Greiner, Zeta's chief financial officer.

Before we begin, I'd like to remind everyone that statements made on this call as well as in the presentation and earnings release contain forward-looking statements regarding our financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our products, potential competition and revenues of our products in our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, we have received subpoenas from the SEC as part of an investigation into a company we worked with prior to our IPO.

The amount of business we conducted with this company was quantitatively insignificant and we have not worked with them since 2020. Finally, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for our GAAP results. We use these non-GAAP measures in managing the business and believe they provide useful information for our investors. Reconciliations of the non-GAAP measures to the corresponding GAAP measures where appropriate can be found in the earnings presentation available on our website as well as our earnings release and other filings with the SEC.

With that, I will now turn the call over to David.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thank you, Scott. Good afternoon everyone, and thank you for joining us today. The second quarter of 2023 marked our two-year anniversary as a public company, and I'm extremely proud to announce we have exceeded consensus estimates and raised our outlook every quarter since we've gone public with Q2 continuing this pattern. In the quarter, we delivered revenue of $172 million, up 25% year over year with adjusted EBITDA of $27 million up 45% year over year.

This translates into an adjusted EBITDA margin of 16%, up 210 basis points year over year. We generated $21 million of cash from operating activities up 41% with free cash flow of $13 million up 110% year over year. We have generated positive free cash flow in each of the eight quarters since our IPO. Driving this level of consistent growth and profitability is only possible if you're developing exceptional products that deliver exceptional value to your customers.

At Zeta, our goal is to make marketers the heroes of their stories by helping them to acquire, grow, and retain customers, substantially more efficiently and effectively than ever before by leveraging our data, implementing our software, and utilizing the superpower of our AI. By creating heroes, we also create advocates, which is reflected in our net promoter score or NPS. In our recent survey, we scored greater than 90% for product quality, customer support, and ease of doing business, and it's no coincidence that companies with the highest NPS also have the highest employee net promoter score or eNPS. Once again, Zeta ranks highly in this area, including a score of 4.4 out of five as a great place to work, and over 50% overall increase from 2022 to 2023.

NPS and eNPS are key elements of our Zeta 2025 company leadership goals and we remain well on track to exceed our targets. Marketing is currently at a crossroads as the ability to connect with consumers and execute sophisticated marketing strategies across channels is harder now than ever. Zeta recently commissioned a study with Forrester Consulting that revealed almost half of marketers do not trust the reliability of their data due to fragmented tools and technologies. Addressing this deficiency requires enterprises to invest in higher cost and higher complexity integrated platforms to realize the digital promise of superior consumer experiences and higher returns.

The study validated what we already know, the Zeta Marketing Platform or ZMP is purpose-built for the digital transformation enterprise's [Inaudible]. The ZMP solves these challenges by unifying identity, intelligence, and activation into a single platform, delivering better experiences for consumers and better results for brands. The ZMP was designed on a simple, powerful premise, while data is abundant, actionable intelligence and capabilities are scarce. The ZMP takes complex disparate data and unifies it together to create a complete picture of the consumer.

Our proprietary AI synthesizes data into the highest possible intent-based score and then activates across every channel to create one-to-one marketing experiences at scale. Let me give you an example. In the second quarter, we signed a multi-year $7.5 million contract with one of the largest automotive service companies in North America replacing their legacy marketing cloud. With identity and intelligence at its core, the ZMP enabled their marketing team to become the hero by consolidating multiple customer views across their five different brands into a single profile.

We call this the Golden Record, which has been elusive for multi-brand marketers to realize quickly and consistently. And with activation in the same platform, the marketing team is now easily able to target with greater efficiency, deliver more personalized experiences across channels, and measure impact with greater precision, all resulting in higher return on investment. Having an AI-Powered Marketing Cloud that delivers actionable intelligence like the ZMP is critical to engage with customers in today's complex and rapidly changing marketing ecosystem. Consumers are harder to find and exposed to more marketing messages, making connecting to the right consumer more difficult than ever.

This makes Zeta's data cloud even more vital as it has grown to represent over 90% of the U.S. adult population, and as we become more embedded with our customers and capture even more signals, our AI becomes even smarter. Making our platform stickier and our competitive differentiation even greater. The addition of our proprietary generative AI models further increases the utility and stickiness of the ZMP.

We see this in the automation of manual tasks driving greater efficiency. We also see this in the elevation of intelligence, which is the electricity of our AI-Powered Marketing Cloud and our competitive advantage. This is evident through our reported results as well as our leading indicators such as our pipeline and our RFPs, which continue to hit record highs. A key driver to this growth has been Zeta Live, which has built tremendous brand awareness and business impact over the last two years.

That is why I'm extremely excited to announce our third annual Zeta Live event will be September 28th at the Time Center in New York City. This larger venue will further elevate Zeta's brand through a day of insightful thought leadership and world-class speakers including writers, producers, directors, entrepreneurs, and actor Seth Rogen and Evan Goldberg, who will speak about their journey of success across industries from Hollywood through houseplant and how they have achieved success through innovation, passion, and persistence. Additionally, we will have CMOs from many Fortune 500 companies. In total, there will be over $100 billion in annual marketing spend controlled by the people in the room.

The day before Zeta Live will also be filled with a series of meetings, including a discussion with our Customer Advisory Board and a group investor meeting, and more. We continue to focus on the advancement of the Zeta brand and could not be more pleased with the progress we have been making, which has rippled through our industry recognition and our financial results. In summary, we continue to be incredibly well-positioned to capitalize on the need for enterprises to do more with less and simplify their marketing stacks, and while we have come a long way on our journey over the last two years as a public company, we truly believe we are just getting started. As always, I would like to sincerely thank our customers, our partners, team Zeta and all of our shareholders for the ongoing support of our vision.

Now let me turn it over to Chris to discuss our results in greater detail. Chris?

Chris Greiner -- Chief Financial Officer

Thank you, David, and good afternoon everyone. I'll cover three themes highlighting another very strong set of results. First, we extended our track record to eight straight beat-and-raised quarters, and once again exceeded the top and bottom-line compound annual growth rates required to achieve our Zeta 2025 plan. As seen on Slide 7 in our earnings supplemental, our trailing 12-month growth rates for revenue and adjusted EBITDA are pacing six points ahead of the original Zeta 2025 compound annual growth rate established in February 2022.

This trajectory of pacing ahead of $1 billion in revenue and $200 million in adjusted EBITDA by 2025 is certainly not captured in Zeta's valuation today. Second, we delivered another quarter where profit grew even faster than revenue, generating 210 basis points of adjusted EBITDA margin expansion, cash flow from operating activities of $21 million, up 41% year to year, and free cash flow of $13 million up 110% year to year. We're doing what we said we would do, grow our universe of new buyers, drive our Zeta 2025 KPIs, and extract significant operating leverage from our expense structure. And third, we're raising guidance.

We are increasing guidance for the contribution of last quarter's M&A plus flowing through and raising the organic overachievement for the full year in revenue and profit. I'll discuss this in detail in today's call and can also be found on Slide 14 in our supplemental earnings material for additional clarity. Now, let's dive into each of these results for more detail. Starting with our results.

Total revenue of $172 million grew 25% year to year or 24% on an organic basis. We exceeded the midpoint of revenue guidance and consensus by $9.8 million with $1.8 million of the upside coming from the March 2023 acquisition of WhatCounts. The strength of our quarter was once again highlighted by the addition of scaled and super-scaled customers at a pace that continues to be firmly ahead of our Zeta 2025 model. We ended 2Q with 425 scaled customers up 14 from last quarter and up 14%, which translates to 52 net new scaled customers over the last year.

This is a nice acceleration from the 30 added for the prior four-quarter period and double the growth rate required for Zeta 2025. We added new scaled customers in each month of the quarter with most new additions coming from industries such as consumer retail, travel and hospitality education, and technology and media. Out of the 14 scaled customers added quarter to quarter, nine were new to Zeta and five were existing customers that became scaled. Out of the one million super-scaled customers we were up eight quarter to quarter to 118 and up 18% year to year.

Six out of our 10 largest industry verticals grew over 25% again this quarter. As you've heard me say for many quarters now, while Zeta has been executing very well and growing profitably through a choppy macro backdrop, we're not immune from its challenges. We continue to see pressure in the insurance vertical as the industry works through elevated loss ratios and premium increases. Our view is this is an industry specific dynamic and nearing the bottom of the spending cycle.

Nevertheless, it's another example illustrating the industry diversification of the portfolio, how resilient the balance of the customer set has been and how our value proposition of the platform is resonating with buyers. Total scaled customer ARPU was 392,000, up 10% year to year, and the 12th straight quarter of double-digit growth. It's worth noting since announcing Zeta 2025, six quarters ago, we have exceeded our scaled customer count growth target every quarter. Not surprisingly, with the adoption and scaling of pilots, more customers are entering at lower bands, which is a factor driving overall ARPU growth.

We view pilots as core to our land, expand, extend strategy, and a healthy indicator as these are the pipeline for future super-scaled customers. A good example of the land expand, extend strategy is the progression scaled customers make in adding channels throughout their platform journey with Zeta. As seen on Slide 10 in our supplemental earnings presentation, there is a 70% increase in channel adoption between our 100K to one million scaled customers and our one million plus super scaled customers. This translates to a 10 times ARPU differential between the two cohorts.

A massive opportunity with the enterprises already spending hundreds of millions to billions in marketing. A large percentage of which we can address. Direct mix of 75% improved four points from 71% last quarter. Furthermore, direct revenue growth accelerated from 10% year to year in the first quarter of 2023 to 15% year to year in 2Q 2023.

In 2023 direct mix continues to be influenced by the addition of new agency customers who have started their journey leveraging Zeta's data and measurement and started their activation on social channels like Meta or TikTok. As a reminder, we anticipated this and as we communicated last quarter, it is common for agency platform usage to start with integrated channels and extend and grow over time to Zeta owned and operated channels. We have good visibility into their progression to our channels based upon our history with other agencies and how our sellers are incentivized. The advantage customers have with using Zeta's data and owned channels is the ability to maintain a single thread of identity throughout their omnichannel strategy.

Additionally, by relying on Zeta data and having access to our data cloud, we also create a wedge to bridge from marketing activities to also become their enterprise intelligence layer. In fact, we've already started executing on this enterprise layer strategy by integrating with agencies through a co-branded intelligence solution. In this model, Zeta provides the tech stack data and future innovation, which powers an agency branded solution. This model is highly scalable, provides Zeta with incremental high-margin revenue and represents a contracting change from consumption to subscription recurring revenue streams.

We're very excited about this as it can transform our customer relationships while also serving as a catalyst for future growth in recurring revenue mix. For the remainder of 2023, we expect direct revenue mix to be in the range of 70% to 75%, which is consistent with the mix we assumed in our guidance at the beginning of the year and consistent with the expectations we outlined last quarter for GAAP cost of revenue percentage being equal to the average of second half 2022 or 38%. Sales productivity metrics remain strong and because of that, we do not believe we need to add as many new quarter carriers as previously thought. One of the many benefits we're seeing from our best of breed sales management system is to use predictive metrics that enable us to fail fast and hire smarter.

Along those lines, in conjunction with our April annual revenue performance review cycle and this quarter's M&A related restructuring activity, we reduced redundant roles and unproductive sellers. At the same time, we maintained our historical hiring cadence resulting in no net change in quota carriers quarter to quarter, but still up 13% year over year at 130. In addition to our pipeline growth from our demand generation engine sales development reps and quota carriers, we are also seeing strong contribution from our Snowflake partnership. In fact, this past quarter we were honored to be named powered by Snowflake's Go-to-Market Partner of the Year, which brings me to the topic of accelerating profitability.

In the second quarter, we delivered our 10th straight quarter of expanding adjusted EBITDA margins year to year. Adjusted EBITDA in the quarter was $27 million, up 45% year to year with adjusted EBITDA margins of 15.6% up 210 basis points year to year. It's worth noting that in the second quarter it was the first time we've seen adjusted EBITDA margins increase over the first quarter going from 15.3% in the first quarter of 2023 to 15.6% in the second quarter of 2023. Driving operating leverages productivity and sales and marketing, which excluding stock-based compensation fell 120 basis points year to year to 24.4% as a percentage of revenue.

R&D expense to revenue excluding stock-based compensation fell 70 points year to year to 6.9%. As we continue to benefit from our global engineering and data science workforce. And G&A expense to revenue excluding stock-based compensation fell 60 basis points year to year to 17.4%. GAAP cost of revenue came in at 36.1%, down 50 basis points year to year and was up 160 basis points quarter to quarter due to the impact of agency customers, which I discussed earlier.

Importantly, we continue to see low cost of revenue within our direct channels. On a GAAP basis our 2Q 2023 net loss was $52 million, which includes $58 million of stock-based compensation. Excluding the accelerated expensing related to our IPO stock-based compensation would've been $21 million. In the quarter, we also incurred a $2.8 million restructuring expense following the rapid integration of WhatCounts and the broader synergies we are realizing across the business as we look to drive toward Zeta 2025 long-term model of at least 20% adjusted EBITDA margins.

With this focus on efficiency and expertise in driving M&A synergies, we are delivering strong cash generation. Cash flow from operating activities was $21 million, up 41% year to year with free cash flow of $13 million up 110% year to year. This equates to 48% of adjusted EBITDA up from 42% last quarter and 33% last year, which brings me to my third topic, our increased third-quarter and full-year guidance. For grounding purposes, as outlined in the guidance table on Slide 14 of our earnings supplemental material, we are clearly delineating increases in guidance related to last quarter's M&A from increases related to the company's organic overachievement.

For the third quarter, we are increasing the midpoint of revenue guidance by $3 million to $179 million up 18% year to year. Out of this increase, $1.5 million is attributable to the acquisition of WhatCounts and $1.5 million is organic upside. Excluding last year's political candidate revenue of $3 million, the midpoint of organic revenue growth is 19%. In terms of adjusted EBITDA, we're guiding to a midpoint of $32 million or 17.9% margin.

This represents dollar-based growth of 43% year to year, 320 basis points of margin expansion, which is a 90 basis point improvement versus our previous guidance. For the full year of 2023, we're guiding to the midpoint of revenue of $715 million up 21% year to year and $14 million more than previous guidance. Our guidance includes $5.6 million for the acquisition of WhatCounts and the additional $8.7 million is organic upside. On an organic basis, our 2023 revenue guidance implies 20% growth and excluding last year's political candidate revenue of $7.5 million, the midpoint of organic revenue growth is 22%.

In terms of adjusted EBITDA, we're guiding to a full-year midpoint of $124.5 million or 17.4% margin. This represents dollar-based growth of 35% year to year and 180 points of adjusted EBITDA margin expansion, which is 30 basis points better than our previous guidance. As a reminder, during the third and fourth quarter of 2022, Zeta had a total of $7.5 million of political candidate revenue that we do not anticipate repeating in 2023. These results in a full year 2023 organic growth headwind of 160 basis points, including a headwind to 3Q of 230 basis points or $3 million and a headwind to Q4 of 310 basis points or $4.5 million.

Slide 16 in our earnings supplemental material outlines this in detail. Before turning to Q&A, let me quickly close with a couple final thoughts. First, we continue to demonstrate the ability to execute with short-term precision while also investing to maintain a trajectory to beat our long-term data 2025 model of at least $1 billion in revenue, at least $200 million in adjusted EBITDA, and at least $110 million in free cash flow. And second, we continue to accelerate profit and cash generation through increased leverage against our disciplined cost structure.

For 10 consecutive quarters, we have expanded adjusted EBITDA margins year to year while continuing to deliver consistent 20% plus revenue growth. Now, let me hand the call back to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Our first question comes from Arjun Bhatia of William Blair.

Unknown speaker

Hi. This is Chris on for Arjun. Congrats on the quarter and thanks for taking the question. First, I wanted to touch on what the customer response has been so far to some of the newer AI offerings that launched just before the end of last quarter and if you had plans to directly monetize those products or if they were primarily a lever for customer acquisition or a lower cost to serve.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Well. Thank you, Chris. We appreciate your being on. When we rolled out the new generative AI tools, which really help all of our clients to add additional horsepower to their own team, it's effectively virtual data scientists living inside of the platform that give additional capabilities in real world simplistic answers.

We rolled it out to everybody at once, and I don't think we've ever rolled out a product that I've personally gotten more people saying they loved and were excited about. It's still early days and we'll continue to fine tune it and we'll continue to make it better. But as you know, we've always been on the cutting edge of artificial intelligence. We started patenting machine learning algorithms as much as seven years to 10 years ago, and we have a meaningful patent portfolio around machine learning and artificial intelligence.

So as we made sort of the leap to go from using AI to help our clients get to the highest level of intent-based score as to whether somebody would want to purchase a product and have the, not just intent to buying it, but because the data's all deterministic would have the ability to know if the person could be approved for it. To taking that to building tools that allow CMOs to make questions like, what is my most valuable audience or which of my customers are buying additional products from my competitors, and how do I capture that? By adding those types of tools, we're starting to see clients getting even stickier and we think that will add to the stickiness of the platform in the years to come.

Unknown speaker

Great. Thank you. That's very helpful color. And then other thing I wanted to touch on was the acquisition of WhatCounts just kind of where this fits in with Zeta overall in terms of product and talent and then what potential you see to grow that business going forward?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

So I think, thematically, we're always looking for great teams, great data, and great technology. When we look at M&A, we've never bought a company focused on the revenue growth associated with it. It's just not been our MO. In this case WhatCounts is a very unique boutique email service provisioning business.

It allowed us to integrate their technology into our tech stack and bring some incredible human capital into our business. And obviously we felt like it had created a little bit of confusion around our first quarter, which is why we've gone so much further in breaking it out and really showing how small an acquisition it is. The other thing I think has really been important about our M&A strategy has been the level of accelerated profitability. We've been able to drive through M&A by taking out expenses on both sides.

In this case, we picked up some incredible people around sales and engineering, and as we looked at cutting team members on our own team, we were able to take certain headcounts out here, which resulted in greater profitability than you would see for the revenue that this particular business brought in. So great people, great tech, and additional profit acceleration all came out of this very small acquisition.

Scott Schmitz -- Senior Vice President of Investor Relations

Thank you, operator. Next question, please.

Operator

Thank you very much, sir. The next question comes from Richard Baldry of ROTH MKM.

Rich Baldry -- ROTH MKM -- Analyst

Thanks. I wondering if you could talk about the competitive win rates. You noted that you're still seeing record pipeline record RFPs, so you wondering if that's moving at all? Maybe with respect to pricing environment, you're seeing people like Salesforce openly talk about 10% price increases, so you think that impacts win rates, or is it something that you could also, follow suit with some sort of pricing power of your own? Thanks.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. Thanks, Rich. So we continue. So, I always sort of said, as the pipeline grew and as Zeta's brand sort of went from Zeta who to a more recognized brand name, which is really where I feel we are today.

I wouldn't say we're a household name, but we've definitely really evolved the brand that we're seeing record RFP. So we, I think three quarters in a row, we've said we've now hit new RFP records that is has, we're at another record RFP level at the end of Q2 going into Q3. I always felt that, gosh, if you could increase that funnel enough, you would just naturally start closing a smaller percentage of the RFPs. We're not seeing that.

We're still closing greater than 50% of the RFPs and proposals we're being invited to participate in, which quite frankly even surprises us at this point as it relates to our competitors raising price or lowering price. I think that as we look at our business, we see an opportunity to continue to accelerate our growth. And if you look at the way, the business has been operating now where over the last few quarters, I don't know the exact number, I'm sure Chris could tell me, but over the last few quarters we've added, at least 300 basis points in operating margin. You're starting to see incremental margin drop at a disproportionate rate from revenue to gross margin to operating margin.

We think that's a trend that's going to continue. So as we look at our win rate, we are seeing opportunities to do more with customers. I don't think at this point we're sort of looking at, raising price, so to speak, but I would say we are winning greater than 50% of the engagements that in RFPs we get invited to. And I will remind you, which I'm sure you know, greater than 17 companies on average are invited to the average RFP.

We are invited to and in a 100% of the wins we had in the second quarter, we beat either Salesforce, Oracle, or Adobe. In a 100% of them, we beat at least one of them, and most of them all three were invited. So we feel like our technology and our people are exceptional, but when you add in the proprietary data that nobody else has that really fuels as the electricity to powering the platform, and then you ingest the superpower of our AI, you're really putting together a solution and a software stack that really can't be paralleled even if our competitors were lowering their price, let alone raising their price.

Rich Baldry -- ROTH MKM -- Analyst

Thanks. Congrats on a great quarter.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thank you, Rich. Next question, please. Operator?

Operator

The next question comes from Zach Cummins of B. Riley Securities. Please go ahead.

Zach Cummins -- B. Riley Securities -- Analyst

Yep. Thanks. David and Chris thanks for taking my questions and then congrats again on another strong quarter. I just really wanted to ask about sales productivity, I mean with headcount being flat quarter over quarter, but really having no impact to what you're seeing on the sales execution side.

So can you just talk through your approach to sales productivity and what's really driving the success that you're seeing with your reps?

Chris Greiner -- Chief Financial Officer

Thanks, Zach. Two really interesting data points for you. First, and this is our guiding principle, it will always be quality over quantity. Second to that is we want to be guided by the data and by the productivity metrics.

I think there's a really set -- a really interesting set of data points for you to illustrate the productivity we're seeing and how that is guiding our hiring decisions. If you look back at the last 12 months, we've added 52 scaled customers over that same 12-month period, we've added 15 quota carriers. If you go back to the prior trailing 12-month period, we added 30 scaled customers and 35 quota carriers. So we're going from less than a one-to-one ratio to today adding three and a half new scaled customers per quota carrier.

That's obviously translated in back-to-back quarters where sales and marketing as a percentage of revenue has gone down year over year. But it's also evidential of the type of productivity that we're seeing and what guides our hiring decisions. I think we have a great sales management system. We have an exceptional training and learning and development team, and as David mentioned, we have a product that we believe is best in market.

Zach Cummins -- B. Riley Securities -- Analyst

Understood. And just one follow-up question from me is really just around the feedback you've been hearing from customers. So great to see the upside here in Q2 and that flow through into your guidance for second half of this year. But David, I was just curious in terms of conversations you're having with customers, is there still challenges around what budget they have allocated for marketing initiatives? Or what's kind of the overall sentiment you're hearing from customers?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

We have not seen that Zach. We just, we're talking to clients and everybody who's looking at our platform and using our platform is certainly saying to us, how do we do more with the existing budget, right? But we've been taking so much market share as a percentage of our business, right? Not, I mean, you're still talking about an industry that's got a $1 trillion TAM. So when we look at our projections, it's $750 million this year. We're still just getting started, but --

Chris Greiner -- Chief Financial Officer

$715 million don't get ahead of us.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Sorry, $715 million, I apologize, don't kill me on that later. I'm sorry. Thank you Chris to reiterate, $715 million at the middle of the range. But the reality is that what we are seeing is that marketers are being smarter, they're focused on efficiency, but we're not seeing a cutting back.

Now, I do think as we go into some of the upfront cycle buying for linear TV over the next few months, I think you're going to see people migrating away from upfront linear purchasing to keeping more dry powder on hand and focusing more on digital, which I think will be a nice tailwind for us. But as we talk to clients, we have not seen a cutback quite frankly, and we continue to see clients saying, how do we spend more?

Zach Cummins -- B. Riley Securities -- Analyst

Understood. Well, thanks for taking my questions and best of luck in the coming quarter.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. The next question comes from Ryan MacDonald of Needham and Company.

Ryan MacDonald -- Needham and Company -- Analyst

Hi. Thanks for taking my questions and congrats on another great quarter. Wanted to ask about ARPU trends with scaled customers. I noticed, on the slide deck obviously the dated 2025 forecast is assuming about a 14% CAGR, last two quarters now around the 10% growth range.

Just wondering, if you're seeing anything in terms of changing patterns or in terms of expansion activity, with your customers that might be sort of slowing that pace of expansion versus your expectations.

Chris Greiner -- Chief Financial Officer

Hey, Ryan, and thank you for the congrats on the quarter. I'm glad you asked the question because I could see how, that could be a path that would be followed. But I think it's a different case. First, every quarter since we announced Zeta 2025 we've beat the model growth rate for how many scaled customers we should be adding.

And I think when you think about our model of getting to at least a $1 billion, at least $2 million in profit, you really need to think about scaled customer count and ARPU in conjunction. So we continue to run at about twice the rate of the amount of new scaled customers that was in our model. In terms of ARPU, so specific to your question, what's really interesting is that our pilot program, our land, expand, extend strategy is working exactly as we would want it to. So for example, over the last trailing 12 months, we've added 52 new scale or scaled customers.

What's interesting about that, if you look at the breakdown, 32 of those fall into the revenue band of less than 500K. So a 100K to 500K. That is I think, a very good illustration and demonstration of landing pilots and beginning to scale them. That's an important pipeline for us because those are our future million plus super-scaled customers.

And what we're seeing in the behavior of those scaling pilots and early stage scaling scaled customers is they continue to rapidly add channels. So if you look at the average channels used per 100K to one million, it's about 1.7, whereas the average channels used by a super scaled customer is 2.8. That's a 70% difference in the number of channels. And more importantly, that drives a 10x differential in the ARPU between those two cores.

So the difference between around a 100K and a little over a million. So in summary, we think it's really healthy, because we see the pilots, A being closed and B beginning to scale, and it's our future pipeline of super-scaled customers.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

And of course, collectively between the massive overproduction of large new customers, even with the ARPU being different, we're still mathematically far ahead against our 2025 plan.

Ryan MacDonald -- Needham and Company -- Analyst

I appreciate all the color there. Maybe just as a quick follow-up on the QCRs obviously great to hear you're focused on sort of making sure you're driving sales productivity and sort of cutting under performers, but given the commentary around, record, continued record levels of RFPs, strong deal environment, should we expect Zeta to continue to add quota carrying reps as we get into the back half of this hearing into 2024?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. I also want to point out, because I think Chris speaks to this better than I do, but the duck's feet are moving very rapidly under the water here. We added 11 new reps in the quarter. We just took out 11 reps that weren't hitting the productivity levels that we would've wanted.

So, I wouldn't be that focused on the 130 versus 132. I think what you've got to focus on is by keeping the people who are really doing well while continuing to add new people who can evolve and grow with us. The trick is not just adding people or keeping people. I mean, we could have kept people and the number could have been much higher, but our percentage of SG&A would've been higher then.

So we feel very, very good about what we've been doing inside of the Salesforce and if you look at the win rates, we are well ahead of where we expect it to be at this point. Chris?

Chris Greiner -- Chief Financial Officer

That's a great color. David. you're right, Ryan. Over the last two years, we've added between 20% and 25% more sellers.

I do not anticipate that we need to add as many in the second half of this year, but we will add, and we're, what we're watching very closely is what is the number of opportunities that each hunter is pursuing and what are the number of accounts that each farmer is managing in our scaled universe and making sure we keep a smart balance. But as David said, continuing to be guided by quality and our sales productivity metrics.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. Congrats again.

Operator

Thank you. The next question comes from Jason Kreyer of Craig-Hallum.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Great. Thank you, guys. I wanted to ask about market share trends on the activation side, there's a little bit of a Zeta ad tech stigma in the ad tech market's been a little bit more volatile this year, so curious how you think, you're shaping up on the market share side.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. So I mean, I know people like to break this into two parts. It's obviously not how we think about it because we're really looking at how our data and our AI drive enterprises clients' ability to create, maintain, and monetize customers, right? So across the board, sometimes that's through CRM and sometimes that's through activation and different methodologies. Our businesses that you would associate with advertising technology are growing substantially faster than the market is itself substantially faster.

And I know we don't break that out separately, but the reason I think they're growing substantially faster is because when you take our data and you're using our artificial intelligence to build the highest quality deterministic audiences across the platform, you're able to effectively eliminate 50% of what the marketing would've cost before the enterprise goes into market. So you can say, these people are interested, these people will be credit approved, these people are not interested, these people will not be credit approved, do not run marketing to them, right? So in an environment like we're currently in where you're seeing marketers who are looking at the most complex marketing ecosystem that's ever existed in an environment where they're under more pressure than ever to do more with less when they look at the Zeta Marketing Platform, our ability to seamlessly create customers at a substantially lower cost than you can without our platform is driving that growth rate in that particular line of our business, which is once again, substantially higher than the growth rate of you would associate with that particular segment.

Chris Greiner -- Chief Financial Officer

Let me just jump in Jason, because I think it opens up an opportunity to make sure that we emphasize something that I covered in my prepared remarks around how we're evolving, how buyers who've traditionally use Zeta's consumption or a marketing activation or you'd kind of further bridge to ad tech and changing that entire contracting and solution model. And I talked about this in the prepared remarks, but an example of how we're already executing and closing on contracts is we're now creating relationships in particular with agencies. So you think about that, where Zeta is the tech stack. Zeta's data is used in their platform.

Zeta is the future innovation platform, and by doing that, we're now creating a bridge from being their marketing activation partner to their enterprise intelligence layer. Why that's important to investors and why that's responsive to analysts and feedback we've received is that allows us to go after a very different relationship with that customer. Very, very different. And from a margin perspective, it's much higher margin scope and it shifts us from consumption based to where they're subscribing to the platform.

And all that obviously goes on the direct channel.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Great color there, guys. Thank you for that. Chris, one follow-up for you appreciate all the detail you gave on Slide 14, breaking out the guide, what stands out to me there is the EBITDA guide for Q3. You're seeing a lot more leverage in Q3 with over 300 basis point improvement than I can remember seeing in the last few years.

Is there anything specific to call out on why the ramp in profitability in Q3 or Q4?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

It's a good call out. So you're right. In the second quarter our adjusted EBITDA margins expanded year over year by 210 basis points. By the way, there's a 10th straight quarter in which they've grown year over year.

And you're right, accelerates to over 300 basis points of adjusted EBITDA margin expansion. I think what's impressive about that is it's been done up to this point in the absence of getting leverage out of our cost of revenue, which by the way, I think, you know, I think that eases in the second half of the year that headwind. What's been driving it is a really balanced opex cost discipline that we have within the company getting good leverage, as I mentioned on sales and marketing, I talked about how the number of quota carriers we've added compared to the number of scaled customers we've added over the last 12 months and 24 months. There's a substantial step up in sales productivity.

At the same time, we utilize our global capabilities across our engineers and data scientists to get scale and efficiency out of our R&D line, and we firmly believe that we're going to create value for shareholders and customers by investing in sellers and product. What's in the middle is G&A and we're going to keep being very efficient on that front. I'm excited about going forward. I mean, we have a unique headwind to this year with the new agencies we brought on in terms of gross margin.

I wouldn't be surprised if that headwind eases and it becomes even more leverageable going forward.

Chris Greiner -- Chief Financial Officer

Yeah. We're -- I mean, we're just, we're seeing the market come to us, right? And as a part of that, we've been disciplined about sales, marketing, and all of our operating expenses. And as a part of that discipline, you're just naturally seeing a greater incremental margin dropped to the bottom line. And the other thing I want to point out here is, we have beat and raised eight quarters in a row.

So you can assume we had a high degree of confidence in our ability to deliver on that increase in operating margin, or we wouldn't be putting it out there.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Thanks, gentlemen.

Operator

The next question comes from Ryan MacWilliams of Barclays.

Ryan MacWilliams -- Barclays -- Analyst

Thanks for taking the question. David, how do you see the macro outlook impacting Zeta's result in the second half? Like, did you see any improving signs from customers at the end of the second quarter or since? And maybe any themes to call out, like maybe deal cycles getting shorter? Thanks.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. We are definitely seeing a lot of what we saw last year around nervousness dissipating, and we are seeing, we're closing bigger deals than we've ever closed before in the corporate history. And we're seeing bigger deals come in than we've ever seen before. The other thing we're starting to see is, we're starting to see the sales cycle is shortening a bit.

A lot of that is around the nervousness that I think had been going around was starting to dissipate. Now obviously there was a little bit of news in the global markets today, but the truth of the matter is for us, we are seeing marketers be more aggressive and looking to do more in the back half of this year than obviously we originally expected. And obviously, that is showing up in our increased projections for Q3 and rippling in through the entire year.

Ryan MacWilliams -- Barclays -- Analyst

I appreciate that color and I honestly, just to follow up on that. Are you seeing like the emergence of generative AI put more onus on heads of marketing or chief marketing officers to make that decision to upgrade their platform? Like do they feel like, OK, now's the time, this is the killer app that is getting these large enterprises like more comfortable with making the big switch here?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. And I mean, listen, there's no question. The generative AI has created a buzz that I have not seen around the technology in quite some time. So this is, and unlike some of the last few technologies, we saw a lot of buzz, and yes, I'm looking at the metaverse, we're seeing real business tools and real business capabilities come out of this one, which is not to say the metaverse won't, but that was, I was trying to be a little tongue in cheek.

But the reality is that I think what you're seeing now is it's being discussed everywhere. I don't think it's being implemented everywhere yet. And I think it's just starting to drive a sales cycle. And as we look across the landscape, we believe over the next year we're going to see one of the largest replacement cycles in the history of the marketing cloud, because you've got all these marketing clouds that are coming up for renewal that have been in place for two years, three years, four years coming up.

And when we lead with generative AI, which we do, when we lead with not just large language models, which quite frankly make a lot of enterprises nervous because they don't want their data to share back, we are really focused on what we call small language models, which allow the algorithm to live inside of the CDP and see just their data and the Zeta data cloud and get really, really smart on their products without ever allowing their data to leave the ecosystem that is resonating like nothing I've ever seen before. So we're seeing big, big, big movement there. It's just not closing this week. I think we're going to start seeing it close over the next couple of quarters on that narrative.

Ryan MacWilliams -- Barclays -- Analyst

Great to hear. It should be fun next year. Thanks for the color.

Operator

The next question comes from Matt Saltzman of Morgan Stanley.

Matt Saltzman -- Morgan Stanley -- Analyst

Hey, guys. This is Matt on for Elizabeth Porter. So CDP's been area focus, you just mentioned it, and it's a relatively newer offering, so it'd be great to just get some color around what mix of customers are using your CDP today, kind of how it's progressed? And then just, when you think about the CDP opportunities, is it largely greenfield or are you actually seeing displacement of other vendors? Thanks.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

So thank you. I will answer your second question first. It is almost all greenfield. I mean, there are so few companies out there that have implemented the technology over the last year or two that are changing it out.

So most of what we are seeing is greenfield opportunity. What I would tell you is the vast majority of our enterprise clients are using our CDP in some component of the tech stack that we have delivered to them. It's really becoming table stakes inside of the Zeta Marketing Platform. And I believe we're the only company that can deliver a CDP plus, which brings the full integration of a data cloud and a full AI implementation that allows for seamless activation in one centralized CDP.

Matt Saltzman -- Morgan Stanley -- Analyst

Got it. Thank you. That's helpful. And then just as a quick follow-up, you mentioned that in the quarter you want a 100% of the RFPs where either Salesforce, Oracle or Adobe were also involved.

I'm curious like what the typical customer size looked like there, if there's kind of any indication you can give for us or if it was very -- if it was varied across customer size.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. I just want to quantify what I said, and you're very close, but what I said was in a 100% of the RFPs, we beat one of those guys. I don't want it to sound like we displaced them in all of them in some cases there was another legacy solution in there and they competed against us and then we won. I can't give the exact size against those particular players.

I just, we don't give guidance to that and we don't get down to that micro level. What I can tell you is, the deals that we're seeing today are the biggest deal opportunities we have ever seen as a company. And we continue to be incredibly honored to get invited into these RFP processes for Fortune 500, Fortune 1000 companies that we are incredibly excited to not just be involved, but to be winning on a consistent basis greater than 50% of the time against competitors like we compete with.

Matt Saltzman -- Morgan Stanley -- Analyst

Understood. Thank you. And thank you for the clarification.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. Thank you very much.

Operator

Thank you. The next question comes from Koji Ikeda of Bank of America.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Yeah. Hey, guys. Thanks so much for taking the question and squeezing me in here. A couple from me.

Just thinking about the super-scaled customer cohort increasing by eight, that that's, I think one of the best you've ever done there from a quarterly perspective. But also the scaled customers we're also up a bunch too, plus 14 in the quarter. So, I would think with such a nice super-scaled ad, maybe the scaled would be a bit softer, which wasn't the case this quarter. So, what's going on with that a 100K plus number strength? Is that due to customers quickly scaling into that cohort? Or you did mention customers signing bigger now, I mean, is that a bigger driver of that number for the scaled customers?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. No. First of all, yes, that is, that is the short answer. The medium answer is, I think the best insights come from zooming out on this metric.

And as I mentioned earlier, we added over the last 12 months, 52 scaled customers. What's interesting to us is, it's also a case of the pilot. So our agile intelligence solution really resonating. It's the hook, right? The hook gets set as a wedge, then that leads to the first, second, third channel utilization of the data cloud, which then drives them to move up in revenue bans.

So out of that 52 that we've added over the last year, 32, we're still in that less than 500K, 100K to 500K cohort, which is a really exciting future pipeline. And they're not far off from getting to that a million plus. So we're really pleased with what we saw, and I think it's even more evident when you even zoom out.

Chris Greiner -- Chief Financial Officer

Yeah. And I do think that it's a credit to our team that we are seeing bigger deals and we are closing a greater percentage of them. So you're seeing these bigger companies that scale faster and you really is usually nail -- usually nailed it, Koji, we really were proud of that super-scaled number going up simultaneously the scaled customer number going up. So we're feeling like we're delivering on all metrics here as a company.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Got it. Got it. No, that's super helpful. Thanks, guys.

And just to follow up here, and kind of a hypothetical question, but just thinking about your 2025 targets and your outpacing both revenue and EBITDA seems like, but what happens if demand continues to increase? Just like, let's just say it goes off the charts for Zeta. How do we think about EBITDA margins in that scenario? If the costs, if the growth needs to come at a higher investment, would you be willing to take down or maybe stall EBITDA margin expansion in the future to deliver growth? Or would you even be able to deliver the same type of margin expense profile?

Chris Greiner -- Chief Financial Officer

Hey, Koji.I think it's this; it's one of the biggest misnomers. Growth does not have to be sacrificed for operating leverage. And you're right, I mean, on Slide 7, we actually brought in a new slide into the earnings supplemental, and I think it is, look, we have a chip on our shoulder, we put it in the script. I do not believe it is fully appreciated just how firmly we're tracking ahead of plan when we established Zeta 2025 model back in February of 2022.

And you look at where our growth rates are to date. We're six points ahead, six points faster than what the model presumed on the top line and six points faster on the bottom line. We get really interesting, exciting leverage out of our opex structure. We anticipated this year with new buyers being added, like agencies that we would have a bit of a temporary headwind on cost of revenue.

We factored that into our guidance as that eases as we wrap on that, that should be additive. We'll talk at Zeta Live and at the Investor Day, the day before on September 27, we'll make sure everybody gets an invitation to; we'll give some insight as to where things could go. I don't want to get there yet, but we're really excited about the leverage of the business and the performance of our overall Zeta team.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

And quite frankly, for a number of years now, we've been able to grow revenue at a substantially faster pace than our competitors and people expected us to while simultaneously consistently adding meaningfully to our operating margin. The big question here, and I probably shouldn't even throw this out yet, is when do we throw out the Zeta 2030 plan? But we've got to first get everybody a 100% comfortable with Zeta 2025, which quite frankly, continues to dumbfound us that people at this point are not looking at this and saying, this is going to happen.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Thanks so much for taking the questions.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I'll now hand it over to David Steinberg for closing remarks.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Not a 100% sure she introduced me, but I'll assume it was me. So listen to, in summary, we continue to accelerate profit growth while driving the business. I am incredibly proud of this team and while we're growing the business, we're also seeing incremental margin dropping at a disproportionate pace. I want to say again, we beat and raised eight quarters in a row.

We, at this point would not be putting out projections that we didn't have a high degree of confidence in. We're ahead of our Zeta 2025 plan and we are incredibly excited about the Zeta Live event coming on September 27th and September 28th. Truly, I could not be more thankful for our Zeta team, our Zeta constituencies, our clients, and the shareholders who have supported us through all of the turbulence of the current markets. Our goal is to continue to reward those who bet on us by continuing to beat, raise and rise.

Thank you all for your time today.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Scott Schmitz -- Senior Vice President of Investor Relations

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Chris Greiner -- Chief Financial Officer

Unknown speaker

Rich Baldry -- ROTH MKM -- Analyst

Zach Cummins -- B. Riley Securities -- Analyst

Ryan MacDonald -- Needham and Company -- Analyst

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Ryan MacWilliams -- Barclays -- Analyst

Matt Saltzman -- Morgan Stanley -- Analyst

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

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