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Operator
Ladies and gentlemen, thank you for standing by and welcome to the ANSYS second quarter 2022 earnings conference call. With us today are Ajay Gopal, President and Chief Executive Officer, Nicole Anacinas, Chief Financial Officer, and Kelsey DeBrien, Vice President, Investor Relations. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. At this time, I would like to turn the conference over to Ms. DeBriant for opening remarks. Please go ahead.
ANSYS
Good morning, everyone. Our earnings release, the related prepared remarks document, and the link to our second quarter 2022 Form 10-Q have all been posted on the homepage of our investor relations website. They contain the key financial information and supporting data relative to our second quarter financial results and business update, as well as our Q3 and updated fiscal year 2022 outlook and the key underlying quantitative and qualitative assumptions. Today's presentation contains forward-looking information. Important factors that may affect our future results are discussed in our public filings. Forward-looking statements are based upon our view of the business as of today and ANSYS undertakes no obligations to update any such information. During this call, we will be referring to non-GAAP financial measures unless otherwise stated. A discussion of the various items that are excluded and reconciliations of GAAP to the comparable non-GAAP financial measures are included in our earnings release materials. I would now like to turn the call over to our president and CEO, Ajay Gopal, for his opening remarks. Ajay.
ANSYS
Good morning, everyone, and thank you for joining us. Q2 was yet another excellent quarter for Ansys, where we once again beat across our key metrics, including revenue, ACV, operating margin, and earnings per share. That, coupled with our healthy pipeline, gives us further confidence in the business and has enabled us to raise our full year guidance on ACV and revenue in constant currency. Nicole will have the details in a few minutes. Our largest contract of the quarter was a three-year, nearly $25 million agreement with an international electronics brand. This new contract includes ANSI solutions for semiconductors, electronics, fluids, as well as a learning hub to make users more familiar and productive with our software. By standardizing on ANSYS solutions, this customer expects to increase its product's yield while decreasing verification time for signal and power integrity. Another multimillion-dollar agreement in Q2 enables an international automotive OEM to expand its usage to include ANSYS solutions for enterprise-level materials intelligence, electromagnetic interference, and autonomous driving. This customer has already realized up to 5X improvements in aerodynamics and thermal engineering productivity, a reduction of more than 40% in material properties acquisition costs, and a 10% improvement in hydrogen storage for its fuel cells. From a geographical perspective, we saw strong revenue growth from Asia Pacific and EMEA, and the Americas came in as expected. Our 36% constant currency growth in revenue in Asia Pacific was thanks to several large contracts, including one with Murata Manufacturing, a Japanese company that specializes in electronic components. With Murata, the multi-year agreement spans our multi-physics portfolio and provides the company with an important thermal-aware system simulation flow for radio frequency modules. This solution is expected to provide faster thermal sign-off by reducing the number of redesigns and by improving the ease of use of ANSYS products through a single interface. From an industry perspective, the high-tech and semiconductor, aerospace and defense, and automotive and ground transportation sectors were again our largest contributors. We also saw continued strength in the energy space, reflecting a mix of traditional and and renewable use cases, as well as in the industrial equipment sector, where we recorded a number of multi-year agreements from companies around the world. For example, longtime customer WEG, a global leader in electrical engineering power and automation technology, signed a multi-year contract in Q2 to standardize on ANSYS simulation. This new agreement will help the Brazilian company rethink its product development process by creating and implementing digital twins of its motors. This agreement will drive WEG's electrification and green energy initiatives. Now I'd like to briefly mention a different kind of customer success story. I would like to congratulate NASA and Northrop Grumman on the success of the James Webb Space Telescope. We have all seen the stunning images that have come from this largest and most precise optical instrument ever developed. And we are proud here at ANSYS for the role that we played in its creation. Naturally, it was impossible to physically test the entire mission before launch. And given the unforgiving environment of space, the mission had to run as expected the first time. Any error would have cost billions of dollars in expenses, with perhaps an even greater scientific loss. That is why the team developed the rocket, the telescope, and the entire mission in part using ANSYS simulation. With ANSYS, engineers overcame a number of unique challenges, including folding a structure the size of a tennis court into a rocket and then unfolding it, and then understanding how perpetual solar radiation would affect its operations. Engineers used ANSYS Mechanical to identify solutions to ensure the satellite's connected segmented mirror would behave the same way a monolithic mirror would. Our optical solutions were used to design and test each step in the mirror alignment process, from the initial segment search to the final phasing. In addition, mission planners used our digital mission engineering solutions to test variables that impact how the satellite is launched and to determine how to keep the satellite stationary a million miles from Earth. And the results? Well, they're simply out of this world. Turning to our leadership and solutions for multi-physics simulation, our customers now have access to ANSYS 2022 Release 2, a comprehensive set of solutions and capabilities that cross physics, engineering disciplines, and industries. Included in this release are machine learning techniques in our core products, which are automatically optimizing repetitive processes, predicting workflows, and enhancing user productivity. We have also delivered artificial intelligence technology, that enables customers to perform massive design optimization studies to arrive at an optimal design in a fraction of the time once required. This release also provides new high-performance computing capabilities and custom workflows for industry-specific applications which will help more users address computationally complex problems by examining the impact of multiple physics at the same time. This added functionality is extending our multi-physics leadership while enabling customers to make their next-generation products a reality. I am also excited that TSMC recently certified Ansys' power integrity software for its industry-leading N4P and N3E process technologies. The certification for Ansys RedHawk SC and Ansys Totem enables next-generation silicon designs for machine learning, connectivity, and high-performance computing applications. I'm also pleased to announce that Ansys has joined the Intel Foundry Services Cloud Alliance. Our electronics and semiconductor suite, which includes Ansys RedHawk SC, Ansys HFSS, and Ansys Raptor X, are available as part of the design flow that will help enable Intel customers to enhance their productivity. Rounding out our partner updates, Samsung Foundry has announced that it is using Ansys' industry-leading multi-physics solutions to develop designs on the most advanced chips, nodes, and process technologies. Using Ansys, Samsung Foundry will deliver a comprehensive design flow with greater capacity, speed, and integration capabilities for the company's most advanced semiconductor technology to boost high-speed connectivity while helping to reduce design error and risk. On our last call, I discussed the role that ANSYS solutions are playing in our customers' sustainability initiatives, including for increasing fuel efficiency, in driving electrification, and in decreasing the rates of emissions. We have recently created a cross-functional center of excellence composed of members of our development and consulting teams to advance sustainability initiatives for our customers and partners. Our subject matter experts are focused on how ANSYS simulation can help accelerate the creation of new, more efficient, and lower impact products beginning at the design and development phase. As part of our own sustainability endeavors, ANSYS is committed to reducing our environmental footprint. To that end, we have announced that we have set a 15% reduction of Scope 1 and Scope 2 emissions by 2027. To hit that target, we are implementing projects identified in energy audits, including lighting enhancements and onsite renewable energy. We recently submitted to the carbon disclosure project for the third year in a row and continue to enhance our task force on climate-related financial disclosures. I'm also excited to announce that Fast Company has recognized several Ansys employees with its world-changing ideas award for the ANSYS Minerva template. This template is built in our Minerva solution for simulation process and data management and provides an FDA-guided approval process for medical devices to speed potentially life-saving products to patients more quickly. I'm also proud that ANSYS has been certified as a most loved workplace by the Best Practice Institute. This honor was bestowed on ANSYS because of our collaboration our corporate values and practices, as well as the outcomes we drive, and demonstrates why we are an employer of choice. Next week, we'll have an opportunity to discuss Ansys' longer-term business and financial goals as part of our investor update. I'm looking forward to further explaining the expansive role that simulation is playing in product development and sharing with you how Ansys has become a trusted business partner with some of the top brands around the world. To summarize, Q2 was another excellent quarter for Ansys, resulting in us beating our guidance across all key metrics. Our business momentum, our expanded product leadership, and the ongoing strength of our customer pipeline give me even more confidence in our ability to meet our outlook for 2022. And with that, I will turn the call over to Nicole. Nicole?
Ansys
Thank you, Ajay. Good morning, everyone. Let me take a few minutes to add some additional perspective on our second quarter financial performance and provide context for our outlook and assumptions for Q3 and full year 2022. The second quarter demonstrated the strength of our business as we delivered robust growth during the quarter and beat our financial guidance across all key metrics. ACV was strong and better than our guidance. Revenue, operating margin, and EPS exceeded the high end of our Q2 guidance driven by ACV outperformance and the mix of license types sold in the quarter. Now, let me discuss some of our Q2 financial highlights. Q2 ACV was $460.3 million and grew year-over-year 7% or 13% in constant currency. We saw strong performance across all geographic regions and industries. ACV from recurring sources grew 14% in constant currency year-over-year on a trailing 12-month basis. This momentum in recurring ACV growth is driven by the strong annuity created by our ongoing shift toward subscription lease licenses. ACV from recurring sources represented 81% of the total in the second quarter. Q2 total revenue was $475.9 million and grew 5% or 12% in constant currency, which, as I mentioned, exceeded the high end of our guidance driven by outperforming our expected ACV. Asia Pacific and EMEA drove strong Q2 revenue growth. We had robust top-line performance in Q2. with ACV and revenue both growing double digit and constant currency at 13% and 12% respectively. In both Q2 and the first half, we executed against our business model of double digit growth, including tuck-in M&A. We closed the quarter with a total balance of GAAP deferred revenue and backlog of almost $1.2 billion, which grew 27% year over year. During the quarter, we continued to deliver a business model with strong operating leverage. This yielded a solid second quarter growth margin of 91% and an operating margin of 40.7%, which was better than our guidance. Operating margin was positively impact by outperforming on revenue, as well as the timing of investments that have moved into the second half of the year. The result was second quarter EPS of $1.77, which was also better than our guidance. Similar to operating margin, EPS benefited from strong revenue results and the timing of investments. Our effective tax rate in the second quarter was 18%, the tax rate we expect for the remainder of 2022. Our cash flow from operations in the second quarter totaled $118.9 million, which benefited from continued strong collections. We ended the quarter with $517.6 million of cash and short-term investments on the balance sheet. Now let me turn to the topic of guidance. The underlying momentum in our business and demand for our best-in-class portfolio continues to be strong. We are operationally increasing our outlook on ACV revenue, EPS, and operating cash flow for the full year. We delivered a robust Q2 and our strong 2022 forecast reflects our continued breadth and depth of customer demand. However, offsetting our first half performance and strong full year outlook is continued and significant U.S. dollar strengthening which impacts the exchange rates embedded in our guidance. Let me start with our full year 2022 guidance. We are raising the midpoint of our ACV guidance by 1.6 points of constant currency growth compared to our May guidance. We expect our full year ACV outlook to be in the range of $1,980,000,000 to $2,020,000,000. This represents growth of 5.8 to 8% or 11.3 to 13.5% in constant currency and a midpoint of 2 billion, which puts us on track to achieve the 2019 investor day target. For additional context, the 2 billion midpoint of our ACV guidance when translated at 2019 foreign exchange rates would equal approximately $2.7 billion and would exceed our 2019 Investor Day ACV target. Our full-year ACV raise is driven by the strong performance we saw in Q2 and improved forecast and momentum we see in the business, especially for Q3. That underlying improvement drove a full-year ACV operational increase of $29 million relative to our May guidance. This operational momentum was offset by $19 million of foreign exchange headwind. Turning to revenue, we expect revenue to be in the range of $2.5 billion to $2.55 billion, which is growth of 3.8% to 6.4% or 9.2% to 11.8% in constant currency. We are... Using the midpoint of our revenue guidance by one point of constant currency growth compared to our May guidance. This raise is driven by the strong revenue performance we saw in Q2 and improved forecast we see for the rest of the year. That underlying improvement drove a full year revenue operational increase of 18 million relative to our May guidance. This operational momentum was offset by $23 million of foreign exchange headwind. As a result, we expect our full-year EPS to be in the range of $7.50 to $7.88. Relative to our May guidance, our full-year EPS increased 7 cents from better operational performance, which was offset by 12 cents of foreign exchange headwind. As a reminder, some of our strong Q2 EPS performance was driven by the timing of investments that moved from Q2 to the second half of the year. We continue to expect our full year operating margin to be in the range of 41 to 42%. Given the rapidly changing interest rate environment, we thought it would be helpful to provide full year interest expense for your modeling purposes. As a reminder, our term loan structure has floating interest rates, and rising interest rates will continue to impact interest expense. Our current outlook projects our full-year 2022 interest expense to be $22 million, up almost $10 million from last year. Now let me turn to our full-year operating cash flow guidance. Our 2022 outlook is a range of $570 million to $610 million. Relative to our May guidance, our full-year operating cash flow increased $6 million from better operational performance, which was offset by $6 million of foreign exchange headwinds. Also note, on a year-over-year basis, operating cash flow continues to face non-operational headwinds including the timing impact of R&E capitalization regulations and higher interest expense given rising interest rates. Since January 2022, we have seen significant U.S. dollar strengthening relative to the euro and Japanese yen. The trajectory of the movement of these currencies has been outsized relative to typical currency fluctuation impacts. When compared to the 2021 currency rates, our 2022 guidance is negatively impacted on ACV by approximately 100 million and on operating cash flow by approximately 35 million. Notwithstanding the negative impact of exchange rates, our underlying business is operationally strong and has considerable momentum. Now let me turn to guidance for Q3. For the third quarter, we expect ACV in the range of $392 million to $412 million and revenue in the range of $455 million to $475 million. Our outlook implies double-digit ACV constant currency growth for Q3 and the full year 2022, in line with our business model of double-digit growth, including Tuck and M&A. We expect Q3 operating margin in the range of 37.8% to 39.4% and EPS in the range of $1.56 to $1.70. Further details around specific currency rates, interest expense, and other assumptions that have been factored into our outlook for 2022 and Q3 are contained in the prepared remarks document. We have a strong forecast, diversified business model, and high level of recurring ACV, all of which contribute to our confidence in our outlook and the underlying momentum of our business. This is reflected in the increased outlook for constant currency ACV and revenue growth and the operational improvements in our cash flow outlook. To the entire Ansys team, thank you for your outstanding execution in the quarter, which drove our robust Q2 financial performance, and continued momentum going into the second half of the year. We once again delivered a strong quarter, which coupled with our recurring business model and growing sales forecast, demonstrated the strength of the ANSYS business. We are well positioned to deliver on our 2022 outlook as well as our long-term strategy. I am more confident than ever in our future. Operator, we will now open the phone line to take questions.
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ken Wong with Oppenheimer. Please go ahead.
Ken Wong
Great, thank you for taking my question. I guess what I wanted to just kind of check into was just the commentary that you guys both provided, very strong, very robust. As far as macro goes, just wondering what type of macro environment are you predicting for the second half as we think about this, the elevated guide?
Ansys
Sure, thanks for your question, Ken. So yeah, as we pointed out earlier, You know, as we pointed out in our guidance, you know, we have we're seeing we're really seeing underlying strong momentum in the business. The beat to the Q2 numbers was really kind of evidence of continuing continuing broad based building pipeline. And as we look as now that we're in the second half of of the year, we have a much clearer visibility to kind of what that second half pipeline looks like and kind of how it will land over the over the next couple of quarters. And while we're certainly very sensitized to the macro environment overall and what's occurring with the rest of the tech industry, our business is highly exposed to R&D. And as you recall, R&D is usually the last thing to go off and the first thing to come back on when they're tightening. And so we're just not seeing the same level of constraint that maybe some other parts of the tech sector are seeing. And the outlook of our guidance really reflects the broad-based demand across industries, geographies, and customer segments that we saw in Q2 and that we kind of see coming into the pipeline in the back half of the year.
ANSYS
Got it. Just to amplify the point that Nicole was making, I mean, many of our customers, you know, they're certainly aware of these broader geopolitical concerns and pressures that we all see, but they continue to face competitive pressures. And they've got multi-year product roadmaps that they've been driving. And frankly, that's where simulation comes in. Simulation helps them to deal with some of the competitive pressures that they're dealing with. It allows them to innovate more rapidly. And at the same time, it allows them to save money and time because we can reduce reliance on physical testing. We can reduce warranty costs and so forth. And so the value proposition for simulation which is it helps our customers both drive top-line growth as well as achieve bottom-line savings, that value proposition is really a compelling value proposition, and that's, I think, what we're seeing in the market.
Ken Wong
Got it. And if I could maybe just a quick follow-up for you, Ajay. Look, you highlighted areas of strength from a verticals perspective. Autos, aero, tech remain really strong. Are there any end markets that you feel maybe are still catching up to some of their peers in terms of maybe seeing heavier COVID or macro pressures that could potentially kind of open up as macro does improve?
ANSYS
No, I think, as I said in the comments, our performance was pretty consistent across the verticals as we expected to see. Certainly the bigger verticals are high-tech and semiconductor, aerospace and defense, automotive and ground transportation, but we saw strength in other areas as well. So nothing specifically to note in terms of explicit areas of consideration or concern.
Operator
Our next question comes from Joe Green with Baird. Please go ahead.
Joe Green
Great. Hi, everyone. I guess a question on seasonality in the business. I think in the past you've talked about maybe ANSYS increasingly having a skew into 4Q just given ACV generation with bigger enterprise customers signing multi-year agreements. Just given where the guidance stands currently, It looks like a really strong 3Q and then proportionately less coming from 4Q relative to a year ago. Is that in any way reflecting SMB versus enterprise activity, or is it maybe just leaving you some wiggle room or cushion to get 3Q under your belt and then have more visibility on 4Q?
Ansys
Yeah. Hi, Joe. Thanks for the question. So how I would characterize the second half guidance is just much clearer visibility to where deals land. As you know, we've transitioned to a multi-year lease subscription model over the past couple of years. And so as you move into that multi-year lease model, your kind of timing of when the renewal base happens, both across the quarters and within the years, can start to shift over time. And so I would characterize the second half as, you know, the kind of clearest visibility we have from where we're sitting today, which is quite clear once you get into the second half because your sales cycles tend to be three to six months long, so you have a little bit more clarity in terms of what the timing of those things may line up to. So I would characterize it – I think it's maybe a little bit slightly – it's slightly stronger from a growth rate standpoint. I think the overall skew is pretty similar to prior quarters. It might be a little bit heavier weighted into Q3 than maybe last year. But I would characterize it as kind of a reflection of the timing of the yield of the pipeline we see today with a slightly stronger Q4 growth rate as a result of the year-to-year compare.
ANSYS
And Joe, operationally? And operationally, when you think about it, I mean, the sales team manages relationships with the customers. And obviously, as Nicole said, there's a lot of timing around that in terms of when projects are kicked off in activity. So that drives the timing of some of the larger deals as well.
Joe Green
And nothing specific to your SMB customer base, if there's been... Maybe one takeaway this earnings season, there's maybe initial indications of moderation as opposed to enterprise being quite strong. Nothing in your kind of forecast that would call out one segment versus the other.
Ansys
Yeah, no. I mean, the kind of the SMB customer base is reflected in kind of our geography and momentum accounts primarily. continue to be consistent in what they deliver. They're consistent with what we expected coming into the year. The second half pipeline is consistent with what we would have expected to see. And when you look, again, at the mix of Q3 versus Q4 ACV, I mean, they're pretty close in terms of – you know, percentages. So in terms of the percentage of ACV that occurred last year versus this year, the growth rates, again, might be a little bit skewed. Good. Thank you.
Operator
Our next question comes from Jay Bleschauer with Prison Security. Please go ahead.
Jay Bleschauer
Thank you. Good morning. Ajay, in your prepared remarks, you gave some examples multi-solution sales with some of the larger transactions. And of course, that's been going on for some time now. When you look at your pipeline for the remainder of the year or for the next 12 months, could you comment on that multi-solutions component of the pipeline And within that, I'd be especially interested in anything you're seeing in terms of incremental demand or contribution from any role of Minerva, the materials business, which you highlighted, and any of the other more recent acquisitions, such as Phoenix and LST and Lumerical, then a follow-up.
ANSYS
So, Jay, as you know, I mean, we've been on this journey towards... multi-physics sales for some time now, and we continue to execute along that direction, as you pointed out. And certainly our pipeline, especially if you consider the larger enterprise customers, our pipeline very much includes solutions that comprise of products from multiple parts of our portfolio. And so the multi-physics message is strong. It addresses what customers are looking for. We have been a pioneer in that space, and we continue to see benefit from that, and we certainly see traction from customers as we continue to support them. So absolutely, as we look ahead, we have multi-physics activity and multiple product sales into our customer base, certainly at the larger end, but it's also increasingly, as you start to look down the pyramid, we see multi-physics capabilities penetrating into the customer base. So I think that's very important. You mentioned a couple of product lines. Obviously, we don't give quantitative breakouts by products, but I can give you some qualitative color. You asked about Minerva. I gave you, I think in the script, I mentioned some of the workflows that we've put in place in the healthcare area. Minerva continues to be an important aspect managing simulation data, given the amount of simulation information. that's being created by our customers, managing that simulation data effectively is important, and that's, Minerva plays a role in that. Materials I've also mentioned, and I think I mentioned in a couple of places, certainly in the past couple of calls, materials is also important, and we certainly recognize customers as they start to go through design optimization opportunities, the choice of materials is really important. Materials plays another interesting role in sustainability as well, because when you consider the long-term compliance with regulations about materials that could be used, understanding the materials within a product of design, something which could potentially take a number of years from design into actual implementation, really understanding what's in the product that's being built, to make sure that you're compliant with the most recent regulations, that's also important. And so that's another area where materials comes in. Model-based system engineering, we continue to make progress in that area. It's really across the board where we've been able to build on the strength of our traditional ANSYS products. We've supplemented that with acquisitions as and when appropriate, as it makes sense given our strategy. And we've continued to build a portfolio out to something that I'm very excited about and I know our customers are very excited about.
Jay Bleschauer
Nicole, you made the interesting point that at 2019 rates, your 2022 ACV guidance would be $2.07 billion, which would imply a three year CAGR for ACV at constant currency of about 12%. Maybe we'll talk about this next week on the investor call. But is that, do you think, a sustainable ACV CAGR for the next number of years or if it were to accelerate, what would be the catalyst for that?
Ansys
Thanks, Jay. Yeah, so as you pointed out, we have our investor update scheduled for next week. We're really looking forward to sharing that long-term guidance with you next week. So I can't comment about the future, but certainly it's not too long before we can comment on the future. So stay tuned. But, yeah, I mean, what we have stated and what we continue to be confident in is a business model of double-digit growth, including Tuck and M&A. I think if you look at the course of this year, we have consistently delivered it in the second quarter, in the half, in our outlook for the second half of the year. We're squarely on that model, and we're really confident in it, given the strength of demand from our customers, the success of our business model transition and our sales model transition. and just the portfolio that we have that is broader and deeper than anything else available in the market. So, yep, we're looking forward to talking in more detail about those things next week.
Jay
See you then. Thank you very much.
Operator
Our next question comes from Blair Abernathy with Rosenblatt Securities. Please go ahead.
Blair Abernathy
Thank you, and nice quarter, guys. Ajay, just following on Jay's questioning, in terms of standardization on the ANSYS platform, you mentioned in the WG win that they've decided to standardize on ANSYS and this is something that's been around for a few years. Is this a trend that you're starting to see pick up steam at all and are you positioning or are you trying to help customers get more towards standardizing their simulation needs on your product set?
ANSYS
Well, I think it's a reflection of the fact that we have a broad platforming capability that allows us to be able to address the needs of our customers. And it's really the breadth and the depth of the portfolio that gives us the credibility to to have those conversations with customers. And frankly, we believe we are differentiated in the marketplace because of the breadth and the depth of our portfolio. So if you talk to customers, they'll tell you they value the accuracy of what we do. They'll tell you they value the completeness of our solutions and our offerings. They'll tell you how we continue to innovate and invest in our portfolio. And they know that when they are making an investment in Ansys, they're not just buying the product that we have today. They know that we're continuing to make investments and we'll continue to enhance the portfolio and we'll make things better and we'll deal with the challenges that they're likely to face in the future as well. So I think that gives us a tailwind when we go into some of these broader conversations. It is a difficult market to do wholesale replacements for one code base to another if a customer is using a particular simulation for a number of years, they may continue to use that same simulation code for some period of time. So it does take some planning to do whole-scale replacements. But we're seeing more of that, and we're seeing competitive wins where we're replacing customers, within customers where we're replacing competitors who have been present for some number of years, and the customers made the decision to come to Ansys, which we feel is a better choice. And obviously the customers also felt it's a better choice. So we're seeing that take place as well. So the dynamic is, I think, driven by the strength of the product portfolio and the investments that we're making.
Blair Abernathy
Great. Thank you.
Operator
Our next question comes from Tyler Radke, VIX. Please go ahead.
Tyler Radke
Good morning. Thank you for taking the question. You clearly delivered a really strong double-digit ACV growth this quarter on a pretty difficult comp. You talked about not really seeing any demand impacts from your customers, and the recurring piece of ACV is growing double digits as well. I guess I'm curious if you feel like the business has kind of hit an inflection point where that double-digit growth is sustainable enough And I'm just curious if you think that that's something related to the, you know, go-to-market or the product strategy. If you could just comment on, you know, if you think that the business is kind of hitting inflection here. Thank you.
Ansys
Yeah, so why don't I start, and then, Ajay, why don't you add any context to that. So thanks, Tyler, for your question. Yeah, I mean, I think what I would say is that the consistency of the performance throughout the year in the first half and the outlook for the second half is, again, on our model of double-digit growth, including Tuck and M&A. And we've been able to pretty consistently deliver that. I mean, if you go back over the past couple of years and you look at, you know, heading into the end of 2022, our guide of $2 billion of ACV at the midpoint is consistent with guidance we gave in 2019 before there was a global pandemic, before there were significant shifts in the trade environment and the underlying macro environment that we have today, which has had a significant impact on foreign exchange rates. And so I think that if you look back at the investments that we've made in a business to transition to highly recurring subscription lease model, transition or go to market to build deeper customer relationships and build alongside their long-term roadmaps, And then the organic and the inorganic investments in our portfolio have all been, you know, really important factors in setting us up to be able to consistently deliver that model. And so we're really pleased with the performance of the business this year and the outlook that we're able to give for the rest of the year and look forward to updating you guys a little bit more on what's to come. I don't know, Ajay, if there's anything you'd like to add to that.
ANSYS
Yeah, I think you'll hear some more next week at our investor update. But certainly, as Nicole was saying, we've been making investments over the last several years. And as I mentioned just earlier in this call, the strength of the product portfolio, I think, is really added to our ability to support our customers. And that obviously helps tremendously in the market. That's number one. And as you pointed out, the go-to-market has also been really important. We've gone through a process of transforming over the last several years of go-to-market. And We have great customer relationships. We continue to maintain those great customer relationships. We have momentum. And our customers know that we support them, and they know they can rely on us. And so when you start to put all of that together, it creates an environment where the value of simulation shines through, and our customers recognize that they can take advantage of Ansys in order to achieve their own business objectives.
Tyler Radke
Thank you. As my follow-up, I just wanted to clarify the performance. It looked like EMEA and APAC in particular were really strong, you know, growing 30% or better. The U.S. was actually down year over year. Could you just talk about what drove that, you know, large variance in geographic performance and, you know, just anything to call out how we're thinking about international performance? growth assumptions for the full year versus the U.S.? Thank you.
Ansys
Sure. So let me start with the broader point on kind of just a statement about quarterly revenue dynamics in general, right? So ASC 606 introduces a lot of volatility. And when you have, you know, mixed differences in license compare on a year-over-year basis within a quarter, sometimes you get a lot of volatility. You get much more of it down at the geographic level. And so there's often, you know, not always consistency between the overall ACV growth in a region or in a market versus revenue growth. And that's why we kind of focused on longer-term revenue metrics and longer-term ACV metrics. But to answer your question specifically, let me start with Asia Pacific and EMEA. I mean, both had – well, let me just start with As we stated in our prepared remarks, all markets, we saw growth in all markets from an ACB standpoint, which is kind of that key metric of momentum. And from a revenue standpoint, as you point out, APAC and EMEA really did have great performance. I'd say there's a couple of dynamics going on there. In EMEA, we saw some pretty broad-based performance across all of our key industries in the high tech We had a multi-year eight-figure sale to a European telecommunications company in aerospace and defense. We had several seven-figure contracts with customers. And even in industrial equipment, also saw strong Q2 where we signed an eight-figure deal with a German industrial machine manufacturer. So we saw strength in Europe across multiple industries. And in APAC, I mean, APAC, again, this is another quarter of consistently delivering growth in Asia Pacific. And the growth was particularly strong in our geography and momentum accounts. And in terms of large deals, we also saw it across multiple industries, high-tech, auto. And it was really broad-based. You know, to put this one into context, the management team at APAC really has been investing in deeper customer relationships and stuck with those customers through the pandemic. So that transformation of the go-to-market model and kind of aligning to the strategic roadmaps of your customers and really being there for them in their time of need is really paying off in the consistent growth that we're seeing from the Asia-Pacific region. Now to your question on Americas. Again, as I will emphasize, all regions grew APB. Americas over the last 12 months has really been leading the company in delivering value for our customers, and we're expecting the region to be a strong performer in 2022 and beyond. In the second quarter, revenues did decline, but it was really expected. And the growth year-to-year was impacted by a compare of Q2-21, which had several large high-tech and automotive perpetual and multi-year lease sales. So, again, the revenue dynamic in Americas was really a function of 606 accounting and the comparability. Overall, we've just seen very consistent growth and performance across all geos.
Tyler Radke
Thanks for the detail. Look forward to the end of the session.
Operator
Yep. My next question comes from Andrew. I've been with Bank of America. Please go ahead.
Andrew
Good morning. This is David Ridley laying on for Andrew. We had the opportunity to attend a demo of the Ansys Twin Builder a few months back. Just curious, how is that product growing relative to your internal plans, and what is the kind of feedback you're getting from the markets?
ANSYS
So obviously, we don't provide financial breakdowns on a per-product basis. But let me give you some perspective on where we are with TwinBuilder and the broader concept of digital twins. So the whole idea here is that with a digital twin, you're trying to create a digital equivalent of a product. And this is something that can transition from the design phase where typically our customers build 3D models into the operation phase where the digital twin, which is a simplified model of that full-fledged 3D model that's used for design, where that digital twin can be used for things like predictive maintenance, can be used for determining equipment uptime, replacement schedules, and things of that nature. So we've seen certainly a lot of customer interest in that space. It's still early days. What we're demonstrating to customers is that physics-based digital twins, which is essentially what we do, coupled with some understanding of statistical techniques, when you put that together, which we encapsulate into our offerings, that provides them with tremendous accuracy with respect to some of the predictive maintenance capabilities that I just mentioned. So we continue to see interest with customers. We continue to see momentum in that space, it's still relatively early days. It's still a relatively small market. Many customers are excited about the fact that we can do digital twins. They will lead with that conversation and then they'll transition to other parts of the portfolio as well. So it's a great piece of the portfolio and we're excited about the long-term future for this product area.
Andrew
Sounds good. And just maybe a quick one for Nicole. On the recent tuck-in acquisitions, do they have much benefit to ACV or revenue in 2022?
Ansys
Yeah, the tuck-in acquisitions, I think we may have talked about that in the last call. They're very small tuck-ins. The on-scale acquisitions, the technology play, it was, you know, we're really excited about it. It's a really complementary aspect to organic development in the space of native cloud and And so, but that's a pretty immaterial contribution. And the MotorCAD acquisition was actually a product that we OEMed. And so, the net increment on the top line to that was immaterial as well. Just as a reminder, you know, ZMAX, we did give the guidance on ZMAX, which is about $20 million of inorganic impact this year. And so, that would be, you know, it's We see it consistent to how we've seen in prior quarters in terms of what the inorganic impact of ZMAX would be. So does that answer the question?
Andrew
Absolutely. Thank you.
Operator
Our next question comes from . Please go ahead.
spk12
Okay, great. Hey, good morning, guys. Thanks for fitting me in here. Ajay, maybe for you, I mean, since we're just talking about M&A, I was wondering if you could just talk about the forward opportunity for Tuck and M&A. You know, how do you feel about just the, you know, the number of opportunities out there and, of course, as valuations hopefully adjust and with Ansys' strong balance sheet, can you just talk about that part of the strategy and kind of how that plays into the total growth algorithm?
ANSYS
Yeah, so as we've always said, when we think about the future of our industry and where we need to go, we think about the combination of organic development, partnerships, and acquisitions. So it's always build, partner, buy. And those are the considerations that we bring into the equation as we think about the future of our portfolio. And in that context, we are always looking out to see if there are M&A opportunities that are consistent with our strategy. We believe that we're disciplined investors. We're careful when we go into an M&A situation. We look carefully to make sure that there's the strategic value that we need. And that's how we think about the overall opportunity. And, you know, with valuations, You know, valuations obviously have come down. Maybe that is a buying opportunity. But with quality, quality always is expensive. And so we want to make sure that we have the right technology and capability of products that we're in a position or companies that we're in a position to buy. Look, you should know that we see most of the deals that are in our space. I mean, because obviously they get presented to us. And we are always, when we look to that analysis, we look to make sure that we have great technology that we're bringing in. And if the technology is too far from the core, if we don't see a connection to our existing portfolio or go to market, we pass. We've got a very rigorous process for diligence. We evaluate the core technology. We evaluate the stickiness of customer relationships, and when the technology isn't strong enough or customer relationships are superficial or we don't see strategic connections, we pass. So we're disciplined about this, but certainly we will continue to evaluate M&A as and when it's appropriate in order to advance our strategy.
spk12
Got it. Got it. That makes a lot of sense. Nicole, maybe for my follow-up for you, just to the earlier points on the multi-year license model, which We've seen, obviously, a very successful transition over many years. Now that we've had sort of several years of this model with good data on renewals, I'm wondering if you've looked at sort of a net revenue retention or a net retention sort of rate on those renewals, and if you can talk to that even qualitatively.
Ansys
Yeah, so I can give you, why don't I kind of give you two lenses to that. So why don't we start with just kind of the overall qualitative description of what drives the kind of overall high retention rates we have. And again, when we talk about retention rates around 90%, we're talking about the renewal of the original content, not kind of the net renewal, which includes, you know, new growth on top of that, right? So it would just be the renewal of that. And so maybe just start a little bit with kind of the kind of strategic relationship strategy around multi-year leases. So as we engage with our customers, we engage with them on what is the outlook for the product roadmaps going forward? What is the mix of physics that may be required and solutions to be able to kind of work against that roadmap? And we sign those multi-year lease agreements with them kind of aligned to that overall roadmap. Now, as you know, the world changes, and just because there may be a two- or a three-year renewal ahead doesn't mean that customers' needs don't change, they don't grow, they buy companies, their competitive dynamics change. And so we are in a constantly ongoing relationship with those clients on a year-after-year basis in kind of preparing for that renewal that comes up. And so when we think about it from from kind of that renewal of the renewal base coming up at the end of the three-year license, we have already had multiple years of conversations with those customers about the roadmaps, and we have a lot of clarity around not only kind of what is the content that they'll continue to renew, but what are the new growth areas on top of that that will extend them into the next chapter of their multiyear agreement. The relationships we have, and this was part of the strategic selling transition model that we made over time. It was initially with a small subset of enterprise customers, but over the past five years, the go-to-market teams have really translated those best practices through the broader segmentations of our customer base and even into supporting the channel and having those conversations as well. And so that is the mode of strategic selling that really does support those, not only those very high retention rates that we talk about when asked, but also the ability to continue to grow on top of that.
spk12
Got it. Very helpful. Thanks.
ANSYS
Operator, we have time for one more question.
Operator
Thank you. Our next question comes from Adam Borg with People. Please go ahead.
Adam Borg
Great. Thanks so much for taking the question and fitting me in. Maybe just for Ajay on the cloud, haven't heard too much about that today, and I'm sure we'll talk a lot about it more next week, but just any updates on your various cloud ambitions, including the recent on-scale acquisition that was just referenced. Thanks so much.
ANSYS
So, yeah, I think you'll hear more about this next week, but, you know, very quickly, You know, in a previous call, I talked about how the engineering simulation software market that we participate in is quite different from traditional enterprise applications. And we talked about the importance of high performance computing to our users. And obviously, remember that a single engineer could run an ANSI simulation that runs across hundreds of compute nodes for multiple hours. And so what we have got as part of our cloud strategy is a very, I think, a very thoughtful approach that addresses the needs of our customers, and it's to really enable our customers, both existing and new, to be able to benefit from the insights of physics-based simulation and optimization, as well as to be able to scale out or to support the scale-out capabilities in the cloud. We've got two distinct classes of offerings, cloud marketplace and cloud native. We've talked at length, I think, in past calls about some of the cloud marketplace offerings in, I think, in the previous quarter and the one before that. So I'll skip that in the interest of time. But with respect to cloud native, that's when we're targeting new users and new use cases. And we're creating a cloud-based platform for the development and the deployment of new workflows. And our recent acquisition, as you said, of OnScale, which is the leader in cloud-based simulation, that's accelerating our ability to be able to do that. And they bring They brought a host of critical capabilities that will allow us to develop a new set of services. And frankly, the integration of what OnScale is doing in Ansys is a powerful combination. So one example is OnScale's cloud-native user interface connected to our industry-leading simulation solvers on the back end. So we're excited about cloud. We have, I think, a very thoughtful and robust strategy It's still early days. We do offer customers a variety of capabilities as they need it, when they need it. We believe that our capabilities are flexible and scalable. And frankly, we believe that we will be able to unlock a level of innovation across every industry around the world.
ANSYS
Thank you. And that's all the time we have today. I will turn it over to Ajay for closing remarks.
ANSYS
I am more excited than ever by our excellent execution in the first half of the year, our expanding product leadership, and our robust pipeline. And I remain confident in our ability to achieve our ambitious goals. I want to thank all my colleagues at Ansys for their commitment, their focus, and their many successes. And with that, I want to thank you for attending today's call, and I look forward to giving you more details on our long-term business and financial goals at next week's investor update.
Ansys
Thank you.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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