Steve McMillan: Yes. Thanks for the question, Erik. Look, I think as you look at transformations across the IT industry, they are rarely linear in terms of how they manifest. And again, I will just restate this was not an uncertainty in demand for us. It was uncertainty in timing. We are on a cloud-first path in terms of the cloud deals that we are executing against. And so we want to make sure that when we set guidance around those deals that we have right control and deal management to ensure that they don’t slip out of the year. What we see is, again, a handful of $2 million deals that slipped from 2023 and the last weeks of 2023 and to 2024. That does not give us a concern around the execution of the company or our ability to execute or deliver on both the guidance that we have issued for 2024, which again, we always make sure that we deliver and provide prudent guidance that we believe that we can execute against, or in terms of as we look at our 2025 goals, we had a number of these different business impacts factored into those goals as we gave out that guidance back in 2021.
So, I think from a company perspective, we are still on a path to achieve those goals. We are – we have got some management system improvements that we have to execute to ensure that we close those deals in a timely fashion, and we are confident in the guidance that we put out for 2024.
Erik Woodring: Okay. That’s helpful. Thank you, Steve. And then maybe just a follow-up on one of the original questions, I am at the top of Q&A. I guess maybe my question is, like it’s not new that you are engaging with multiple decision-makers at different customers or prospective customers. And you haven’t really seen deals slippage to-date that I can recall you calling out. So, I guess the question is just why now, 1st of December, it was just one large figure deal related to something company-specific, but it expanded beyond that. So, what makes you think that this is purely isolated to this quarter and not something broader? And that’s it for me. Thanks so much.
Steve McMillan: Yes. I think we are just continuing to see great interest in the platform and the opportunities that we had in play. We understand the root causes against every single one of those opportunities. We know whether it may have been an uncertainty on which CSP that they wanted to use or which capabilities that they wanted to use or the different business units that are involved in those decisions. So, we think we have got a good handle on those particular deals at those handful of deals that were over $2 million in terms of how they are going to close out in 2024. Look, if I take a step back from it, we had great momentum in 2023. We grew our cloud ARR by 48%. If you compare that, that is way ahead of the cloud data and analytics growth that are – that’s happening in the marketplace.
And as we look forward to 2024, we are still seeing good growth for 2024, and we are continuing to grow our total ARR in 2024. So, all of our business dynamics are positive. We did commit that we would execute a profitable growth strategy. And therefore, we are being prudent in our cost and expense for 2024 to make sure that we can still deliver that value to our shareholders. And that value is being delivered both in terms of our free cash flow commitment that Claire outlined, but also in terms of our earnings per share. And you saw that from a business perspective in 2023, we had a very successful earnings per share result and also generating the free cash flow that we had indicated for 2023.
Operator: Thank you. The next question is from the line of Wamsi Mohan with Bank of America. You may proceed.
Ruplu Bhattacharya: Hi. Thanks for taking my questions. It’s Ruplu filling in for Wamsi today. Claire, can you help with respect to the deal timing of the eight-figure large deal. I mean is that something you are expecting to come in, in the first half of the year, or is that like a back half close? And also can you help me bridge the cash flow guidance that you have given? It looks like it’s flat year-on-year, but how should we think about the timing of free cash flow?
Claire Bramley: Hi. Yes. Wamsi, thanks for the question. So, just with regards to the deal that we mentioned back in December, we continue to work with the customer on that. And as Steve said, there is no competitive threat or issue there. So, it’s just the case of working through with the customers to be able to close and working them – with them on new timing. I think H1 is a good expectation with regards to that specific deal. As Steve mentioned, we are expecting to close the majority of those slip deals in 2024. Some of them will be in the first half of the year, some of them will potentially could move out into the second half of the year. With regards to the free cash flow guidance, so to your point, there is a slight growth year-over-year if you take the midpoint.
Obviously, we have put a range around that. The timing of that, I did mention it in my prepared remarks, but just as a reminder, because of the growth profile that we are seeing both from a revenue standpoint, recurring revenue, and therefore, profitability. A lot of that free cash flow is generated, obviously, by our – the fact that we are generating profitable income. And therefore, the cash generated will be towards the – more towards the second half of the year than we saw in 2023. We have really good confidence in that free cash flow generation. It’s mainly driven by profitable growth and a great cash conversion cycle that we saw through 2023, and we expect to continue into 2024.
Operator: Thank you. The next question is from the line of Derrick Wood with TD Cowen. You may proceed.
Derrick Wood: Great. Thanks. Steve, if we assume ARR growth gets close to, I guess 0% in Q1, and you have got targets for 4% to 8% for the full year. That does assume pretty significant build in net new ARR through the year. So, just any more color to share on what gives you that confidence that you see such an improvement in ARR built through the year?
Steve McMillan: Yes. I think we always see seasonality in terms of Q4 being our strongest year. Derrick, that enterprise sales motion is geared towards the last quarter. And as we pointed out, the last – can be up to the last weeks in the year in terms of execution. We know and understand our customers. We know and understand what their plans are and how they are going to execute. We see strong demand in terms of the marketplace. We have made some fantastic enhancements to our technology platform to enable our customers to put AI and ML workloads into the Teradata platform. As cloud ARR becomes more strategic in terms of the split of our total ARR, and we said that it’s now over a third of our total ARR is in the cloud. And then sort of we compound that with our net expansion rates, again, that was 124% for Q4, and we are modeling out 120%.
We believe it just gives us that ability to continue to compound the overall growth as we move through the year. We do have a pipeline of a number of major transactions that will drive both our cloud ARR and total ARR. They are currently slated to close in the second half of the year. So, all of these factors combine to give us confidence in the gains that we put out there for 2024. I think as you look at the marketplace generally, I think everybody knows that we have the ability in Teradata to take advantage of consumption-based usage from a cloud perspective. We are starting to see consumption tick up in the marketplace generally, but a number of the cloud and data and analytics players are seeing. We think that we will benefit from that.
But the guidance that we have put out is prudent in terms of what we believe that we are going to deliver through the course of this year given the underlying dynamics of the business.
Derrick Wood: Great. That’s helpful color. If I could just – a quick follow-up for Claire on the cost optimization efforts, just wondering to get a little bit more color on is this going to take place in certain regions or job functions? When do you expect it to be completed and any quantification on the cost savings?
Claire Bramley: Yes. We are focusing on generating – non-revenue generating areas, as you would expect. They continue – we are seeing some great cost optimization efforts happen through the quarter of 2023, and we expect them to continue in 2024. The other thing we do is very much focused on a returns-based approach. So, where we see opportunity to reinvest dollars into areas that we think will generate a higher return, we also do that. I think a few things I called out in our prepared remarks, for example, AI, big area, especially obviously in the engineering space from a demand generation standpoint as well and something we continue to invest in. So, really just focusing on are we getting the returns that we are expecting from the investments we are making, making those right trade-offs and specifically focus on efficiency in the non-revenue generating areas.
Operator: Thank you. The next question is from the line of Chirag Ved with Evercore ISI. You may proceed.
Chirag Ved: Hi. Thanks for taking the question. You mentioned that 75% of your cloud customers are operating on hybrid environments and where the macro right now where the hyperscalers and several consumption-based cloud names are seeing migration projects to the cloud resume. So, do you think we have had a fundamental shift for customers, especially large customers are increasingly preferring hybrid deployments for cloud only, or is there a renewed focus in customers prioritizing their cloud-first projects again? And how does all this impact Teradata’s position moving forward? Thank you.
