Convergys Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb. 5.14 | About: Convergys Corporation (CVG)

Convergys (NYSE:CVG)

Q4 2013 Earnings Call

February 05, 2014 10:00 am ET

Executives

David Stein - Head of Investor Relations

Andrea J. Ayers - Chief Executive Officer, President, Director and Member of Executive Committee

Andre S. Valentine - Chief Financial Officer

Analysts

Paul B. Thomas - Goldman Sachs Group Inc., Research Division

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Kevin D. McVeigh - Macquarie Research

Operator

Welcome to the Convergys Fourth Quarter 2013 Earnings Teleconference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. I will now turn the meeting over to Vice President of Investor Relations, Mr. David Stein. Sir, you may begin.

David Stein

Thank you, Brian, and good morning. Welcome to the Convergys Fourth Quarter 2013 Earnings Call and Webcast Presentation. This call is the property of Convergys. Please note that slides accompanying today's prepared remarks are available on the Convergys Investor Relations website, under Events and Webcasts. Today's call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future events or developments. Please refer to this morning's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could adversely or positively affect our future financial results. This includes the risk factors provided in our Form 10-K for the year ended December 31, 2012.

Also during the call, we'll discuss non-GAAP financial measures, including free cash flow, adjusted operating income, adjusted EBITDA and adjusted EPS. A reconciliation of these non-GAAP measures is available in the news release and on the convergys.com website, under Investor Relations.

With me on the call today are Andrea Ayers, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Andrea will provide a summary of our operating performance, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions.

Now I'll turn the call over to Andrea.

Andrea J. Ayers

Good morning, and thank you all for joining us. Today, I will review our key 2013 accomplishments and our progress during the fourth quarter. 2013 was our first full year operating with a singular focus on Customer Management and our third consecutive year of revenue growth and margin expansion. When I became CEO just over a year ago, we said our plan was to deliver sustainable revenue growth, drive margin expansion, deploy our capital to maintain our market leadership position and create value for our clients and shareholders.

I'm very pleased with our performance in 2013. Revenue increased, profitability improved. We were disciplined in our review and pursuit of strategic acquisitions, and we continued to return capital to investors. Our 2013 revenue of $2.046 billion represents an increase of 2% compared with last year. Revenue grew during the year with existing and new clients. This was driven by delivering consistent quality service, winning new programs to increase volume and selectively pursuing new logos.

Our profitability also improved during the year. Adjusted EBITDA for the full year increased 5%, and EBITDA margin improved by 30 basis points. The margin improvement was driven by revenue growth, increased delivery of services from lower-cost geographies, further actions to reduce indirect costs and additional efficiencies from deploying our standardized Global Operating Model.

Recall, we said over a year ago that our adjusted EPS in 2013 would exceed $1 per share. We delivered $1.07 in 2013 compared with $0.91 last year. This resulted in adjusted EPS growth of 18%. In terms of driving growth through strategic M&A, we took 2 key steps in 2013. We acquired Datacom in April, and we announced the Stream transaction just after the New Year. These selective acquisitions are helping us to further diversify our client base, extend our geographic footprint and enhance our already broad set of capabilities.

Our singular focus on Customer Management enables us to invest in strategic growth while also delivering substantial capital returns to our shareholders. During 2013, we paid $24 million in dividends and repurchased $119 million of our stock. Our improving results, leadership position and strong balance sheet give us flexibility to continue to invest in the business to drive overall shareholder returns.

Entering 2014, we are making good progress to complete the Stream acquisition. A few weeks ago, the FTC granted early termination of the waiting period under Hart-Scott-Rodino. We're expecting to bring together these 2 well-performing companies and expect to complete the acquisition in March. After the transaction closes, our first priority will be to ensure a successful integration.

In terms of planning for a successful business combination, we are actively engaged in planning to be ready to integrate and execute upon closing. Both Convergys and Stream have a history of commitment to our clients and dedication to excellence in serving customers across the globe. Stream's strong capabilities and global reach, in addition to our industry-leading scale, breadth and depth of capabilities and close client engagement, are a winning combination. Our plan is to build upon the best practices of both companies. Convergys and Stream have compatible business models with numerous similarities between organization structures and culture, and I'm confident this should enable a smooth integration into our Global Operating Model.

In 2014, we plan to build on our track record of strong execution and profitable growth and attractive industry fundamentals by investing in the combined business to achieve higher levels of customer satisfaction and enhance long-term growth.

Now let's review our fourth quarter operating progress in more detail. We continued to execute well in the fourth quarter with improvement in revenue, EBITDA and adjusted EPS. In terms of revenue, we grew with a dozen of our Top 20 clients year-over-year. Cost volumes remained strong across our service delivery regions during the fourth quarter. Revenue growth was particularly strong in Asia. Volume increased with clients across the vertical markets we serve, particularly in communications, technology, health care and the retail industry.

As anticipated, year-over-year volume stabilized in the quarter with our largest communications client. Its quarter-over-quarter volume grew slightly. Volume increased with several technology clients during the quarter to support launches of new devices and software. We also benefited from the positive trend of vendor consolidation as technology clients moved services from smaller providers to larger strategic partners.

In financial services, we grew quarter-over-quarter. Volume increases with a couple of new clients nearly offset the year-over-year impact of program completions earlier in 2013. In the health care industry, a number of new client programs continued to ramp during the quarter. Volume also increased with several e-commerce and brick-and-mortar retail clients. This reflects strong growth in online transactions. The broad-based growth in the fourth quarter was partially offset by the negative impact of a large client migration and some customer interaction technology platform migrations. Andre will provide more detail on the future impact of these migrations in a moment.

In terms of new business wins, our investment and quality delivery, comprehensive solutions and close client engagement is driving predictable, consistent performance. In the fourth quarter, we signed new live agent business worth $65 million of 2014 revenue. This included new programs with multiple clients within each of the communications, financial services, technology, retail and health care industry. These wins cover a wide array of business-to-consumer and business-to-business call types and provide further evidence of our sales momentum throughout the year.

Our business is thriving, and industry trends continue to play to our strength in this growing $55 billion outsourced customer management services market. Demand remains strong across our delivery regions and the vertical markets we serve. Our ability to deliver the right service at the required scale level in a more cost-effective manner from the right geography is helping our clients increase their revenue, decrease costs and improve their customer experience.

In addition to revenue growth, we also delivered solid profit improvement in the fourth quarter. On an adjusted basis, operating income was up 15% compared with last year, and operating margin improved 80 basis points. Drivers of this improvement include agent revenue growth, continuing shift of services offshore and positive impact of prior year efforts to control cost. As we enter 2014, we expect another year of profitable growth.

In summary, we are successfully executing our profitable growth strategy. We are making strategic investments to enhance value for our clients and shareholders. We're excited about the Stream acquisition and its successful integration into the business. Our financial strength provides flexibility to return cash to investors, and we expect another year of revenue and profit improvement in 2014. I want to thank our team for delivering strong results in the fourth quarter and for the full year. Also, I would like to thank our clients for their trust in Convergys as we partner to support their customers and to strengthen and grow their businesses.

Now I'll turn the call over to Andre to provide more detail on our financial results.

Andre S. Valentine

Thanks, Andrea. Good morning. During the next few minutes, I will review our results from continuing operations and provide our preliminary outlook for 2014.

Revenue in the fourth quarter was $527 million, which was up $18 million compared with last year. Increases with several existing and new programs spanning our vertical markets drove the growth in the quarter. This more than offset the volume reductions we began to see with the United States Postal Service, as well as some interaction technology legacy platform migrations. We have served the Postal Service for over a decade. In 2012, the Postal Service made a decision to in-source all of its call handling. Since that time, we have been supporting the Postal Service on a business continuity contract. We expect this contract to complete by the end of the first quarter of 2014. 2013 revenue from the Postal Service exceeded $50 million.

Regarding the interaction technology platform migrations, recall that some of the legacy systems acquired in the last decade have reached end of life. The negative impact from these platform migrations was approximately $20 million in 2013, as we expected. Regarding seasonality of agent call volumes, as is typical, higher volumes in the fourth quarter are expected to soften a bit sequentially in the first quarter of 2014.

In terms of our footprint, our regional mix of contact center employees at the end of the fourth quarter was 48% in the Philippines, 33% in the United States, 14% in India, 3% in Latin America and 1% each in Canada and the United Kingdom. This includes over 4,000 work-at-home employees.

Moving to profitability, on an adjusted basis, operating income was $43 million in the fourth quarter, up $5 million compared with last year. Adjusted operating margin was 8.2% in the quarter, which is an 80 basis point improvement compared with last year. Adjusted EBITDA increased $4 million to $66 million, and adjusted EBITDA margin improved 40 basis points to 12.6%. The profit improvement in the fourth quarter was driven by positive volume impacts and our continued focus on controlling costs. Also, recall that our results in 2012 included a $3 million restructuring charge, which did not repeat this year.

GAAP results in the fourth quarter included $3 million of expense related to the Stream transaction and $1 million of noncash settlement charges related to pension and other post-employment benefit plans.

Turning to net income, in the fourth quarter, adjusted EPS was $0.26, reflecting a tax rate of 32%. This higher-than-expected effective tax rate was due to a less favorable mix of taxable income by jurisdiction and some nondeductible foreign exchange losses. For planning purposes, we're assuming a normalized tax rate of 23% for 2014.

For the first quarter, we expect adjusted EPS to be roughly in line with last year. Recall that we had an unusual tax benefit in the first quarter of 2013 related to the American Taxpayer Relief Act.

In terms of cash flow, in the fourth quarter, we generated strong free cash flow of $40 million. Operating cash flow benefited from strong collections in the quarter, and as expected, capital expenses in the quarter came in at the lower end of our historical 4% to 5% range.

Turning to the balance sheet. At the end of the fourth quarter, we had cash and short-term investments of $664 million. During the quarter, we repurchased 1 million shares of our stock for approximately $19 million. We now have $133 million remaining on our share repurchase authorization. As I said when we announced the Stream acquisition last month, we expect to maintain a strong financial profile post-closing, and our capital structure principles remain intact. Our strong balance sheet allows us to finance the transaction entirely with cash, using cash on hand and existing and new credit facilities. We also anticipate using $150 million of offshore cash at the closing on a tax-efficient basis. After closing, we expect to have available liquidity of more than $550 million. Our strong cash flow generation and ample liquidity post-close will help preserve our financial flexibility. We will continue to drive growth by investing what matters most to our clients and remain committed to returning capital to investors.

Now I'll discuss our preliminary business outlook for 2014. As Andrea mentioned, we expect to deliver another year of revenue growth and earnings improvement. Specifically, we expect organic revenue and earnings improvement similar to last year, including revenue growth in the low single digits or about 2%, with an approximately 30 basis point improvement in our adjusted EBITDA margin. This would continue our progress toward our EBITDA margin target of greater than 13%. We expect continued growth with several clients across our vertical markets to be partially offset by the revenue headwinds discussed a moment ago. The combination with Stream will allow us to diversify our client base, extend our geographic footprint and improve our scale. This will position us for enhanced revenue, margin and EPS growth. We expect the Stream transaction to be highly accretive. Its impact on reported results in 2014 will depend on the date the acquisition closes.

As I mentioned in our January call, we plan to provide guidance for the combined business in due course after the transaction closes. At that time, we will also provide a more comprehensive view of the financial benefits associated with the transaction. This outlook does not include acquisition-related impacts such as transaction costs, integration costs, intangible amortization and tax expense associated with repatriating cash. Also not included are the impacts of any future share repurchase activities or noncash pension settlement charges.

In conclusion, we are very pleased with the results in the fourth quarter and for the full year. Entering 2014, we are working to complete the Stream acquisition, ensure its successful integration and maintain strong execution to drive long-term revenue, profit and EPS growth.

At this time, Brian, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Mr. Paul Thomas.

Paul B. Thomas - Goldman Sachs Group Inc., Research Division

First off, on Convergys standalone, you guided for the 2% revenue growth for 2014. The Postal contract you talked about, is that the major driver for the flat growth, or are there any other client ramp-downs to think about looking into next year?

Andre S. Valentine

Paul, this is Andre. That transaction, that contract, as well as the legacy platform migrations we talked about, are certainly headwinds that are incorporated into our 2% growth expectation for next year.

Paul B. Thomas - Goldman Sachs Group Inc., Research Division

Okay. And then any change in the expectations for growth for Stream at this point, for the mid-single-digits, I guess, you guys had talked about?

Andre S. Valentine

Well, no, so if you go back to what we said on our call back in January, we're adding, pro forma, roughly $1 billion in revenue. We have provided in our modeling some amount of client churn. As we've looked at other scale transactions in our space, we see that, that happens. Obviously, we're going to manage to have that be mitigated in this case. But we'll guide more about the combined business, frankly, after we close the transaction.

Paul B. Thomas - Goldman Sachs Group Inc., Research Division

Okay. And then the new business for the quarter, the $65 million is down from the last couple of quarters. Any particular change in the makeup of the new business in terms of verticals in this quarter?

Andre S. Valentine

It actually compares favorably to fourth quarter of 2012, where I think the number was $60 million from memory, Paul. Remember, that $65 million is revenue. The number that we disclosed is the revenue to be recognized in the next calendar year. So what you're seeing is that's dropped from where it was, perhaps, in Q2 or Q3 of this year. It's more just an impact of the timing of ramp. We feel very good about the signings and the breadth of capabilities, verticals and clients.

Andrea J. Ayers

Yes, the other thing I'd say, Paul, is we also feel good about growth with the existing clients. And then the team did a very nice job in 2013 with new logo sales. That was something we've focused on, and we're very deliberate about targeting those in every vertical and saw growth with new logos in every one of the verticals that we've focused on in that area. So we feel good about the signings momentum all year and feel good about it in the fourth quarter.

Paul B. Thomas - Goldman Sachs Group Inc., Research Division

Got it, okay. And then last one for me. On the tax rate, can you talk a little bit more about the shift in geography and how that's affecting 2014?

Andre S. Valentine

Yes. Really no real impact, Paul, long term here as we look out to '14. We've guided historically to a 22% to 23% tax rate. What I've just mentioned here is a 23% rate for '14. We had some unusual impacts as we finalized our tax provision for 2013. Those things tend to get kind of magnified in the final quarter, frankly, just because you're adjusting the rate for the full year at that point. And the fallout is end-of-the-quarter rate and hence, the higher rate. But no, our expectations going forward are really unchanged.

Operator

;

Our next question comes from the line of Mr. Manish Hemrajani from Oppenheimer & Co.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Andrea, you talked about selectively pursuing new logos. Are there any specific geographies and/or verticals that you're targeting through the rest of the year?

Andrea J. Ayers

Sure. So from a vertical focus, our targeting strategy is simple: communications, financial services, technology, health care and the retail sector. That's where we're going. And then from what we're looking for, we're really looking for clients that use providers like us at scale. The team calls it hunting baby elephants. We want clients that can start out with us. They have a breadth of transactions where our breadth of capabilities plays out. They typically will use multiple geographies, and they value the customer experience. It's something that is a competitive differentiator for those companies. And so that's really what we're looking at. And the team did a very nice job in 2013 of landing new logos in every one of those verticals, and we saw growth from those play out through the year. We're executing a similar strategy as we move forward this year.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Got it. And then can you give us an outlook into your buyback program for 2014? You obviously have been very aggressive in 2013 given the amount of cash in the balance sheet. But post the Stream acquisition, how do you plan to approach buyback?

Andre S. Valentine

Manish, this is Andre. Glad to do that. So certainly, we are not going to be as aggressive as we were post the Stream transaction. So certainly, in 2012, 2013, we were very aggressive. However, we've maintained the level of flexibility here to do some opportunistic share buyback at a much more moderate pace, and that's what I would expect somewhat based on where we trade and competing needs for capital.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Got it. And then last one for me. You've been benefiting from vendor consolidation for many quarters now. Can you give us some more color there on what clients are doing in terms of number of vendor they are consolidating down to? And how long do you expect this trend to continue?

Andrea J. Ayers

I expect the trend to continue for a few reasons. This is a deceptively complicated business and one that requires investment. And so for many of our clients, they're looking to consolidate vendors for a few reasons. One, they're trying to drive a consistent customer experience, and that has become more important in how they compete in their markets. That's hard to do when you have 30 or 40 vendors to get that consistency. So that would be the first reason for the trend. The second reason, cost and complexity. It simply costs a lot to manage that many vendors across that many geos, and they have to have large, robust organizations to do that, and we see them moving away from that. Third, the smaller players are struggling a bit to keep up with the technology investments required in this business to operate at scale, the investments required in having geography footprint where the clients want to go and the investment required in your Global Operating Model and your operating characteristics to be able to serve. And so we see that being the last reason that vendor consolidation is taking place. It's not a trend I expect will stop. This is still a very fragmented industry. There are a number of small players out there, and this is a trend that really plays to those of us in the marketplace that can handle any transaction type these clients want to do at scale, with the quality they require, with the redundancy that they expect from a technical perspective and all of the systems to support it anywhere in the world they want to do it. And so that is a handful of providers in our space now, and we're feeling good about where we sit in our ability to continue to benefit from that trend over time.

Andre S. Valentine

Manish, this is Andre. Specific to your question, there's not a one-size-fits-all rule here about how many vendors they're going from to how many they're going to. Certainly, they're not moving away from a multiple vendor strategy, but some of our clients will work with 20, 30 vendors. They're finding that, for the reasons Andrea just mentioned, that's not a really good strategy going forward.

Operator

Our next question comes from the line of Mr. Shlomo Rosenbaum from Stifel.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Andre, just first, can you go over the dollar impacts again, for 2013 revenue U.S. Postal Service contract and amount of Intervoice that's showing up?

Andre S. Valentine

Yes, so in 2013, Shlomo, USPS revenue has exceeded $50 million, and we expect...

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

5-0? That was 5-0?

Andre S. Valentine

5-0, yes, $50 million. And then the 2013 impact of the legacy platforms, we disclosed that at roughly $20 million, and we expect that...

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

So U.S. Postal Service is going from $50 million to 0 or $50 million to some other number?

Andre S. Valentine

Well, it's going to be a client at a reduced level. It was a client at a reduced level already in Q4 of 2013. It will be a client through the end of the first quarter of 2014 at a reduced level. So fair to say that most of that $50 million is a headwind in '14.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And the Intervoice thing, that was $20 million. Is that something that we should expect is an ongoing roll-off over here, in other words, '14 and then '15? I mean, eventually, it still winds down to 0, doesn't it?

Andre S. Valentine

It eventually does, and so the pace of decline might slow a bit, but it is certainly a headwind we'll have in '14 and should have into '15. At that point, it might become such a small thing, particularly as we become a $3 billion company. It's something we don't provide as much discussion about after that. It won't be as much of a headwind on a percentage basis.

Andrea J. Ayers

Yes, there's a portion of that business, though, Shlomo. What Andre's talking about is really some legacy systems that we knew were sunsetting. And so there's still an IVR-based business there that will be maintained that is not in that sunsetting phase, right? So it's just a handful of products. That's a business that had multiple technology applications associated with it, and some of those are at end of life.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So what I'm thinking, because we're going to model out into '15 as well, should we model out, if you're a $3 billion company, maybe 0.5% of headwind for that, again, so '14 to '15? If you don't feel comfortable with them, just give us a directional idea.

Andre S. Valentine

Wow, it's the earliest that I've been pushed for 2015 guidance, Shlomo. But I think you've got it roughly in the right zone, maybe even a little bit less than that.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

And this, I think people are a little bit -- people are not that aware of the U.S. Postal Service contract was ending right now. Is there anything else that you have end-of-life like that that has significant scale that will be -- that you know about that will be ending in 2014?

Andrea J. Ayers

No, Shlomo. And Postal Service was something that -- they make several contracts public, and they had actually announced it as part of an agreement they had back in that 2012 timeframe.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then I really want to talk about the vendor consolidation recently, and I've covered outsourcing companies for over a decade, and I've been hearing about the vendor consolidation trend, really, for over a decade. Is that something that has been accelerating in the markets that you guys are operating in, in the last couple of years?

Andrea J. Ayers

It has been. And it's largely, Shlomo, for the reasons I talked about. You cannot underestimate the investment required from a technical standpoint to be able to meet the technology specification requirements of these large Tier 1 clients, as an example. That's changed. And then the real focus on customer experience, as some of the new subscriber growth, new customer growth has become harder to obtain in the last couple of years, there's been a real focus on retaining and driving more revenue from our clients' existing customer base. That lends itself towards needing to have that consistency in customer experience and amping up that requirement for quality and result. And so in the last couple of years, we have seen clients not just talk about it but actually have active strategies to execute against it, and we see them doing so. And that's the big change, Shlomo, I see in the last couple of years. I agree with you. We've talked about it a lot. I'm actually being sat down and shown plans of how they're going to do it, what they're going to do, when they're going to do it and why. And so that's the difference.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just, Andre, to make sure my math is right, the 2% growth kind of normalized for some of these contracts that are kind of larger and rolling off. The underlying growth feels more like 5%, but this is basically, because of those contracts rolling off, is 2%. Does that sound right?

Andre S. Valentine

That would be correct. That would be good math.

Operator

Our next question comes from the line of Mr. Dave Koning from Baird.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

I guess just a follow-up. The normalized roughly 5% growth in 2014, that would be the strongest in many years, probably going back to the mid-2000s. Is that a function more of just new deal signings or the market -- the call center market getting better?

Andre S. Valentine

Well, a couple of things on that, Dave. First of all, I would say it does show and we feel very good about our new business signings. The consistency with which we've been disclosing very solid numbers there over, I would say, the last 6 quarters, we feel very, very good about. I don't, however, want to suggest that there -- that USPS is a big piece of churn, right? But there's churn every year, right? So I wouldn't over-rotate too far on saying that the 5% is -- it was like the -- the results in the other years didn't also have headwinds from various levels of client churn. We've just called this one out, in particular, because it's quite large.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

That makes sense.

Andrea J. Ayers

Yes, and in a general, David, I'm not seeing a different industry trend.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay, so pretty stable?

Andrea J. Ayers

Because I think it's the crux of your question, right? And not seeing that yet.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay. And secondly, when you layer in the Stream acquisition and add back the intangible amortization, would you also add back your legacy intangible amortization, which, I think, is about $4 million in 2014, just based on the SEC filings?

Andre S. Valentine

Yes. So David, as we move forward here, we'll have to determine whether we're going to come out with kind of almost a cash EPS, so excluding the intangible amortization from Stream. If we do that, it would be my intention to do it for all the intangible amortization, and you do have that sized appropriately.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay, that makes sense. I mean, I think you should do it just because it's going to match free cash flow better, and generally, The Street gives you credit for it.

Andre S. Valentine

It's certainly where my leaning is right now.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then finally, just as we look through the year, I think Q1 has the easiest comp. Does that mean growth should be better -- and you also -- you still have part of the Post Office deal in Q1. Is that going to be the strongest growth quarter and then decelerate a bit the rest of the year?

Andre S. Valentine

It has a slightly easy comp. You might see slightly higher growth in Q1 versus the balance of the year, but it's kind of in the rounding at that point.

Operator

Our next question comes from the line of Kevin McVeigh from Macquarie.

Kevin D. McVeigh - Macquarie Research

As you're thinking about the Stream integration, and I know that depends on, ultimately, when it closes, but have you had any conversations with existing clients just to get a sense of whether there's some incremental upside? And then just -- is there any existing overlap with your current book?

Andrea J. Ayers

Yes, so when we talked about it, I think when we announced, there was limited overlap with our current book. And the nice thing about the transaction is where we do share clients in most instances, the work we do for the client and the work they do for the client is different. And so we feel very good. One of the things that was most attractive about it for us was having the new clients to sell to. In answer to your question do we believe that there is growth opportunity, we do. There are capabilities that they have in terms of languages, countries, European presence, et cetera, that are very much attractive to the core existing Convergys client base. And then there are capabilities that we have that Stream does not have today that are equally attractive to their client base. And so that is definitely part of our integration planning and thinking and something that we're working on.

Kevin D. McVeigh - Macquarie Research

Super. And then just real quick. What drove the decision just for the USPS to kind of in-source and just any thoughts around that?

Andrea J. Ayers

Yes, it really was a relationship they had with their labor union.

Operator

All right, speakers, at this time, we have no further questions on queue.

Andre S. Valentine

Well, I'd I like to thank you all for participating on the call today, and have a great day.

Operator

That concludes today's conference. Thank you for participating. You may now disconnect.

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