Engility Holdings' (EGL) CEO Lynn Dugle on Q1 2018 Results - Earnings Call Transcript

Engility Holdings, Inc. (NYSE:EGL) Q1 2018 Earnings Conference Call May 2, 2018 8:30 AM ET

Executives

Dave Spille - VP, Investor Relations

Lynn Dugle - Chairman, President & CEO

Wayne Rehberger - SVP & CFO

Analysts

Tobey Sommer - SunTrust Robinson Humphrey

Benjamin Klieve - NOBLE Capital Markets

Justin Donati - Wells Fargo Securities

Brian Ruttenbur - Drexel Hamilton

Lucy Guo - Cowen and Company

Krishna Sinha - Vertical Research Partners

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2018 Engility Holdings Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Dave Spille, Vice President of Investor Relations. Mr. Spille, you may begin.

Dave Spille

Thank you. Good morning, and thank you for joining us today to discuss our first quarter 2018 financial results. Please note that we provide a presentation slides on the Investor Relations section of our website. On the call with me today are Lynn Dugle, Chairman, President and CEO; and Wayne Rehberger, Senior Vice President and CFO. Today, Lynn will provide an overview of our operating results, and then Wayne will discuss our first quarter financial results and our outlook for 2018. We then will close with a question-and-answer session.

Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our 2017 Form 10-K and other SEC filings. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures.

And now I'll turn the call over to Lynn.

Lynn Dugle

Thanks, Dave, and good morning, everyone. Thank you for joining us. In the first quarter of 2018, we delivered revenue and bookings results that were slightly ahead of plan, and profitability results that met our expectation. That momentum carried into April, as we submitted over $725 million in proposals and continue to defend our base with additional recompete wins and expansion. With our year-to-date performance, we remain confident that we will achieve all of our 2018 full year guidance ranges.

During Q1, strong program execution resulted in a number of key contract wins, and we gained traction against our strategic imperative to grow. Our defense team continued to narrow its focus and deepen its relationship with targeted customers, allowing them to shape opportunities and compete on differentiated capabilities, not just price, as they completed the shift to larger best-value award. Notable among the defense team's first quarter successes was an $85 million recompete award from Naval Air Warfare Center to provide systems engineering, analysis, development and testing of naval aviation warfare systems. This critical win was driven by a solid performance record and a deep understanding of model-based systems engineering.

Our intelligence group, along with other miscellaneous awards, received two significant program extensions, and our space team received a new task order award, which together totaled $76 million. Under this collection of contacts, we will perform intelligence analysis, modeling and simulation and software design work. And as we closed out the quarter, we continued strong into April with the defense team winning a $90 million recompete award to provide software engineering and production support to the U.S. Navy tactical afloat and submarine local area network. And they won a new award just under $20 million to deliver QuickRange, a state-of-the-art modular shooting range. QuickRange gives military and law enforcement agencies the ability to conduct advanced skills training, both domestically and abroad.

These two early second quarter wins coupled with the larger recompete win in Q1 demonstrates consistent progress by our defense team in improving execution, offering unique customized solutions to their clients and increasing win rate, all critical components of our company growth strategy. Our first quarter book-to-bill was 0.9, driven primarily by program expansions as our customers extended contracts, while they continue to evaluate new program awards. Although difficult to predict customer award schedules, we expect many of our larger deals to be adjudicated within the year, and anticipate delivering a book-to-bill ratio above 1.0 for the full year.

We also made measurable progress towards our goal of achieving organic growth in 2019. Our strategy to expand our space business into new and adjacent markets is bearing fruit. We have significantly grown our NASA business at the Johnson and Goddard Space Centers. Over the last 18 months, we have been awarded more than $260 million and have a growing pipeline of opportunities within this customer base. Our NASA results include a new role on the mission systems operation contract or MSOC, which provides mission operations support for spaceflight programs. This further expands our work at NASA's Johnson Space Center in Houston, enabling us to establish new relationships and enhance existing ones.

And we continue to leverage our sizable IDIQ portfolio. We currently have 75 active IDIQ contract vehicles, with the total filling value exceeding $150 billion. Importantly, the IDIQ bids that we submitted in the first quarter of 2018 significantly exceeded our IDIQ bids for all of 2017, and we continue to invest in unique solutions that solve specific customer challenges that results in a more differentiated Engility service offering. At GEOINT, last week, we launched MetaSift, a platform that enables human analysts to consume and analyze vast amounts of data from numerous sources, including video, voice and even facial biometrics. We have briefed our mission-tailored solutions, including MetaSift and our artificial intelligence tool called Synthetic Analyst, to Gartner as well as customers and prospective partners and have received consistently positive feedback.

These solutions or tool sets help us retain our existing work and increase our probability of winning new contracts, as they allow us, in some cases, to more efficiently inject new capabilities into an existing program or in other cases enable a service-delivery model that is quicker and more affordable. And we remain very focused on growing revenue with existing clients. During the quarter, we added a total of $50 million of work on two existing space programs, and our defense group also increased one of its classified contracts by $10 million, which further expanded our footprint within the Pentagon. These are just 2 examples of how we are engaging with our customers to identify mission priorities, deploying successful solutions and positioning ourselves to take advantage of the expected budget increases. Finally, we remain committed to lowering our borrowing cost and reducing our debt.

During the quarter, we made $20 million in debt reduction payments and repriced our two term loans in late March. This reduced our borrowing cost by 50 basis points on approximately $700 million of outstanding debt, positively impacting both our interest expense and cash flow.

Now let me turn to our forward view. In late March, the government passed the Omnibus Appropriations bill, assuring funding for the balance of the government's fiscal year ending in September. As expected, that bill included a 10% increase in the DoD base budget, which is the largest year-over-year increase in defense funding in the past 15 years.

In addition, the bill included language which provides more flexibility for DoD spending by authorizing a 2-year budget, avoiding the use it or lose it dilemma. Most importantly, for Engility, we know that space budgets will grow. At this year's annual Space Symposium, General Raymond, the four-star general incharge of Air Force Space Command, shared that space budgets will increase almost $8 billion over the FYDP, the DoD 5-year plan. In just the FY '18 omnibus, GPS, missile warnings, classified space and launch programs, all received budget plus-ups. These are areas that Engility currently supports or has the capability, past performance and mission knowledge to do so in the future.

We also anticipate additional funding to flow into data analytics, secure systems, systems engineering, mission assurance, increased intelligence and tradecraft and training, as troop levels increase and readiness remains a top priority for General Mattis, our U.S. Secretary of Defense. As we look forward, we certainly have more insight than we did 3 months ago on where DoD investments will be made, but timing remains less clear. As a reminder, we have not assumed any 2018 impacts associated with budget increases, as we continue to believe that new funds authorized will most likely not benefit our programs until 2019.

As we report on the progress we've made over the last 2 years, Engility is well positioned to take advantage of this positive macro environment. So to summarize my remarks, we have repositioned our defense business and have a solid leadership team in place. We have a larger qualified DoD pipeline than ever before, and win rates are rising. Our space and Intel businesses, which had experience top line growth over the last 2 years are poised to accelerate as budgets expand. Space investments will increase, and Engility 50-plus year legacy in national space systems, along with military and civil systems, positions us for success.

The investments we have made in unique solutions, tool sets are moving us higher up on the technical and complexity food chain and are giving us the opportunity to better differentiate the Engility service offerings. Our IDIQ and GWAC cells have matured, submitting more bids in the first quarter of 2018 than in all of 2017, and we are well prepared to help our customers move quickly as dollars begin to flow. And of course, we are operating in the best budget environment than we have experienced in over a decade. All of this and more give us confidence that we will achieve our 2018 guidance and grow in 2019.

With that, I will turn the call over to Wayne to review our results in more detail. Wayne?

Wayne Rehberger

Well, thank you, Lynn, and good morning, everyone. In discussing the details of our first quarter results, I've organized my remarks into five key areas, the income statement, cash flow results, balance sheet, contract awards and guidance. As a reminder, we discuss certain financial results on an adjusted basis when we believe they provide a meaningful comparison to our prior or future financial results. GAAP reconciliation tables are provided in the press release and the PowerPoint presentation we issued this morning.

As Lynn indicated, our first quarter revenue was slightly ahead of our target and profitability results were in line with our expectations. This quarter, I will begin our discussion by summarizing the three financial reporting impacts of adopting the new 606 revenue recognition accounting standard, better known as ASC 606. First, we were able to recognize revenue in the first quarter of 2018 that we would not have been -- that would not have been recognized in the same period under the previous revenue recognition standard. Secondly, recognizing this additional revenue have the effect of increasing our unbilled accounts receivable balance, which led to a slight upturn in our DSO. Lastly, to comply with ASC 606, starting this quarter, we're reporting our backlog in a more nuanced matter. I'll cover each of these three items in more detail as we further discuss our financial results.

We reported first quarter revenue of $477 million, which was a $12 million sequential increase over the fourth quarter of 2017. Much of this increase was driven by a combination of factors that we don't expect to repeat in future quarters, including a $5 million increase related to the adoption of ASC 606 and additional work on both ongoing contracts and contracts that we're scheduled to end, which is why our 2018 revenue guidance remains unchanged.

GAAP SG&A cost for the first quarter was $37 million, a $2 million increase from the fourth quarter of 2017. This increase was expected, and it primarily reflects the additional investments we are making in our employees' capabilities and business development activities that I mentioned on our last earnings call. First quarter EBITDA was $39 million, equating to an 8.1% margin. EBITDA was impacted by $1.5 million in nonrecurring restructuring-related expenses. Adjusted EBITDA was $40 million or 8.4% of revenue.

On a GAAP basis, we recorded a tax expense of approximately $1.6 million, and we paid $251,000 in cash taxes. Our GAAP diluted EPS for the quarter was $0.17, which includes $2 million of debt-repricing expenses. These repricing fees and other noncore operating costs, which are outlined in the adjusted operating income table and the footnotes in today's press release, impacted GAAP EPS by $0.28 per diluted share.

Now I'll turn to cash flow and balance sheet metrics. Our DSO for the quarter was 61 days as compared to 60 days in the first quarter of last year. Implementing ASC 606 had the effect of recharacterizing certain unfunded obligations and inventory costs from other asset accounts into the unbilled receivables account, thereby, increasing our DSO by 1.5 days. Nonetheless, we'll continue to target a DSO of less than 60 days going forward. During the first quarter, we generated $6 million in operating cash flow. Cash flow tends to be light in the first quarter as a result of company bonuses, increased payroll taxes and prepaid expense obligations dispersed in the period. Even though cash flow was relatively like this quarter, we were able to make debt payments of $20 million, which was slightly more than we initially planned.

We continue to expect to generate full year 2018 operating cash flow of $100 million to $110 million. And to further strengthen the balance sheet and decrease interest expense, we repriced $703 million of our B1 and B2 term loans in late March, lowering the interest rate on both loans by 50 basis points. In addition, we extended the average maturity on the term loans by shifting $75 million from our B1 term loan to our B2 term loan, which matures 3 years later in 2023. As a result of this repricing, we will realize a little over $3 million in interest savings over the next 12 months. Now this is the fourth time in a little over 1.5 year that we have either refinanced or repriced our debt. Taken together, those actions are saving us approximately $33 million in annualized cash interest at today's debt levels and interest rates.

Now let's review a few performance indicators associated with contract awards. During the first quarter, we reported contract awards of $440 million, which represents a quarterly book-to-bill of 0.9. As Lynn indicated, this was higher than expected, given that none of our large bids were awarded during the quarter. As I noted in my introduction and we disclosed in our Form 10-K in March, we are now required to report our contractual obligations in more detail as part of our ASC 606 implementation. The Form 10-Q we are filing later today will include revised definitions for three terms, One, backlog; two, potential contract value; and three, total estimated contract value. The high-level outcome of these changes is that what we used to report as total backlog is now referred to as total estimated contract value.

While we adopted new terminology, you'll see, we ended the first quarter with total estimated contract value of $3.4 billion, which is consistent with the value we reported at the end of 2017. Now let's turn to the 2018 guidance. We are reiterating all of our 2018 guidance ranges provided on March 1. We continue to derisk our revenue plan. Based on the results for first quarter and our outlook for the remainder of the year, we project that approximately 3% of our remaining 2018 revenue will come from new business and another 6% from recompetes to achieve the midpoint of our guidance range.

Using that same midpoint of our 2018 guidance, we expect revenue to be relatively consistent over the next two quarters, with a slight reduction in the fourth quarter due to seasonality. We're also reaffirming our full year EBITDA guidance range of $160 million to $170 million. For the next 3 quarters, we expect our quarterly EBITDA to increase somewhat from first quarter as a result of improved contract performance, superior contract award fees and recurring benefits from adjustments to contract completion estimates.

The other key assumptions comprising our 2018 guidance are outlined on Slide 8 in today's PowerPoint presentation.

With that, we will open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Tobey Sommer with SunTrust.

Tobey Sommer

I wanted to see if you could give us a little bit more color on what kind of book-to-bill you think is required for you to generate positive organic growth in '19. I heard you say in your prepared remarks, you expected to be over 1. But given contract extensions -- well, I was curious where the breakpoint might be in your eyes in terms of a book-to-bill necessary to get organic growth?

Lynn Dugle

I would say, Tobey, we're probably 1.2, 1.3. What we're looking for -- I think we talked last quarter, we had a number of very large bids that the customer had a scheduled either for Q4 or Q1. With extensions, those now look like Q3, if they stick to their schedule. So we believe our second half book-to-bill will be quite a bit higher than first half.

Tobey Sommer

Okay. Could you talk about the margin profile of the submitted bids? Just trying to get a sense for whether those -- if they kind of break your way or accretive to your profitability or neutral or diluted?

Lynn Dugle

Yes. And Tobey, I think it depends. I mean, we're holding our guidance range as we feel solid about that, as larger bids go into NASA, we've always talked about that being a little bit lower, some of the newer things the defense group is doing, and some of those awards would be quite a bit higher. So we've got -- depending on what we win and in what area, the mix will shift. But we feel good about 2018.

Tobey Sommer

And so the submitted bid profiles, I understand it's a -- there's a range within there. Is it about average with the company is what you're saying?

Wayne Rehberger

Well, Tobey, this is Wayne. As Lynn said, I think that the -- when you're submitting a large new bid and the takeaway, sometimes, you may not pick up the same kind of margin that we're getting on some of our sole source awards. So it's -- we run it like a portfolio. We also still have 30% of our fixed price work, which certainly, on average, is a higher margin than our cost-plus contracts.

Lynn Dugle

But to say it more directly, Tobey, I think it just depends on which things in the pipeline we win. And so just for example, Wayne said, we do run it as a portfolio. So every quarter, we're looking at what's submitted, what's bid profit, what is anticipated execution profit, those kind of things to make sure we keep at a rate that returns well for shareholders.

Tobey Sommer

Okay. In terms of your cash flow guidance for the year. Do you have to make a significant change in improvement in DSO to achieve that, given the kind of light cash flow in the quarter? Or is -- what are the other levers and variables in achieving the annual cash flow target?

Wayne Rehberger

So Tobey, we believe, we're going to get a couple of days off of where we are now, at least, as we go through the year. It's pretty -- it's been pretty consistent last year, even setting aside we had 1 sort of headwind last year in the first quarter and our cash flow was actually negative. But if you adjust for that, our cash flow was about the same as what it was this first quarter. Cash flow tends to increase in the last 3 quarters. The third quarter, it's usually the highest. So you're thinking some sort of like $30 million, $35 million a quarter, maybe a little higher in the third quarter, we project and we will see a reduction in DSO of a couple days. But we don't need to do anything dramatic to hit our cash flow numbers.

Tobey Sommer

Okay. Last question for me. Lynn, given your comments about kind of the budget and where you see opportunities, if I asked you, just kind of pick the single best opportunity for the firm where you see an increased budget and therefore, increased opportunity, what would your answer be?

Lynn Dugle

Yes, it would definitely be space. And we are already -- 2 of the programs that we talked about, with the SBRs program, so I call that missile defense, but the new birds that will go up. For that, we are existing systems engineering in program support on the current program. GPS gets plussed up, we're there. As we look at things, dollars moving, and this is where we have more homework to do is space situational awareness, operationally responsive space, counterspace systems, all of that we've got a track as to see what goes into classified and what doesn't. But anything that has a new network architecture component, we'd be really well positioned. The NASA budget is going up for the first time in years, and so all that spadework that we've put into place moving kind of the Goddard Space Center to the Houston Space Center, now we've targeted Marshall out of Huntsville.

So that should play well, and if you were at their national Space Symposium, you probably heard probably more alignment than I've ever heard in 30-some years, between national space systems, so Director Sapp and General Raymond on how they're going to bring space enterprise together using historical NRO assets, military assets and now, of course, we'll probably have a complete commercial layer in LEO. So space, absolutely, and then second, our defense team is really strengthening. And so when I look at 10% upper in the DoD business in general, that's really encouraging for me, especially because in this space, we sometimes run up against OCI, where if money is flowing to development programs, we are OCI-ed out of those dollars. Whereas, in the defense world, we have -- we do not have those -- commonly, we don't have those types of conflicts, so also a very large opportunity for us.

Operator

Our next question comes from Ben Klieve with NOBLE Capital Markets.

Benjamin Klieve

Just a couple of quick questions for me. One, with regards to the growth investments that you've talked about, are those all tied into cost of goods sold -- or excuse me, are they all tied into SGA? Or are any falling in the cost of goods sold line?

Wayne Rehberger

Yes. No, they are a combination of the two, Ben. Because some -- that's just how it falls out. So yes, you're going to see -- when we talk about our EBITDA margin, we're probably going to see a little bit of deterioration relative to last year in our cost of goods sold line and then the SGA line. But we feel comfortable on the EBITDA side that we're still going to be within the range -- well within the range at the end of the year.

Benjamin Klieve

Okay. And then on those investments, are you able to quantify the kind of level that hit in Q1 this year relative to either Q4 last year or Q1 last year?

Wayne Rehberger

Yes, I think the couple of million dollars that we talked about is where we're at. We talked about the fact that we are -- I think we said we're going to increase by 20% year-over-year. But it's -- I would characterize it as a few million dollars a quarter going forward, our SG&A is going to be pretty consistent. We're going to see a little bit of an uptick because of some other things. From the first quarter, our gross margin will go up a little bit, but probably be slightly below where it was last year. So you think about a couple of million dollars a quarter, in that range, $2 million to $3 million, I think that's what we're talking about.

Lynn Dugle

And the biggest contributor on that would be just we've got a little bit of different mix issue going forward, so direct labor versus some subcontracts, so that helped drive the margins. We obviously -- Wayne mentioned the $1.5 million investment to -- on our forfeit -- our asset forfeiture programs, right. We want to continue to position that to have an extremely high PWIN. And so those are kind of the things that will give us a natural lift along with -- we just have a historical performance EAC adjustment that tends to flow in towards the back of the year.

Benjamin Klieve

Okay, perfect, Lynn. And one question regarding kind of the outlook for the rest of the year. So you talked about kind of the cadence of revenues over the next 3 quarters. The -- curious about Q3 specifically. Last year, there was a pretty big decline from product business. Do your statements today imply that you have better visibility of those product revenues this year than you maybe had at this point last year? Or am I reading too much into that?

Wayne Rehberger

No, you're not. I mean, we feel very, very comfortable around our product, our revenue forecast. We have new leadership in place in that organization, Scott Whatmough, who runs our defense group, was brought in, and now we feel much better about having visibility around that.

Lynn Dugle

I was going to say, Wayne and I were arm wrestling over who got to talk first on that one. But we really have tightened up that business like we've tightened up others. We know what products that we're going to offer. We talked about the QuickRange, the modular shooting range. We've generated a decent-sized pipeline on that, and so we've made some investments there that have already paid off in this smaller, less-than-$20-million award, but -- so much more focused. We actually have people running the factory that are product people, not service people. And so just the factory is being run in a whole different way.

Operator

Our next question comes from Edward Caso with Wells Fargo.

Justin Donati

It's Justin Donati on for Ed. So my first question. Can you kind of shed a little bit more light on the recent subcontractor rule on MSOC and kind of what you're embedding in guidance for that, and if that was in prior guidance or -- since that was just announced recently?

Lynn Dugle

Yes, Justin. So let me just say, we've got a subcontractor position, we're not at liberty to describe that description by the terms of the subcontract. But for us, getting on an of counsel and operations role have been part of a strategy that we've talked about for quite a while, right. We want to move from systems engineering and advisor, actually, into operations. So it was a great move for us, give us a much larger footprint in Houston that we've had historically, and that is included in our guidance.

Justin Donati

Okay. And then can you update us on your asset forfeiture joint venture? I think that's up for recompete this year? Or has that already been awarded?

Lynn Dugle

Well, I'm laughing because it was -- as you know, we were supposed to be working this last year, but I was actually with the customer all day yesterday morning. We feel good -- very good about our position there on the program. That's why we made some of these investments and benefits for employee retention. We feel very solid there. The RFP, as I mentioned, was supposed to be out in Q4 of last year. As of today, we don't have it. But with those discussions yesterday, we believe that we will get back by June. And then it will just be a question of how long they give us to submit, whether that's 30 days, 60 days, 90 days, and then how many bidders' proposals they need to go through. So the client, at this point, is saying it will be awarded this year, and based on performance to date as far as hitting deadlines, that may go a little bit later.

Justin Donati

Got it. And then last one for me. Can you just provide some more color on kind of the growth by segment this quarter?

Lynn Dugle

I think the growth for this quarter is consistent with last year, quarter-to-quarter. I mean, each quarter had the little bit of variability, but our space group growing in small single digits, Intel as well. We had shrinkage in what was our historical services business, to a small degree. And then our defense business, as they come off of this transition, scrapping out LPTA work, increasing their win rate, we're looking for them to shrink this year and grow next.

Operator

Our next question comes from Brian Ruttenbur with Drexel Hamilton.

Brian Ruttenbur

So a couple questions in terms of -- in the last year, you've repriced, refi-ed, reeverything-ed your debt. I appreciate the giggle, the laugh there, I was trying to come up with some funny. So 4 times. So what are the future plans? Are we done with that? Is there going to be changes to the capital structure that we should be looking at over the next year? Just want to understand what's going on there in terms of your cap structure.

Wayne Rehberger

Sure. So what I would say is, a lot of that has to do with the market or we like to think we're ready to go, as Lynn said, spring loaded and ready to jump on an opportunity when it presents itself. Because those are LIBOR loans -- LIBOR-based loans, if interest rates go up, if the LIBOR continues to increase, we may have an opportunity to reprice again. As long as we have good performance, then we'll be looked at as someone with less risk, and so we'll be well positioned in the market to maybe take another 50 basis points or more out of those loans in the future. Also, I'm glad you brought the question up, Brian, but we've also have hedged part of our loans, and I think, right now, where we are is we're around -- as time goes on, we would average 50% of our total debt to include our bonds would be hedged over the course of time. We're probably going to take another look at that to see if we can hedge a little bit more based on where the interest rates are going.

So we might have some news on that in the next quarter. And then the last thing, I'll say, is those bonds -- we are getting to a point here, and I think it's early here in '19 where we'll have an opportunity to look at those. The call feature on them comes down or the amount you would have to prepay to do something with those bonds. So there may be an opportunity, again, based on the market and the economics where that's our biggest -- that's sort of our biggest debt load from a percentage standpoint, paying almost 9% on those bonds. So we'll certainly take a look at those, and if we can do something to strengthen the balance sheet and pay less interest going forward, we'll certainly take the opportunity to do it.

Brian Ruttenbur

Okay. And then in terms of rebids, what percentage of your portfolio was up for rebid in '18 and '19, as it stands right now?

Lynn Dugle

Brian, if I go through just kind of biggest programs to -- FSA is obviously up sometime this year or early next, [indiscernible] was a major recompete. So if I look at from a revenue base, FSA 7%, [indiscernible] 2%. Everything else becomes kind of a 1% number for us. [indiscernible] should be awarded, and I really kind of hesitate at this point to talk 2019, because it's unclear, especially, at some of our biggest and long-standing customers, there seems to be over the last 6 months a preference to extend programs versus recompete. And so we'll just need to -- and you could conjecture on why some people think that they'll extend existing. So when new money flows in new programs, they can turn their attention there. But it's really hard to guess what a 2019 number would be at this point.

Wayne Rehberger

So I would just make the comment, Brian, to add on what Lynn said, we started to doing our plan this year back in October -- September, October. We thought that our recompete revenue at risk was going to be around 10% or more. When we finished the plan and we talked to you guys back in March, we said, it was going to be 8%. Now we're saying it's 6% after the first quarter. So our revenue recompete numbers are going down. We have had some extensions, as Lynn said, already that have affected the '19 number. So I think you could sort of -- we could sort of talk about the normal 10% to 15% as where we're starting, where we end up by the end of this year, we'll see.

Brian Ruttenbur

Okay. And then as a follow-up on that, the FSA program, if you could talk a little bit about that and how you performed on it and competition kind of going forward for that, since that's your biggest one, that's a 7%-er. I knew it was 5% to 10%, I didn't know it was 7% or didn't recall it. So if you could talk a little bit about that, and it sounds like there is no other big 5%-plus ones out there?

Lynn Dugle

No, there are no other big 5%-plus, certainly. So FSA's asset forfeiture, a very unique contract. We have field agents in dozens and dozens and dozens of cities, so we operate small field offices. 5% to 7%, it's FDA contract. It's huge, all right. Last time, it was about $1 billion, we were around $140 million a year on the contract, so very important to us. The reason that we think we're well positioned is probably threefold. One is that over the last two years, we also embedded new management, a new Managing Director at FSA, and we are getting very good [indiscernible] feedback, so official feedback from the customer as well as informal feedback. A key care-abouts for the customer is employee retention, our employee satisfaction with some of the changes that were made, different benefits, award programs over the last 18 months. We have a lower attrition rate on that program than we did in 2015.

And so that's a good indicator. And 3, 4 competitors to meet the minimum-required period to bid, they have to have operated a similar nationwide program with 1,000 employees, part of which are FDA, to even bid the contract. So it's not as easy. There's a bigger hurdle or a barrier to entry in this contract, and there's also a size component. They have to have operated not just a similar program with the major components, but of a certain size. So for those reasons, we think we're in pretty good shape. But we take it very seriously. I mentioned, I was with the customer yesterday. We continue to stay connected and doing everything we can to improve the programs day-to-day.

Operator

[Operator Instructions]. Our next question comes from Lucy Guo with Cowen and Co.

Lucy Guo

So Lynn, can you help us provide some perspective or context around the higher win rate that you referenced. Does that refer to PWIN on the bid pipeline? What's your take on the new bids versus recompete win rate?

Lynn Dugle

So what I was referring to Lucy, obviously, our aggregate win rate is rising. We've seen especially good progress in our defense group on recompetes. We have very high recompetes. We weren't able to announce it, but other than the wins that I talked about, there was another $40 million recompete win that we got in April. And so very good numbers, I'd hazard to say night and day from 2017. On new business win rates, because we have so many things that are still outstanding, I don't really feel like I have -- well, I don't have enough data to tell you where we are on those, certainly, by Q3. I'm hopeful that our customers start awarding programs versus extending programs, but probably too soon to tell.

Lucy Guo

That's good to know. Follow up on Tobey's question earlier on your book-to-bill outlook, just wanted to get a little bit more comfortable. In your first year of tenure at Engility, 2016, the awards-to-sales was also in the range that you provided, 1.2 to 1.3x for the full year. Can you just maybe talk to us about how this year might be different versus then and then sort of the new business mix in your pipeline as it stands today?

Lynn Dugle

Yes, and this is a bit nuanced, because I'm a data person, so I don't know what metrics I would give to validate this assertion. But 2017, for us, was really all about digging to the bottom of our historical Engility business, being able to look top to bottom on every single program. And when I say every single program, we had hundreds and hundreds and hundreds of these small $1 million, $2 billion -- $2 million programs. And so what makes me more confident is the fidelity of the pipeline, what goes in. We, historically, as a company, had a bit of a volume kind of mentality, we'll bid 10 things and we'd think we'll win 1 or 2. That's certainly not the way I would run a business, so we want things are higher PWIN. We put a lot of money, and you've heard us reference a number of times these capability sets, these new enabling tools. Those were all about -- we didn't, believe me, casually invest a few million dollars in those. Those were all about differentiation, right. So how do we better defend our existing programs? And how do we have a higher win rate on new programs? And have spent a lot of time in what makes it different. How do we have a service offering that's not just smart people with good past performance? And then we're competing on cost. And so this means that we've brought in all of the people that we are adding to the mix are what will make a difference on our PWIN. So we'll see as we roll out the year.

Wayne Rehberger

And Lucy, in terms of the kind of the general numbers, over 65% of our submit forecast is new business. And that might even, again, change as we go through the year and get more extensions where we may not. We right now still have recompetes -- several billion dollars of recompetes scheduled, but those may go down as well, as we get extensions.

Lucy Guo

Got you. And then another question is on the Thornberry-proposed non-core agency financial cuts. What sort of exposure do you have to that? And how are you thinking that in your outlook?

Lynn Dugle

It would be really minimal for us. As you know as well as I do, there is a bit of banter back and forth on Trump trying to reduce the federal agencies, restructuring and so forth. We have a little bit of work in DTRA, but as we look at what we have, the 1, just even net-net if that disappeared, right, it would be immaterial for us. It's not a needle mover, and we don't think that work goes away. We think that certain piece of it -- if this would go, then there'll be big pieces that would go to CYBERCOM. So I think what they're targeting there is reduced administration, overhead cost, and we'd be on the doing-the-work side. So that work would have to go somewhere.

Lucy Guo

Got it. And then the other side of the equation, there are these cyber requirements in DoD contracting that some small business may be struggling with. Would you be able to sort of take advantage of future opportunities because of that?

Lynn Dugle

That's an interesting question. The new standards that we had to implement by the end of the year were very arduous, right. So I mean, you were looking at all kinds of software down into test equipment, so standalone systems and so forth. So there's a very large implementation bill to meet that standard. What we don't know is, will the government waiver those requirements or will they take a hard line on needing to meet them. And I don't have any data on that yet. If they don't waiver them, it would be an opportunity for us. If they tend to make small business exceptions, not so much.

Operator

Our next question comes from Krishna Sinha with Vertical Research.

Krishna Sinha

You already talked about a couple of your big contracts like FSA and [indiscernible]. But can you just go into a little bit more detail about your bid pipeline and what's not been adjudicated as of yet? How many bids do you have -- or like what's the dollar amount of bids outstanding here? And can you kind of give us some cadence on how you think the awards play out? Is this going to be another sort of 3Q-heavy award season, since you're bidding more heavily on IDIQs and that's kind of when that tends to pop? Can you just give us a little bit more color on that?

Lynn Dugle

Yes, I think you're right. I think Q3, again, if our customers stay somewhat on schedule, should be our biggest quarter depending on what happened there in Q4. We -- as we came out of Q4, we had $3 billion of proposals submitted awaiting adjudication, that number went to $3.5 billion at the end of Q1, and then we -- within the month of April, we submitted another $726 million. And so as we look at those numbers, we're forecasting we get to $7 billion middle of this year. So quite a bit higher than last year. So you could apply your own, how fast the customers go. We put in months of slip, but have we got that right? So I think Wayne mentioned about 65% of that is new, 35% is existing. We've got a couple of billion dollars that we think comes July, August. So again, I hesitate to predict which quarter will get awards. But I think that's where we are. Is there anything you'd add, Wayne?

Wayne Rehberger

No. Yes, again, whether what we're going to plan submit, what's already been submitted, yes, about 2/3 of that is all new business, in either case.

Krishna Sinha

Okay. And just on the pipeline in general. Are you seeing more sort of new-to-the-world contracts coming out of the government with the defense increases? Or are the majority of these bids that you're putting out, more than $4 billion of bids, are those takeaways from other competitors?

Lynn Dugle

Yes, almost exclusively they're recompetes and takeaways. Because when you think about it, they passed the budget at the end of March. Now they're going through that parsing, how much goes to space, how much goes to Army. Once you get into a service, you're talking Army, what goes to middle personnel, what goes to XYZ. So they kind of got that figured out. But if they are to start brand-new programs, you'll go through requirements phase, and so you're probably, in those kind of contracts, a minimum of a year off. The way we're queuing up, of course, to make sure that we can take any opportunity we get as soon as we can. I talked to my remarks about having all of our program managers prioritize a mission-needed work that's currently on funded -- on their programs. And so we are ready to go should our programs get plussed up with defined work scope that they can place on contract. And then with our IDIQ and GWAC machines being forward-leaning on anything that -- on that mission priority list that they can't put on their current contract, can we give them other vehicles? Should new work start to flow? OTAs have become a vehicle of choice, so that's other transaction authority. We're looking at how we can advantage there. But even still, I'm an old dog in this business, and for them to be flowing money in new programs, basically, a month after authorization is just not going to happen.

Operator

Ladies and gentlemen, this concludes today's question-and-answer session. I will now like to turn the call back over to Dave Spille for any further remarks.

Dave Spille

Thank you. Thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to seeing many of you over the coming weeks. And with that, we'll end today's call. Have a great day.

Operator

Ladies and gentleman, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.