Engility Holdings (EGL) Q4 2017 Earnings Conference Call Transcript

Engility Holdings (EGL)
Q4 2017 Earnings Conference Call
March 1, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Engility Holdings' Fourth-Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance while the conference is in progress, please press * then 0 on your touchtone telephone to reach an operator.

As a reminder, this conference is being recorded. I would now like to hand the floor over to Dave Spille, vice president of investor relations. Please go ahead, sir.

Dave Spille -- Vice President Investor Relations

Thank you. Good afternoon, and thank you for joining us today to discuss our fourth-quarter and full-year 2017 financial results. Please note that we provide the 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 fourth-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.

We do remind you that the non-GAAP financial measures are not a substitute for their comparable GAAP measure. And now I'll turn the call over to Lynn.

Lynn Dugle -- Chief Executive Officer

Thanks, Dave, and good afternoon, everyone. Thank you for joining us to discuss our Q4 and full-year results. During 2017, we made progress against our three key strategic objectives, positioning for organic growth, attracting and retaining key talent, and strengthening our balance sheet. Significant accomplishments included the continued year-over-year growth of both our space and intel businesses; the roll-out of our differentiated capabilities, including Cloud ASCEND and our mission-focused artificial intelligence solution, Synthetic Analyst; and the strengthening and refocusing of our defense business under new leadership.

We also brought incremental depth to our board of directors with the addition of John Barter, formally of Allied Signal and Honeywell, and Katharina McFarland, former Army acquisition executive and assistant secretary of defense for acquisition. We repriced our term loans twice, generating additional interest-expense savings, and over the course of the year, made $110 million in debt repayment. We also achieved significant wins throughout the year, consistent with our desire to pursue larger deals and expand into new markets. Examples included a $170 million contract with NASA to support and secure missions, including future Moon and Mars expedition; over $70 million worth of cyber security-related work to safeguard critical defense systems; a $190 million contract with the U.S.

Army's Logistics Modernization Program; and approximately $160 million in specialized consulting and advanced research for the DoD. The actions taken to improve our business have now led to six consecutive quarters with a book-to-bill ratio of 1.0 or above on a trailing 12-month basis. We were also within our 2017 guidance ranges on all metrics, excluding one-time noncash charges, and delivered strong results on profitability and cash flow. While we anticipated that our Q4 and Q1 2018 book-to-bill ratios would be lower, we were disappointed by our 0.4-times book-to-bill for the quarter.

As we look forward, our top priority is reversing the decline in top-line revenue. At the midpoint of our guidance, we expect to end 2018 with a modest year-over-year decline, but on a solid path to organic growth in 2019. Now, allow me to turn from an inside look to an outside look and discuss the current state of our market. We expect the final 2018 spending bill will be passed in March, with a substantial increase, up to $80 billion, for the Department of Defense.

Although, we still have to see exactly how that $80 billion in increased spending is going to be allocated, and where readiness dollars will be spent, we remain confident that Engility will benefit as dollars flow to the services sector. We continue to monitor the budget and government priorities to make sure we are well-positioned and can shape opportunities as they mature. Of significant interest to us will be dollars flowing to space-related agencies, where our expertise in both national and military systems positions us well as the nation increases its investment in space as the next battlefield. We also remain focused on our growth initiatives, which are centered around four key activities.

First, continued expansion in select new markets. Over the last 24 months, we identified targeted new customers that are already experiencing growth, including NASA, the Missile Defense Agency, and the NSA, which are also driving an expansion of our 2018 pipeline. In addition, we are building upon our recent wins with the U.S. Air Force Medical Service and exploring other healthcare informatics opportunities.

Second, we are maximizing our substantial IDIQ portfolio. As shown by our Q4 wins, we continue to be awarded positions on important GWAC and IDIQ vehicles. We see this as a promising growth area, as we expand this team to pursue even more opportunities. Over the past 12 months, we've increased our multiaward IDIQ task order biz by 25% and we are on a path to double that in 2018.

Third, we are developing and delivering tool-enabled solutions. I previously mentioned Cloud ASCEND and Synthetic Analyst as new Engility solutions. And at GON in April, we will launch Mediceft. Mediceft is a versatile contact analytics and integration platform that can operate with virtually any data set or system, which empowers our agencies to rapidly turn big data into better mission decisions.

We remain focused on strategically expanding our mission-centric capabilities, including cyber and artificial intelligence applications. And finally, I will close by sharing a story about a newer program that demonstrates the progress we are making to grow revenue on existing contracts through solid operational performance. A little over a year ago, we took away a prime Intel analysis contract. Historically, the program had run with 200 employees, but we've been able to expand this work to 300 positions with the opportunity to grow to 500 as the customer adds new requirements.

This emphasis on expanding current programs has been a major initiative for us in 2017, and is beginning to bear fruit. Going forward we will continue to protect our base, grow existing contracts, and aggressively build targeted capabilities to open up additional markets. The progress we've seen on our internal initiatives coupled with a positive customer environment gives us confidence that we have the right strategy and team in place to execute our opportunities in 2018 and grow in 2019. I will now turn the call over to Wayne.

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Thank you, Lynn, and good afternoon, everyone. Before I review our financial results, I did want to acknowledge today's announcement on Lynn's unanimous election as board -- as chairman of our board of directors. Lynn has been an asset to Engility and this appointment reflects the confidence of our board in her strategic vision and leadership. Lynn has enhanced our performance, our operational tempo, discipline, and culture.

Congrats, Lynn, on your well-deserved appointment. Now in discussing the details of our fourth-quarter results, I'll organize my remarks into five key areas: income statement, cash-flow results, balance-sheet improvement, 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 afternoon.

As you can see from today's press release, we are reporting revenue, cash flow, and profitability results within our fiscal year 2017 guidance ranges, excluding one-time noncash charges. Our fourth quarter was highlighted by strong profitability and cash-flow results and continued debt reduction. We reported fourth-quarter revenue of $465 million, a 5% decrease from the third quarter of 2017. This decline was driven by fewer productive days in the fourth quarter, the ongoing impact from contracts designated as small-business set-asides, positive contract adjustment in the third quarter, which did not repeat in the fourth quarter.

On a year-over-year basis, our fourth-quarter revenue declined by approximately 5%, when excluding the $16 million of IRG revenue from the fourth quarter of 2016, as this business was divested in January of 2017. GAAP SG&A costs for the fourth quarter were $35 million, a $2 million increase from the third quarter of 2017. This increase was driven by approximately $3 million in legal and settlement cost. Excluding these one-time items, operational SG&A costs decreased by approximately $1 million from last quarter.

Fourth-quarter EBITDA was $34 million, which includes a $7 million noncash goodwill charge related to revaluing our remaining international business and $3 million in legal and settlement costs I just mentioned. Excluding these items, our adjusted EBITDA of $44 million for the quarter exceeded our expectations and was the result of solid program execution, positive contract adjustments, and continued cost discipline. On a GAAP basis, our fourth-quarter diluted EPS was negative $1.62. This includes $2.16 of expenses related to tax reform and other noncore operating costs, which are outlined in the adjusted operating income table and footnotes in today's press release.

The vast majority of this impact is the result of the revaluation of the company's deferred-tax asset in light of the 2017 tax act. The value of the asset was reduced from approximately $211 million to $151 million. This has no impact to our current foreseeable future tax-advantaged position, as we expect to pay less than $1 million in annual cash taxes through 2025. During the fourth quarter of 2017, we paid $53,000 in cash taxes and for the full year, our cash taxes comprised of state and foreign taxes, totaled approximately $600,000.

Now I'll turn to cash-flow and balance-sheet metrics. Our DSO for the quarter was 58 days, which was in line with last quarter. For 2018, we expect DSOs to continue to be within our 55- to 60-day guidance range. During the fourth quarter, we generated $19 million in operating cash flow, which was in line with our expectations.

Our solid cash-flow performance, coupled with our long-term tax attributes, enabled us to make debt payments of $24 million in the fourth quarter 2017. As a result, we achieved our target of $110 million in total debt payments for the full year. Also, earlier in 2017, in anticipation of rising interest rates, we entered into a hedge on our floating-rate term loans through 2020. As a result, an average of 65% of our total debt is at fixed rates through that time period, limiting the negative impact of future LIBOR rate increases.

Based on the current one-month LIBOR curve, we expect the weighted average interest rate for all of our outstanding debt to be approximately 6.4% in 2018. Now let's review a few key performance indicators associated with contract awards. During the fourth quarter, we reported contract awards of $179 million. This represents a quarterly book-to-bill ratio of 0.4 times, which was lower than expected due to the loss of a large contract bid and over $500 million of new business opportunities that are now expected to be adjudicated in 2018.

However, we still achieved a trailing 12-month book-to-bill ratio of 1 time. We ended the year with a total backlog of $3.4 billion, which is consistent with the December 2016 ending backlog, after adjusting for the sale of IRG. In addition, we ended the fourth quarter of 2017 with $3 billion in submitted bids awaiting adjudication. Now let's turn to the 2018 guidance.

For fiscal year 2018, we expect revenue to be between $1.83 billion and $1.91 billion. Our revenue guidance range assumes that 88% of our revenue will be generated from existing contracts, 8% will come from recompetes, and 4% from new business, at the midpoint in the guidance range. Our EBITDA is expected to be between $160 million and $170 million, with EBITDA margins of approximately 8.8%. The year-over-year decline in our EBITDA margin is being driven by a more-than-20% increase in growth and employee-related investments.

More specifically, we are investing in experts, technologies, and capabilities to serve our customers, while increasing Engility's presence in adjacent growth markets. We also continue to enhance certain employee incentive and fringe benefits related to growth efforts. Lastly, we continue to be impacted, to some extent, by the movement of higher-margin, fixed-price contracts to cost-plus contracts, which typically have lower margins. Our full-year 2018 GAAP effective tax rate is expected to be approximately 25% and, as mentioned earlier, we expect to pay less than $1 million in annual cash taxes through 2025.

GAAP diluted EPS is expected to be between $0.81 and $0.91 per diluted share. This range includes approximately $25 million in noncash acquisition-related amortization expenses. Cash flow from operation's expected to be between $100 million and $110 million, and we expect to make debt payments of approximately $100 million this year. We got off to a good start against this objective and made a voluntary payment of $10 million at the end of February.

In addition, we will continue to monitor the capital markets to ensure we capitalize on any opportunities that exist to reprice our debt once again. As a starting point for our revenue and GAAP EPS in 2018, we expect first-quarter revenue to be approximately $465 million and GAAP EPS to be approximately $0.18 to $0.20 per diluted share. Revenue for the remaining three quarters should be relatively stable and we expect EPS in the low $0.20 range throughout the rest of the year. The other key assumptions comprising our 2018 guidance are outlined on Slide 7 in today's PowerPoint presentation.

With that, I will open the call up for questions. Operator, can you give instructions for the Q&A process please?

Questions and Answers:

Operator

Certainly. Ladies and gentlemen, if you have a question at this time, please press * followed by the number1 key on your telephone keypad. If your question has been answered, or you would like to remove your line from the queue, you may press the # key. Our first question comes from the line of Tobey Sommer with SunTrust.

Tobey Sommer -- SunTrust Robinson Humphrey -- Managing Director

Thanks. I was wondering if you could -- one thing you mentioned in your prepared remarks, I wanted to get a handle on, you mentioned multiaward IDIQs up 25%, could you elaborate on what you mean by that? Is it the total value? Or the number of vehicles?

Lynn Dugle -- Chief Executive Officer

Yes. what I was referring to is the GWAC/IDIQ cell that we set up a little bit over a year ago and we've actually seen the number of bids submitted in one increased by 25%. The revenue was following the medical coding work that I referenced, which is our first kind of foray into medical informatics, with -- all came through our GWAC cell, so that's $65 million.

Tobey Sommer -- SunTrust Robinson Humphrey -- Managing Director

OK. And then I was wondering if you could give some color on the recompete loss in -- that you described and maybe that impact to the book-to-bill. And how does the composition of this year's guidance relative to kind of a percentage of new and recompete work compared to your historical methodology in percentages from those two areas?

Lynn Dugle -- Chief Executive Officer

Yes, sure. We didn't have a recomplete in Q4. What we were referring were, we went after a number of very long-standing incumbents on the intel side, over last year, we had basically three of those. We won PWW, we've lost one of those and we have one outstanding.

So that was what I referred to. In addition, we had a number of our larger bids that ended up flowing into 2018, some even into the second quarter, just based on our customers' ability to get them adjudicated. If I look at kind of the makeup and, Tobey, if I don't cover everything, you asked in that question, please come back to me. In 2017, our revenue was broken down, about 94% of it was based, 4% was recompete, and 2% was new business.

When we set the plan for 2018, and we would normally be locking in early November, we thought our recompete would be about 15%. Since that time with some things sliding right, it looks like -- and then us receiving extensions then to the contracts that we have. Right now we're sitting at about 88% of 2018 revenue and base, 8% on recompetes, and 4% on new, and it's early in the year. We've got some major recompetes that we were anticipating this year that we've already seen sliding more toward the end of the year.

So my anticipation is that number would continue down throughout the year.

Tobey Sommer -- SunTrust Robinson Humphrey -- Managing Director

OK. One more question for me than I'll get back in the queue. With respect to the budget agreement that was announced and expected appropriations that will follow, does your guidance assume much of an impact from the increased funding and then potentially contracting activity? Or is the kind of your scenario that that's more potentially of an impact on '19?

Lynn Dugle -- Chief Executive Officer

In our thinking, it's a 2019 impact. If, as we expect, they approve toward the end of March budget, we will actually be halfway through the government fiscal year. And so they will just have about six months to try to figure out what -- where they will place those dollars. And of course, we're spending a lot of energy, helping our customers get ready to do that as quickly as we can.

Really what we know at this point on the 2018 budget, so you know what's between base and the overseas contingencies, we've got the appropriation title, right? So we can track dollars to what's going into R&D, O&M, procurement, and so forth. And we know what each service is getting. We know that it looks like between Army and Marines, we'll probably be up $45,000 to $50,000 troops, but we really don't yet have the fidelity around what -- where exactly we will fall in from the service piece on readiness. There's been hints that there will be additional funding for logistics, maintenance, training, all of those would bode well for us.

But we really lack the next level of detail.

Operator

Thank you. And our next question comes from the line of Edward Caso with Wells Fargo.

Edward Caso -- Wells Fargo Securities -- Managing Director

Hi, good evening. I was curious, most of your peers are talking about using some of their tax reform dollars to step up new business investments, and if I'm doing my math right, you really don't sort of benefit from that relatively. Has that put you at a disadvantage? And is that sort of why maybe EBITDA margin's a little lower than we thought it would be?

Lynn Dugle -- Chief Executive Officer

Well, as usual, Ed, you're right on. So for us, the new tax code is a nonevent, because we do not pay federal taxes. As we analyze the -- where we're projecting our margins will be, that includes about $13 million of increased expense and $10 million of that is all-around increased growth activities. And I don't mean just business-development resources, we really are looking at how do we take commercial tools up, kind of package that with our proprietary methodology and bring that to the market as a way to drive us out of commodity services, so those investments are included.

And then last year, I had shared that we had completely redefined our compensation and incentive programs to drive the growth that we were anticipating, and we're making investments there as well.

Edward Caso -- Wells Fargo Securities -- Managing Director

And then do you see any of your clients yet being a little bit more aggressive on price here? Again, trying to use that tax thing? Or are they so far being behaved?

Lynn Dugle -- Chief Executive Officer

I haven't got any indication of that at the service level. I wouldn't be at all surprised if the Lockheed, Northrops, and Raytheons aren't getting asked those kinds of questions. One, because they run at much higher margins and will have kind of a windfall break here.

Edward Caso -- Wells Fargo Securities -- Managing Director

Great. Thank you.

Operator

Thank you. And our next question comes from the line of Lucy Guo from Cowen and Company.

Lucy Guo -- Cowen and Company -- Vice President

Hi, everyone. Thanks for taking the questions. First, to start off, can you update us on your thinking of cash deployment, sort of follow-up on other question in terms of investments. Your CAPEX is going up slightly, debt pay-down is down a little bit.

Can you just talk about what if anything has changed?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Sure. Lucy, so just really -- remember, we did have a bit of a windfall last year. Last -- early in January, we sold off the IRG business and that gave us a little bit over $20 million. So, in fact, if you adjust for that, we're actually paying down more debt this year out of operations than we did last year.

Having said that, that is the cash-deployment strategy. It's not changed. We certainly believe we have room to do small acquisitions if we find the right company that delivers either a capability or technology that we want. But if we don't, we'll continue to pay down debt aggressively over this year.

Lucy Guo -- Cowen and Company -- Vice President

And that sounds like that would be bolt-on acquisitions. Have you communicated anything in terms of size or type of customer that you may be going after? You mentioned healthcare as a new initiative.

Lynn Dugle -- Chief Executive Officer

Yes, Lucy, what we've said, I think, in the past is $100 million to $150 million acquisition, where we could go on a cash deal. Anything bigger than that would have to involve some level of equity. It would be very consistent with either a new geographic expansion, areas where we'd like to get in in a bigger footprint, versus growing that organically or new customers. And the ones that we've flagged out in the past is our expanded footprint in Augusta and what we are doing there and perhaps looking at -- and there's obviously multiple agencies out of Huntsville, where we have NASA customers, MDA, etc.

It could also be more on the capability base side. Our play in cyber really comes a little bit differently than a lot of the peers. We kind of come at it [Inaudible]. With our experience in IV&V testings on very, very complex ground systems and the like, and certifications and network security profiles.

That might be an area that as we try to accelerate, something along that capability to accelerate efforts there.

Lucy Guo -- Cowen and Company -- Vice President

That's helpful. Last question is, if you can address your kind of revenue outlook by markets, between the legacy deals you work, federal civilian, and then intel and space?

Lynn Dugle -- Chief Executive Officer

Yes. And really the Engility business, over the last couple of years has really been this balance where we have our space and intel groups that have grown 3% or 4% over the last couple of years. But that being offset by the shrinkage that we saw in our federal civilian work and the legacy DoD work. And the reduction in fed civ, we've talked quite a lot about transition to small businesses, especially out of the VA and what that has meant to us.

And on DoD, we had to make some very hard choices around what work we would continue to pursue, which goes along the lines of getting ourselves away from that lower-end service that had been a part of Engility's history and moving our way up the kind of the value chain of services, if you will, dealing with more complex technical solutions, where we can bring something more to the game than just trying to drive cost down.

Lucy Guo -- Cowen and Company -- Vice President

So just to be clear, you are still expecting fed civ to be down this year in '18?

Lynn Dugle -- Chief Executive Officer

I'm sorry, defense?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Fed civ.

Lucy Guo -- Cowen and Company -- Vice President

Federal civilian

Lynn Dugle -- Chief Executive Officer

Federal civ, probably flat to slightly down.

Lucy Guo -- Cowen and Company -- Vice President

Got it. Thank you very much.

Operator

Our next question comes from the line of Krishna Sinha with Vertical Research Partners.

Krishna Sinha -- Vertical Research Partners -- Vice President

Hi, thanks, guys. So you mentioned in your remarks that you had $500 million of slippage of awards into 2018 and that hurt your book-to-bill in the quarter. We've heard a lot of, like, mixed commentary on the awards environment. Can you just kind of quantify? Well, I guess you did quantify $500 million, but how much of that do you think is just going to be ongoing where the customer continues to push awards out, because you're not the only contractor that we've heard this from?

Lynn Dugle -- Chief Executive Officer

I mean, it's a good question and we just continue to see our drag on the acquisition core, whether it be in the intel, space, or DoD. The timelines continue to expand. Yesterday I was speaking to a former deputy director who told me that now service contracting out of his former agency is 18 months after submittal. That's quite long.

With the government shutdowns, logically, you say, "Well that was just a few-hour shutdown or very minor," but it is -- it just slows everything down, because we're doing preplanning with customers on the shutdown and then recovery and working funding levels. It all just drags our cycle times slower.

Krishna Sinha -- Vertical Research Partners -- Vice President

OK, and then on margins, you mentioned that you guys were impacted by a shift of contracts from fixed-price to cost-plus. How much of that is attributable to your -- you got it to 7% margins for 2017 and you came in at, like, 6.6%, so how much of that 40 bps of miss against the guidance was due to that shift? And how much do you think that's going to impact you going forward?

Lynn Dugle -- Chief Executive Officer

Well, let me -- and I'll let Wayne do the math here quickly. But I mean, just in general, when we look at the growth and in our space and intel, that's predominantly cost-plus business. So we anticipated that shift, because they knew those businesses were growing. We also had a shift in one of our major intel programs that went from what we've -- inherently fixed-price to cost-plus contracting.

So, Wayne, I don't know if you can put more color on the 40 bps...

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Yes, what I'd like to do is -- do it from kind of an EBITDA perspective, take the -- I think -- I don't know if you have taken the goodwill impairment and adjusted that out, but we think that the impact is somewhere in the $3 million to $4 million range next year, in terms of our -- in terms of actual margin loss. We've had -- as Lynn said, there's been significant movement. And unfortunately, it was movement where we had fairly high margins on the fixed-price work. So that's what we think it is across the portfolio.

And you can see, we've gone from 60% to 65% cost-plus last year.

Krishna Sinha -- Vertical Research Partners -- Vice President

OK. And then just maybe one more. Obviously, last quarter, you mentioned that there would be some revenue headwinds coming into this year and obviously, that's coming out -- coming to bear, but I'm just curious, if there are any -- is there any situation where there are contracts out there that you could win that would shift your revenue trajectory earlier than expected, meaning maybe later this year you could reflect back to organic growth as opposed to sometime in 2019?

Lynn Dugle -- Chief Executive Officer

If some of this is a math exercise with only 4% in at new business, we win a little bit more that number could grow. And maybe it's counterintuitive, as it is for 2018 the business that has the most potential to do that is actually our defense team, because they tend to be able to take better advantage of the GWAC and IDIQ. They have a generally short -- shorter cycle, both on the proposal time frame and the adjudication time frame. So all of those would be variables and with our -- kind of our normal win/loss, upside/downside.

Krishna Sinha -- Vertical Research Partners -- Vice President

Got you. Thank you, guys.

Operator

Thank you. And our next question comes from the line of Brian Kinstlinger with Maxim Group.

Brian Kinstlinger -- Maxim Group -- Managing Director

Hi, good evening, thanks. Wanted to start with an easy one, if you can talk about the awards from new business from $179 million?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

I'm sorry?

Lynn Dugle -- Chief Executive Officer

On the Q4?

Brian Kinstlinger -- Maxim Group -- Managing Director

Yes. What percentage of those bookings were for new business or expansion?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

There was a small amount for new business. It was less than 5%. Most of it was recompete revenue.

Lynn Dugle -- Chief Executive Officer

And extensions.

Brian Kinstlinger -- Maxim Group -- Managing Director

Got it, great. You mentioned you were disappointed in 4Q bookings and it sounded like thus far in the first quarter, you were clear that $500 million was from the delays in adjudications, but maybe you can quantify the bids lost that were submitted and, typically I wouldn't ask that, but what surprised me was the proposals outstanding went from -- I thought if I heard you right, to $3 billion from $4.4 billion, so it did go down substantially, even though there were delays, which I don't think those delays get pulled out of there. So maybe you could address that?

Lynn Dugle -- Chief Executive Officer

Yes. And -- I mean -- in fact, I just happened to be looking at how much we had submitted, and yesterday we submitted more. So now we're at $3.2 billion. So I mean, that kind of moves around on us.

The way I'm looking at it, Brian, from maybe a higher level is in 2016, right? We submitted about $6 billion of work. In 27, that number went to $5 billion, and if I look into '18, it's north of $7 billion again. And some of that is just kind of a life cycle of the programs that we are going through, and so that's kind of how I am tracking it.

Brian Kinstlinger -- Maxim Group -- Managing Director

Yes. And so I think that's the right thing, right? I think you guys have a bit of more work, but [Inaudible] what confuses me is how backlog went down -- not backlog -- proposals outstanding went down $1.4 billion. Would you, I guess, [Inaudible] the large number.

Lynn Dugle -- Chief Executive Officer

Well, remember that $900 million of that was MSOC.

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Yes. MSOC was -- had been protested and then they withdrew -- the agency withdrew the award. And so that was being reevaluated at that point in time, it was in the number.

Brian Kinstlinger -- Maxim Group -- Managing Director

I see. So that's the explanation. OK. And then of that $7 billion, can you talk about how much is for new business versus total value of recompetes?

Lynn Dugle -- Chief Executive Officer

Yes, it's a $4.7 billion on the new, so about 65%.

Brian Kinstlinger -- Maxim Group -- Managing Director

Great. And then ... I think that's it, 'cause you pre-empted with an answer to my other question. Thank you so much.

Lynn Dugle -- Chief Executive Officer

All right. Thank you.

Brian Kinstlinger -- Maxim Group -- Managing Director

Bye-bye.

Operator

Thank you. And as a reminder, if you do have a question, please press * then 1 on your telephone keypad. Our next question comes from the line of -- excuse me, from the line of Brian Ruttenbur with Drexel Hamilton.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

Yes. Thank you very much. A couple of questions, if I could ask about the lockup ending with Birch Partners, so the timing of that, I think that's roughly 19 million shares on -- Wayne, you may have a more accurate number than me --

Lynn Dugle -- Chief Executive Officer

No. That's right.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

OK. What are their plans? And is their fund coming to an end? Can they hang in here for a couple of more years? Can you talk a little about what their plans are?

Lynn Dugle -- Chief Executive Officer

Well, I can, but I'd also encourage you to, I don't speak for KKR and GA. But we are not bumping up against any fund requirements. We don't anticipate, this is the month that the three-year lockup is complete, so it's over. And we think, of course, that they're -- with their strike price having been in the mid-40s, that their plan is to stay with us here as we get on that trajectory of growth, and don't anticipate any large movements on their part in the near-term.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

OK. And then in terms of adjusted EPS in '18, I joined the call late, I apologize, I was on another call. But can you talk a little bit about what adjusted EPS is? I heard the GAAP number, but I didn't catch the adjusted EPS number?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Well, we haven't given the adjusted EPS number. I think if you look at our guidance and look at the adjustment you'd make on the tax benefit, and then the amortization, you can get back, you can get back to that.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

OK, very good. And then adjusted EPS in the fourth quarter was what?

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Adjusted EPS was a $1.62 negative.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

OK. Thanks.

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

There was $2.16, mostly driven by the reevaluation of the tax asset in that $2.16. And we do break that out as well.

Brian Ruttenbur -- Drexel Hamilton -- Analyst

OK. Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Ben Klieve with Noble Capital Markets. I'm sorry, [Inaudible] Ben, your line is open.

Christian Herbosa -- Noble Capital Markets -- Analyst

Hi. Thanks for taking my call. This is Christian Herbosa on for Ben. So last quarter, you mentioned a couple of large contracts under protest, JITC and MSOC.

You already mentioned MSOC, but where do you stand with JITC and are there any other contracts under protest you think we should be aware of?

Lynn Dugle -- Chief Executive Officer

And Christian, we don't have anything under protest. Nothing in backlog. So we're not affected by any of that.

Christian Herbosa -- Noble Capital Markets -- Analyst

Oh, OK. Thanks. Thanks for clearing that up.

Operator

Thank you. And our next question comes from the line of Dan Drawbaugh with B. Riley FBR.

Dan Drawbaugh -- B. Riley FBR -- Analyst

Yes, thanks. This is Dan Drawbaugh on behalf of Christopher Van Horn, and, Lynn, first of all, congratulations on the appointment.

Lynn Dugle -- Chief Executive Officer

Well, thank you.

Dan Drawbaugh -- B. Riley FBR -- Analyst

I just have one question. You mentioned a couple of growth and employee-investment initiatives that could be impacting margin a bit in 2017. How should we be thinking about the return on those investments rolling forward from there and how are you contemplating that in 2019? And also I'm curious to know how you think those roll onto the P&L in 2018, those additional investments.

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

So, can I start and then Lynn can --

Lynn Dugle -- Chief Executive Officer

Yes.

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Some of those investments have to do with the way we're incenting our folks in our capture and business-development group. We have a new capture program, incentive program. There's also a way we're incenting the leaders of the organization, there's a lot of leverage on the upside if we overachieve plan, so I think that, to answer your question, I think that the investment will pay off in terms of where we end up this year, both in submits and the amount of bookings we have relative to what we compensate people for and but you'll see a little bit more of SG&A. That's in there, and maybe a little bit more stock comp as well.

Dan Drawbaugh -- B. Riley FBR -- Analyst

OK, great. Thank you very much.

Operator

Thank you. And we have a follow-up from the line of Brian Kinstlinger with the Maxim Group.

Brian Kinstlinger -- Maxim Group -- Managing Director

Yea, great. On that $900 million protest that was withdrawn, what's the status now? Does that start all over, and so that is in your pipeline now?

Lynn Dugle -- Chief Executive Officer

Brian, I'm a little bit handcuffed because we're currently working through an agreement that doesn't allow me to make any statement specifically, but what is public is the government reevaluated and reawarded to the company that originally won.

Brian Kinstlinger -- Maxim Group -- Managing Director

I see. OK. Thank you.

Operator

Thank you. And that is all the time we have for questions for today. I'd like to turn the conference back over to Dave Spille for closing comments.

Dave Spille -- Vice President Investor Relations

Great. Thank you for joining us today. 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 night.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day.

Duration: 47 minutes

Call Participants:

Dave Spille -- Vice President Investor Relations

Lynn Dugle -- Chief Executive Officer

Wayne Rehberger -- Senior Vice President and Chief Financial Officer

Tobey Sommer -- SunTrust Robinson Humphrey -- Managing Director

Edward Caso -- Wells Fargo Securities -- Managing Director

Lucy Guo -- Cowen and Company -- Vice President

Krishna Sinha -- Vertical Research Partners -- Vice President

Brian Kinstlinger -- Maxim Group -- Managing Director

Brian Ruttenbur -- Drexel Hamilton -- Analyst

Christian Herbosa -- Noble Capital Markets -- Analyst

Dan Drawbaugh -- B. Riley FBR -- Analyst

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