Science Applications International Corp. [SAIC] last Thursday posted strong second quarter financial results driven by solid organic sales growth, improved profitability across its contracts, and positive changes in contract estimates.

Net income in the quarter increased 61 percent to $82 million, $1.41 earnings per share (EPS), from $51 million (87 cents EPS) a year ago, handily topping consensus estimates by 31 cents per share. Sales increased 4 percent to just over $1.8 billion from just under $1.8 billion a year ago, with nearly all the growth organic.

SAIC estimates that COVID-19-related impacts chopped about $36 million off the topline, mainly due to reduced volume in its supply chain business, but only about $1 million from operating earnings.

Nazzic Keene, SAIC’s CEO, said on the company’s earnings call Thursday evening that the there is still “caution” related to federal activities due to the “surge” in COVID cases related to the Delta variant of the virus. The company will continue to provide a “hybrid work environment” for its employees, with some people having to be in the office and others at customers’ sites, while others can split work between home and the office and still others work remote full-time.

The flexible, hybrid approach is a differentiator in attracting talent, she said.

“This approach aligns well with our objective to attract and retain high quality talent by providing flexibility for our workforce,” Keene said. “This will continue to open our aperture for talent as we recruit from a wider geographical area.”

Orders in the quarter totaled $1.6 billion and backlog at the end of July stood at $24.2 billion, up 12 percent from $21.5 billion at the start of the fiscal year. Free cash flow in the quarter was $85 million.

SAIC increased its outlook for sales and earnings in the fiscal year, with the topline now expected to range between $7.3 billion and $7.4 billion versus prior guidance of between $7.15 billion and $7.3 billion. Most of the increase is related to a recent acquisition.

Adjusted per share earnings are expected to be in the range of $6.50 to $6.70 EPS versus the prior outlook of between $6.15 to $6.40 EPS due to an increase in operating margin.

SAIC officials said the guidance is conservative, largely given the dynamics and uncertainty around COVID and in part due to a tight labor market. The company needs to be able to hire new employees to ramp up on new contracts. COVID represents about a $125 million headwind this fiscal year.