Leidos [LDOS] on Tuesday followed up a strong second quarter with still strong financial results for its third quarter and the company raised its earnings guidance for the year.

Net income soared 28 percent to $208 million, $1.43 earnings per share (EPS), from $163 million ($1.13 EPS) a year ago. Excluding certain expenses, adjusting earnings of $1.80 EPS topped consensus estimates by 18 cents per share. Adjusted operating margin rose 90 basis points to 11.6 percent.

Sales in the quarter increased 7 percent to a record $3.5 billion from $3.2 billion a year ago, with organic revenue up 6 percent, driven primarily by strong growth in the Health segment. The company’s Defense Solutions and Civil segments also reported top line gains.

In the Defense Solutions segment, the growth was driven by the rampup in the Navy’s nearly $8 billion Next-Generation Enterprise Network (NGEN) program, which Leidos has now fully taken over from incumbent Perspecta, which is now part of Peraton.

The NGEN program is now fully staffed at about 4,000 employees and could reach full quarterly revenue run rates in the first quarter of 2022, Roger Krone, chairman and CEO of Leidos, said on the company’s earnings call. He added that it will be 2022 or possibly 2023 before the program reaches its annual run-rate expectations for sales.

Leidos hired more 2,900 new employees during the quarter, adding 2 percent to its headcount versus the second quarter and 12 percent over a year ago, Krone said. The company still has 1,400 funded open positions, he added.

Hiring and retaining employees “remains an area of strategic focus for the leadership team,” Krone said.

Orders in the quarter were strong at $4.7 billion and drove backlog to a record of $34.7 billion, up 9 percent from $31.7 billion a year ago. Free cash flow was also robust at $541 million.

For 2021, Leidos expects adjusted earnings of $6.55 to $6.75 EPS, up from prior guidance of between $6.35 to $6.65 EPS, with margins forecast to be 40 basis points better than expected at between 10.9 percent and 11.1 percent. Operating cash flow is still expected to be at least $875 million.

Leidos did trim its sales forecast this year by $200 million from the top-end of the prior guidance range to a new estimate of between $13.7 billion and $13.9 billion. Krone said budget uncertainty related to another potential continuing resolution for the federal government into next March has led some customers to slow spending.

The company is also experiencing some supply chain pressure related to electronics components and some defense-related technologies that is delaying programs and sales, he said.

Chris Cage, Leidos’ chief financial officer, provided a breakout of the softer revenue outlook, which is down $100 million at the mid-point of the prior guidance range. The supply chain headwinds account for about one-third of the reduction, budgetary concerns another one-third, and protested awards and the withdrawal of U.S. troops from Afghanistan the remainder, he said.

Overall, the impacts to Leidos from budget concerns remain “modest,” Krone said.

Leidos disclosed a $36 million strategic acquisition to its Dynetics subsidiary during the quarter to “accelerate” growth opportunities. Krone said the company is “always looking at technology add-ons, and so that pipeline is pretty active,” adding no “major” deals are “on-the-horizon.”