Quarterly revenues increased 15% y-o-y. Sales are shifting from lumpy Energy Generations Technology (EGT) sales to higher margin, stable Energy as a Service (EaaS). Quarterly sales of $17.2 million surpassed our estimate of $16.7 million. EaaS grew 57.0% while EGT sales declined 9.4%. New Gross Product Orders rose to $10.8 million, a 20% improvement over booking in the last September quarter, leading to a rise in the company's book-to-bill ratio of 1.3-1 times. Margins decreased as COVID cost reductions abate. Gross margin were 15.8%, down from 17.2% last year and 16.5% last quarter. A reduction in costs last year due to travel reductions and overall belt tightening has begun to evaporate. Margins were also hurt by a build up in inventories, increased expenditure on part replacements, and a $0.8 million legal settlement. EGT margins have turned negative in recent quarters, but management remains confident that it will return to a level in the mid teens once timing issues pass. The company targets overall margins of 20-25% with the growth of higher-margin EaaS sales.Growth of Rentals (part of EaaS) was slow in the quarter but is about to pick up. Management has set a goal of expanding its long-term microturbine rental fleet from 12.1 MW at the end of the June quarter to 25.0 MW by the end of the March quarter. Rentals only grew 1.0 MW this quarter. However, management indicated that it signed 3.0 MW of rental in October and remains confident it will reach its goal with 130 MW in rentals quoted out. As it has done previously, management presented slides showing EBITDA turning positive with a move to 25 MW and becoming profitable if the company reaches 50 MW.We are reiterating our Outperform rating and our $10 price target. We are encouraged to see the topline start to grow again and especially encouraged to see the sales come from EaaS. Costs were a bit higher than we would like, but we will give the company a pass given the sharp cuts the company made last year and the fact that they are ramping up operations. Fundamentals remain strong with sales growing for energy, cannabis, and bitcoin customers. Our price target assumes revenue growth in the 15-20% range and an improvement in operations margins as sales shift from the product division to parts & services. Read More >>