Westport shareholders might feel like this is happening right now.

It looks like Westport Innovations (WPRT 0.87%) management is pulling out all the stops to reduce costs and right the ship. The Vancouver-based natural gas engine expert just reported its third-quarter results and, frankly, the management team has a heck of a lot to do to turn things around.

The company's natural gas engine technology is the best out there, but the question remains: Can the company stem losses long enough for its growth initiatives to pay off?  Let's take a closer look at the earnings release.

Highlights -- or should I say lowlights?

Total sales fell to $25.3 million in the quarter -- a 46% decline from last year. While a substantial amount of the decline was tied to the discontinuation of the 15L HPDI engine in the fourth quarter of 2013, there's more to the story. 

Last year, Westport announced a deal for 900 of its iCE PACK LNG fuel systems; but apparently, that deal went sideways, as was reported at the beginning of October. The company also cited lower demand for its WiNG Power Systems, sold with certain Ford trucks and vans, as a result of lower gasoline prices. Combined, the On-Road Systems unit reported a sales decline of 61%. 

Sales in Applied Technologies declined 11%, as well, driven by weakness in South America that offset growth in Asia. The revenue decline isn't the worst of it -- operating expenses went up 61% in the quarter. The reasons cited were allowances for "doubtful accounts," and severance costs. 

Off-Road Systems remain a source of potential for the future -- and that's about it, with sales of only $300,000 in the quarter, and the majority of its product mix tied to locomotive and maritime projects that are years away from commercial application. Westport reduced operating expense in this segment by two-thirds, to $1 million, in the quarter. 

The company's joint ventures with WeiChai in China, or WWI, and Cummins in North America, or CWI, reported a mixed bag. WWI reported strong sales growth of 61% in the quarter, but gross margins continue to decline, and now rest at 5%.

The result? Westport's share of the company's income continues to decline, and has fallen 33% in 2014, even though total sales have increased 14%. 

At CWI, engine units and revenue both fell almost 10% in the quarter, and margins also came in below last year's pace. However -- here's some good news for a change -- gross margins in the third quarter almost doubled Q2's 13%, and is up sharply from the first half of the year. 

Further good news? While total engine units were down in the quarter, they are up 11% for the year. More importantly, since the launch of the ISX12 G last year, sales in trucking applications are up 35%. This is the critical growth market, so this is an important data point. 

Aggressive cost-reduction initiatives underway

Management has already taken some serious steps to get costs in line with the company's current level of scale. Last week, the company laid off 61 employees, while the executive staff agreed to  take salary cuts in exchange for restricted stock grants that will vest over three years. 

These actions, combined with deferring non-core development programs, are expected to save $13 million in 2015. This is above and beyond the steps already taken to reduce costs. Operating expenses have been reduced by $20 million through the first nine months of the year already. 

Will it be enough before growth kicks in? 

This question will only be answered in time, but the company's cash burn rate must come down. It burned $25.3 million in cash this quarter when normalized for working capital changes, up almost $1 million from last year. With only $130 million in cash and short-term investments on hand, it looks like it's going to take a combination of these cuts, as well as something panning out and generating income.

It could come at least partly from the joint ventures. In 2013's first nine months, Westport got $3.6 million in income from WWI versus $2.4 million this year. Cummins Westport paid out $6.6 million in the same period in 2013, yet has only netted $500,000 to Westport in 2014. 

It's hard to imagine that WWI will see its margins improve, but CWI's margins are very likely to keep improving. Earlier this year, the company took a substantial charge to cover future warranty expense related to its ISL G engine. It has identified the issue, set aside the funds to address it, and also said that the ISX12 G will mitigate this going forward as much of the issue was related to ISL G engines in trucking applications. 

Looking ahead 

Westport's management team has a really hard job ahead of it, and it's probably going to take some growth in demand on top of the cost-cutting for things to turn around. Add in the fact that its capital position and cash burn rate are set to intersect in 18 months, and something's gotta give.

Can this management team get it done? I'm pulling for them, but It's going to be one bumpy ride.