Westport Innovations Inc. (TSX:WPT)(NASDAQ:WPRT) investors are in a tight spot. The stock ended last week roughly 6% lower, having crashed nearly 10% at one point in trading on July 30 after the company announced its second-quarter numbers.

Interestingly, Westport’s earnings report had more positive news than negative, but the market appears to have overlooked all of it. Perhaps a 26.6% slump in revenue didn’t go down well with the market, but the bad news ends there. Here are three key highlights from the earnings report that point to better days ahead for the company.

1. Improving cost and cash positions

Westport’s aggressive cost-cutting efforts have started to show up in its numbers. Its total operating expenses declined an impressive 26% in the last quarter. While the bulk of it came off lower research and development spending, Westport cut its selling, general, and administrative expenses by 20% year over year.

This tight control over expenses is helping Westport address its biggest concern for now—cash burn. The company is making progress on this front, having used up only about $8.1 million cash for operations in Q2 compared with $19.2 million a year ago.

2. Joint ventures on growth track

Even as Westport cuts costs, prospects of its joint ventures are looking brighter. Whatever little income the company earns right now comes from its joint ventures with Cummins and China-based Weichai.

In Q2 Westport’s share of net income from the Cummins-Westport (CWI) venture jumped from negligible last year to US$3.4 million. It’s also worth noting that

  • CWI shipments climbed 19%, indicating strength in key end markets; and
  • CWI gross margin shot up to 26.5% from only 13.1% last year, confirming that margin-punishing warranty issues that were a major setback last year have been resolved.

These are encouraging signs given that CWI could hold the key to Westport’s turnaround.

Things don’t look as good with Weichai-Westport (WWI) with Q2 revenue slumping 68.5% because of a slowdown in the Chinese market. However, WWI gross margin improved 700 basis points to 13.6%, suggesting that the venture is working hard to boost margins even as business conditions remain challenging.

3. Leaner and stronger

Aside from ongoing cost-cutting plans, Westport has plans to dispose non-core assets worth $50 million by Q4. These efforts to make its business leaner should go a long way in boosting Westport’s cash position and help it focus on core business areas that will take the company to profitability.

All said, Westport still faces challenges aplenty, and investors will have to wait a little longer to see the company turn around. But management is clearly making an effort, and the company has shown visible signs of progress over the past couple of quarters. For those who’ve waited patiently, Westport’s second-quarter report was promising enough to encourage them to wait a little longer.

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Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool owns shares of Cummins and Westport Innovations.