Mark Weinswig: So, on a non-GAAP basis, our gross margins this quarter were 36%. We were very happy by that performance. If we look at where we were a year ago, 11 percentage points higher than where we were a year ago. In terms of kind of incremental gross margins, this quarter we did see some benefits in terms of some lower costs in the operating expenses, our cost of goods sold. We also saw some improvements in other areas. But in terms of our incremental margin, while we’ve never disclosed it, we do have an incremental margin that obviously is higher than our 35% to 40% level. And that’s and by continuing to increase our revenue levels, that’s what’s going to get us to that 35% to 40% GAAP gross margin level that we’re targeting as part of our financial framework.
Itay Michaeli: Terrific. That’s very helpful. Thank you.
Operator: [Operator Instructions] Next up is Andres Sheppard, Cantor Fitzgerald.
Unidentified Analyst: Hi, guys. This is [Anand] on here for Andres. Congrats on the quarter and thanks for taking our questions. I know you’re focused primarily on the non — on automotive market, but with Tesla moving to further implement its FSD software into more vehicles and potentially launching a robotaxi in the future, do you think this could potentially be an opportunity for our Ouster since they’ll likely have to adopt lidar or do you see potential similar opportunities in the automotive space?
Angus Pacala: Well, automotive continues to be a major vertical for us in the robotaxi, robotrucking, shuttle and bus industry. And we have major customers that have been buying our sensors for years in those industries. Many of those customers naturally will transition between different products that Ouster has over time, and specifically things like the DF sensors as we bring those to market. I do see a natural transition to different product lines. For us, I can’t comment specifically on Tesla as being an opportunity or whatever for Ouster specifically, but I think that the AI advancements that are being made that companies like Tesla are taking advantage of very much apply to all sensor modalities, lidar being one of them, and that is definitely buoying our business.
I see that as a really good development, again, because of much of the difficulty with customers ramping quickly into this technology is just the challenge of them integrating the technology, building robust systems. And the advancements in AI that companies like Tesla are evangelizing, I would say, are actually helping us, not just in automotive, but across all of our verticals.
Mark Weinswig: And to add some numbers to that, as we mentioned in the prepared remarks, automotive, we had a record quarter for us, so we were very, very happy by Ouster’s performance in the first quarter.
Unidentified Analyst: Got you. Thanks. It’s very helpful. And if I could just get one quick follow-up in. I was wondering, since software was a big emphasis this quarter, if you could go over quickly the business plan related to your software ecosystem and how that’s going to impact your margins in the long term and how you’re going to bridge to your long-term target with Gemini and Blue City?
Angus Pacala: Yes, so I see, I mean, the software that we’re providing to customers is now a central kind of strategic pillar and differentiator for Ouster. There are a couple different tiers of software that we provide to customers. The first is the developer tools that we’re providing, largely free to every customer that buys an Ouster sensor. This is the SDK and associated tools. We don’t talk a lot about them, but the goal there is to make Ouster sensors the de facto easiest and most convenient and efficient hardware to develop around. And I think we’re well on the path to making that the case. Now Gemini and Blue City are really the revenue generating total solutions that we brought to market over a year ago. And I’m incredibly happy with.
The goal there is to both expand into a new set of markets that increase the overall opportunity set for Ouster. And specifically, we’re talking smart infrastructure markets, security, crowd analytics, and traffic control solutions, major markets that traditionally lidar has not played in. And the second thing is just to build a completely new revenue model for Ouster and ultimately a higher margin one that’s very sticky. So in the last year plus, we not only brought these products to market, but we’ve commercialized them and built go-to-market plans, and now deployed them at pretty significant scale within customers. And I mentioned in the prepared remarks, customer feedback has been incredibly strong for these products even in their infancy.
And I do think that they are still in their infancy. We are a long way from Ouster being a dominant player in any of our smart infrastructure verticals. But I think that given the initial feedback that has been effusive in many cases, that we’re on a path where that is a distinct possibility. So we’re going to continue to make major investments into the software side of Ouster, given the kind of unique position we have in the market to bring both hardware and software to these players.
Mark Weinswig: And going back to the second part of your question on the margin side, the 35% to 40% goal or framework that we have put together in terms of margins, that’s based on a significant amount of hardware revenue, we do expect our software revenue to increase. We do expect that our margins from software will be higher in the long-term. So we’re looking forward to being able to discuss that a little bit more thoroughly probably sometime early next year.
Unidentified Analyst: Wonderful. That’s very helpful. Thanks. I’ll pass it on.
Operator: Your next question comes from Kevin Garrigan, WestPark Capital.
Kevin Garrigan: Yes. Hi, good afternoon, Angus and Mark, and thanks for taking my questions. And let me echo my congrats on the progress. Kind of going off the previous question, can you give us a sense of how quickly you’re expecting to continue or to offer new software solutions? And any customers that only buy the sensor and kind of not go for the software. Is there anything you guys can kind of do to change their mind or how do those conversations kind of go?
