Our cash balance at September 30 included approximately $3 million raised via our ATM during the quarter, reflecting our strategy to maintain a strong balance sheet. We believe the lidar industry will be a winner take most market and that these actions place us on a better path to win. As part of our merger integration efforts, we have made significant strides aligning our cost structure with our business model. We have now completed the majority of our integration activities and have enough visibility to discuss our go-forward financial strategy. As Angus shared, we’ve established a three-pronged financial framework to drive us to profitability. First, achieving 30% to 50% average annual revenue growth; second, expanding gross margins to 35% to 40%; and third, maintaining operating expenses at or below third quarter 2023 levels.
Our first focus has been on controlling operating expenses. Since the merger, we have worked to establish an appropriate cost structure to support and sustain our current business trajectory. We have successfully implemented a plan to materially reduce these costs while continuing to invest in our product roadmap and supporting our sales network. We are pleased that our third quarter 2023 cost savings have surpassed our prior year-end target of $110 million. Our operating expenses are over $120 million lower or 40% compared to the combined pre-merger cost of Ouster and Velodyne. Notably, this represents our lowest spending level since the second quarter of 2022 when Ouster was a stand-alone company. Looking forward, we aim to maintain operating expenses at or below third quarter 2023 levels.
We’ve identified savings opportunities through software consolidation, office space optimization and the transition to Thailand. Operating expenses on a quarterly basis may fluctuate due to the timing of certain R&D investments and noncash expenses, and we may incur certain expenses to achieve these savings. After realizing these cost savings, we expect to keep operating expenses relatively flat on a dollar basis. We expect multiple years of significant revenue growth and believe we have already invested the necessary personnel and infrastructure to support this growth. We expect to benefit from our business’ inherent operating leverage and expect operating expenses to decline as a percentage of revenue. Cost management is a continuous effort, and we are committed to optimizing expenses to maximize the earnings power of the business.
Moving now to our second key metric, gross margins. Post-merger, our gross margins have been negatively impacted by transitory costs such as excess and obsolete inventory, losses on purchase commitments and product transition. We made significant progress in the third quarter to improve our gross margins realizing 14% on a GAAP basis and 33% on a non-GAAP basis. We are pleased with the improvement in our third quarter results as our margins have rebounded. However, we are not finished, and we expect to reach 35% to 40% gross margins over time as we continue to implement numerous business initiatives. First, we are shifting volume production of all Velodyne products to Thailand. We expect margins to expand as we leverage our contract manufacturing model.
As a reminder, our OS products are already primarily manufactured in Thailand. Second, we believe our customers recognize the superior performance and increased value proposition of our REV7 sensors. Given these are higher-priced products, we expect to see margin improvement as our customer base continues to shift towards these differentiated sensors. Third, we expect sales of our software products to grow at a faster rate than hardware. We expect our software margins to be accretive to overall margins and will provide a growing contribution as these solutions become a higher percentage of revenues. Lastly, we expect to benefit from fixed cost absorption as our shipment volume increases. We’ve already experienced positive operating leverage this year and expect additional improvements as our volume continues to grow.
Optimizing our cost structure and expanding our gross margins are two key variables in our financial framework. I’d now like to turn the call back over to Angus to have him discuss the third key pillar, revenue growth.
