He's referring to "COGS", meaning "cost of goods sold" which only includes costs directly related to the actual production and sale of the products sold. Indirect costs, such as R&D and marketing, are not usually included in COGS under US standard accounting practices (but are in some non-US accounting practices).

Under standard accounting practices (GAAP), COGS is the only common above-the-line expense item used to determine gross revenue (aka gross income). Essentially all other expenses are deducted from gross income to determine net income (i.e., profit or loss).