Silvaco Group Inc

NASDAQ:SVCO

Earnings Call Analysis

Silvaco Q3 2024: Revenue Challenges but Positive Growth Expectations

In Q3 2024, Silvaco reported revenues of $11 million, reflecting a 21% drop in bookings year-over-year. The company's TCAD segment grew 12% to $27.5 million year-to-date, while SIP faced a 34% decline. Non-GAAP gross margin decreased to 80% but remains robust. Looking ahead, Silvaco anticipates Q4 revenues between $18.1 million to $21.2 million and aims for sustained growth through strategic acquisitions and expansion into advanced semiconductor markets. Key partnerships and new customer acquisitions signal confidence in future performance despite current challenges.

A Challenging Quarter but Bright Prospects Ahead

Silvaco’s third quarter results were mixed, showcasing resilience but also reflecting challenges primarily caused by delayed orders, particularly in the Asia-Pacific region. Total revenues for Q3 2024 slipped to $11 million, representing a 27% decline year-over-year, largely attributed to the postponement of substantial orders, including a notable $5 million contract that was only recognized in Q4. Despite these setbacks, Silvaco’s year-to-date total revenue of $41.8 million remained flat compared to the previous year, indicating stability in ongoing operations.

Bookings and Customer Growth Signal Future Potential

The company recorded gross bookings of $9.9 million in Q3, down 21% year-over-year but still revealing a commitment to expanding its customer base. Notably, Silvaco secured 14 new customers this quarter, bringing the total to 33 year-to-date. The successful engagement with diverse markets, including power and automotive sectors, demonstrates the company’s solid demand across key sectors despite market volatility.

Focused on Strategy: Digital Twin and Advanced Technologies

A significant highlight from the earnings call was Silvaco's emphasis on its digital twin modeling platform, which aims to drive innovation and add value for its clients. The company continues to pursue strategic acquisitions to enhance its product offerings and maintain competitive advantage. The management's focus on AI-based semiconductor design technologies suggests a confident forward-looking strategy aimed at capturing emerging market opportunities.

Revenue Guidance Reflects a Strong Recovery in Q4

Silvaco provided optimistic guidance for Q4, expecting bookings to reach between $18.5 million to $21.5 million, which would surpass previous records. Revenue expectations for Q4 are pegged between $18.1 million and $21.2 million, marking an anticipated sequential rebound as the company looks to close out the fiscal year on a strong note. For the full fiscal year, the company maintains its revenue guidance of $60 million to $63 million, indicating a 10% to 16% increase versus 2023.

Margin Performance: A Key Highlight

Despite the revenue decline, non-GAAP gross margins remained robust at 80% in Q3, slightly down from the previous year but still healthy. The company’s ability to sustain high margins, even with dropped revenues, reflects the intrinsic value of its solutions. For the fiscal year, it anticipates non-GAAP gross margins to range from 85% to 87%, which underscores operational leverage moving forward.

Financial Health and the Path Forward

Ending the quarter with nearly $100.4 million in cash and equivalents, Silvaco appears well-positioned to weather market fluctuations. However, significant operating expenses rose to $15.5 million, but management anticipates these to stabilize as the company scales efficiently. Non-GAAP operating income for the full year is expected to range from $5 million to $8 million, marking an increase from 2023 of 14% to 82%. Looking ahead, Silvaco aims for long-term growth with targets of 15% to 25% yearly revenue increases and 25%-plus operating margins over the next several years.

Conclusion: A Promising Future with Caution

While recent quarterly results reflect challenges primarily from order delays, Silvaco's strategic focus on innovation and customer expansion illustrates its long-term growth potential. With strong Q4 guidance coupled with healthy demand for its technologies, investors may find a cautiously optimistic outlook as the company continues to adapt and expand within the semiconductor industry.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, and welcome to Silvaco's Third Quarter 2024 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Greg McNiff, Investor Relations for Silvaco. Please go ahead.

[Greg McNiff, executive]

Thank you. Joining me on the call today are Babak Taheri, Silvaco's CEO; and Ryan Benton, Silvaco's CFO. As a reminder, a press release highlighting the company's results, along with supplemental financial results and an earnings presentation are available on the company's IR site @investors.silvaco.com.

An archived replay of the conference call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company.

These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

It is important to also note that the company undertakes no obligation to update such statements, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, earnings presentation and on this conference call.

The Risk Factors section in Silvaco's most recent Form 10-Q filing with the Securities and Exchange Commission provides a description of these risks.

With that, I'd like to turn the call over to Silvaco's CEO, Babak Taheri. Babak?

[Babak Taheri, executive]

Hello, and welcome to Silvaco's third quarter earnings call. I am Babak Taheri, CEO of Silvaco. Thank you for joining us today.

In addition to discussing Silvaco's results, we will also provide an update on our most recent press releases, business outlook and current market trends.

For those joining us for the first time, Silvaco is a provider of TCAD, EDA and semiconductor IP solutions that enable chip design, digital twin modeling and simulation, utilizing AI and machine learning.

We have decades of deep expertise in modeling and simulation software from concept to design and manufacturing. Silvaco digital twin platform drives advances for the next generation of power semis such as silicon carbide, gallium nitride for high-performance compute and AI, displays for watches, computers, cars and televisions, memory devices for servers, clouds, laptops and IoT devices and advanced CMOS technologies utilized in design and fabrication of integrated circuits.

We have 800-plus customers worldwide and hold the #2 position in the global TCAD revenue. We have 260-plus employees. Our headquarter is located in Silicon Valley.

I'm really excited about the progression of the business we have seen, and we are executing on the strategies we outlined since we went public earlier this year.

We believe our strategic focus on driving innovation through AI-based semiconductor design for advanced CMOS geometries and power semiconductors, which includes digital-twin modeling, positions us well for long-term growth and our strong business fundamentals and innovative product lines will continue to drive our customer momentum and growth trajectory.

If you'd like to learn more about our company and our mission, I encourage you to refer to my opening remarks from our second quarter earnings call and to the materials on our Investor Relations site.

I now want to touch on a few recent achievements and provide some commentary on the importance of the recent press releases.

Please turn to Slide 4. First, we continued expansion of our FTCO platform in the third quarter. We received a $5 million order late in the quarter, which we were not able to recognize until the first week of the Q4.

However, the significance of this order is that we further expanded our FTCO offering with our partners. I'll comment more on this in the next slide.

Second, in June, Silvaco announced strategic partnership with Purdue, Stanford and Arizona State University to help overcome the talent shortage and expand research activities.

In addition to these efforts, Silvaco has collaborated with Stanford University to publish a comprehensive book on chip fabrication that includes extensive TCAD examples using Silvaco platforms.

This joint effort aims to create a valuable resource that bridges the gap between academia and industry, offering insights and knowledge on the latest advancements in TCAD technology.

Third, in September, Silvaco appointed Candace Jackson as SVP, General Counsel and Corporate Secretary. We welcome Ms. Jackson to our team. Her semiconductor industry experience and background in corporate governance, litigation management, M&A and SEC reporting has made a significant impact.

Fourth, in September, Silvaco announced the expansion of its Victory TCAD and digital twin modeling platform to planar CMOS, FinFET and advanced CMOS technologies.

Our TCAD platform has gained significant traction in display, photonics, memory and power semiconductor markets, where our solutions have been instrumental in driving innovation and enhancing performance.

We have now extended our comprehensive suite of tools to the advanced CMOS market, enabling next-generation semiconductor technologies to address growing markets such as foundries, 5G, AI and high-performance computing.

Our newly released TCAD platform has been utilized by a strategic customer for the past few years and is now available for broad market adoption.

This new capability for advanced CMOS technology enables customers to accelerate their technology development with significant cost savings and its fundamental step in expansion of our AI-based FTCO platform into advanced CMOS markets.

In September, Silvaco was added to the Russell 2000, Russell 3000 and Russell Microcap indices. Silvaco's inclusion in these widely tracked Russell indices represents another important milestone for our company.

We look forward to the increased visibility in this inclusion which will enable us to broaden our shareholder base by reaching a wider range of passive and active investors, including ETFs and other institutional funds.

Finally, Silvaco achieved ISO 9001 certification of TCAD, ADA, NIP products in October.

I now want to touch on a few financial and operational highlights of the third quarter as well as provide some commentary on our outlook. Ryan Benton, our CFO, will go into more detail later about our financial results and guidance.

Q3 gross bookings were $9.9 million. Our Q1 through Q3 total bookings was $45.5 million, representing a 7% growth year-over-year for the first 3 quarters. We recognized revenue of $11 million for Q3 and $41.8 million for the first 3 quarters. We had a strong quarter in terms of customer traction.

We signed 14 new customers as well as expanded our relationship with several existing customers across key markets, including power, memory, foundry and display. We also signed a follow-on contract for our digital twin product with a large memory customer, which validates our strategic focus on this unique technology.

This demonstrates our solid business process and strategies for securing new clients and deepening existing partnerships. We expect this momentum to continue into Q4 2025 and beyond.

While Q3 revenues were impacted by the shift of some orders, including a substantial $5 million order received in the first week of the quarter, we remain confident in our ability to achieve our revised full year financial targets due to strong customer demand.

We expect to regain momentum and execute on our long-term strategy by expanding our footprint across the key end markets as well as executing on the right strategic inorganic opportunities.

We believe our business prospects remain strong, as you will see reflected in our Q4 and full year 2024 guidance. Despite the lower expected revenue for the quarter, the relative impact to gross margin was minimal.

For Q3, non-GAAP gross margin was 80% and GAAP was 75% compared to 85% for GAAP and non-GAAP alike in the same period last year. The fact that we were able to maintain such a healthy gross margin despite a decline in expected revenue speaks to the significant value of our solutions provide our customers.

The next few slides offer an overview of our products and markets, which we covered in more detail on our previous earnings call. I would like to turn to Slide 11 to summarize our growth strategies in that slide.

Slide #11. In summary, we believe our strategic focus on driving innovation through AI-enabled semiconductor design for newly announced advanced CMOS geometries and power semiconductors which include digital twin modeling positions us well for long-term growth.

Additionally, we've continued to leverage our deep relationships with R&D centers and academia to stay ahead of the technology. We believe this approach, along with our strong business fundamentals will continue to drive our customer momentum now and in the future.

With that, I'll turn it over to Ryan to review the quarter and discuss our guidance. Ryan?

[Ryan Benton, executive]

Thanks, Babak, and thank you for joining us. Today, I'll review our financial results for the third quarter of 2024 and discuss our outlook for the fourth quarter and full year.

As a reminder, we announced preliminary unaudited Q3 revenue and updated our full year guidance on October 15.

Turning to Slide 13. There are a couple of growth drivers in our business model, which I'd like to highlight today.

First, as Babak covered in his prepared remarks, we remain very excited about the opportunity for our digital twin modeling platform to create enormous value for our customers.

Second, with our strong financial position and operational expertise, we are actively pursuing strategic acquisitions that we believe will bolster our products, enhance our competitiveness and market presence, add strong engineers and scientists and provide much needed scale that can leverage our business model.

Now, let's turn to discuss our third quarter financial performance on the next slide.

Starting with bookings, we achieved gross bookings for our software and semiconductor IP products of $9.9 million, a decrease of 21% year-over-year. It is important to note that the first day of Q4, we secured a $5 million follow-on order from a strategic memory customer, which expands our relationship through the deployment of our FTCO digital twin product.

The order taking longer to finalize than originally expected is a function of the company moving so far up the value chain. It is a major win for us, and we believe a significant portion of the order will be recognized as revenue in Q4.

Additionally, there was a delay in certain orders, principally from China. However, we believe we will be able to book orders and recognize revenue from many, if not all of these customers in the coming quarters.

As a reminder, China remains a relatively modest portion of our overall revenue, 17% of our year-to-date revenue as of Q3 2024.

For Q3, we successfully added 14 new customers, which brings our year-to-date new customer wins to 33, including 11 in the power market and 6 automotive, 2 key markets where we continue to see strong demand.

Turning to revenue on Slide 15. We generate revenue from sales of our software and IP products. As a reminder, for a new customer or a new product sale to an existing customer, we generally recognize software license revenue upfront upon delivery of the licensed products.

For the upsell of a product to an existing customer, for example, the sale of additional seat licenses or an extension of tenure, the license is typically recognized at the beginning of the renewal period.

Maintenance and services revenue is recognized evenly over the contract term. The revenue recognition of SIP is generally straightforward since these products are usually sold without any additional performance obligation.

Unless customization is involved, the revenue is typically recognized upon delivery of the technology license to the customer or in some cases, once the cash is received from the customer.

For the third quarter, we posted total revenue of $11 million, down 27% year-over-year, primarily due to the delayed orders previously mentioned. Year-to-date through Q3, we recognized $41.8 million in total revenue, which is flat compared to the previous year.

As we will see in the following slides, we are reiterating the FY '24 guidance we provided in the October 15 press release, which equates to what we believe will be record quarterly revenue in Q4 and double-digit growth for the full year.

The pie charts show the year-to-date splits. I will reference the third quarter splits in my remarks. However, please note that these, along with 11 quarters of historical data are included in the financial supplement available on our Investor Relations website.



For the third quarter of 2024, approximately 62% of our revenue came from software licensing, while 38% was from maintenance and services. Year-to-date, the chart shows that software license revenue was a bit higher at 72% of total sales and maintenance and services was a bit lower at 28%.

Q3 '24 year-to-date software license revenue of $30.1 million was down 2% year-over-year, which does not include the large TCAD order that was booked in Q4.

Q3 '24 year-to-date maintenance and services revenue of $11.7 million was up 5% year-over-year as we continue to build our recurring revenue base. On a product basis, for the third quarter of 2024, TCAD revenue was $6.5 million, EBITDA revenue was $2.6 million and SIP revenue was $1.8 million.

This brings product revenue on a year-to-date basis to the following: TCAD revenue of $27.5 million or 66% of sales, EBITDA revenue of $10.3 million, 25% of sales and SIP revenue of $4 million, 9% of sales.

On a year-to-date basis, TCAD is up $3 million or 12% year-over-year, even with the large FTCO order slipping into Q4. So, TCAD is set up nicely to continue its solid growth trends. EBITDA on a year-to-date basis is down $0.9 million or 8%.

SIP on a year-to-date basis is down $2.1 million or 34% year-to-date. SIP is still playing catch-up from the delay we had in renewing a strategic refill agreement in Q2 as well as being impacted by the order delays in the Asia Pacific region.

Although we aren't satisfied with the short-term results, we have high expectations for this product line in the future. There are numerous M&A opportunities to bolster this product line in particular, to provide complementary products, technologies and engineering teams as well as add much needed revenue bulk and enhance profitability.



Turning to our split between geographic regions. For the third quarter of 2024, Asia Pacific revenues were $6.5 million or 59% of sales. The Americas was $3.3 million or 30% of sales and EMEA was $1.2 million or 11% of sales.

On Q3 '24 year-to-date basis, the Americas represented 37% of total sales, which is essentially the U.S. Asia represented 53% of sales. EMEA was 10% of total sales, similar to historical levels



Before turning to gross margins, expenses and profitability, I'd like to note that I will be discussing non-GAAP results going forward. As a reminder, our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings press release in the appendix of the presentation and within the supplemental financials on our website.

GAAP gross margin for Q3 was 75%, impacted by stock-based compensation of approximately $313,000 and $249,000 amortization of purchased intangibles.

Excluding those 2 items, non-GAAP gross margin was 80% in the third quarter, down from 85% for GAAP and non-GAAP alike in the same period last year. This put us at 85% non-GAAP gross margin year-to-date.

Our non-GAAP cost of revenues, which is primarily the wages and related costs for the staff supporting our customers are largely fixed in nature.

Non-GAAP cost of revenues for Q3 was $2.2 million, consistent with the previous quarter and the third quarter last year. This is partly where we believe we can gain leverage. As revenues increase, we expect non-GAAP gross margins to expand towards our long-term target of 90% plus.



Turning to operating expenses. Our GAAP operating expenses were $15.5 million, which includes $2.2 million in SBC expense and approximately $1.9 million in legal fees and expenses related to an acquisition-related estimated litigation claim.

Please refer to the press release we issued on July 24 and my remarks on our Q2 earnings call for more detail on the litigation claim and its impact on our financial results.

Our non-GAAP operating expenses for the third quarter were $11.3 million compared to $9.9 million in the same period last year. The increase in costs year-over-year was due to increases in general and administrative, followed by research and development and sales and marketing.

Consistent with the previous quarter, the increase in G&A expenses is largely due to the costs associated with becoming a public company. The increases in R&D and sales and marketing expenses are a result of expanding our engineering and sales teams, respectively.

For Q3 '24 year-to-date, non-GAAP operating expenses were 79% of sales. R&D was 26% of sales. Our ongoing investments in both advanced research and product development positions us to take advantage of an enormous EBITDA software market, which is expected to reach $22 billion by 2030, according to a study conducted by Grand View Research.

Sales and marketing was 24% of sales. We will continue to invest proportionately in this team as revenues grow. G&A was 29% of sales. Due to the semi-fixed nature of a lot of our G&A costs, we do not expect G&A costs to scale at the same rate as sales. We believe we can leverage the people and infrastructure that we have built out.

So, the net is that non-GAAP operating loss was $2.6 million compared to a non-GAAP operating income of $2.7 million in Q3 2023. The decline was largely due to the lower revenue amount recognized in the quarter. Q3 2024 year-to-date non-GAAP operating income and non-GAAP operating margin were $2.4 million and 6%, respectively.

Our net loss for the quarter was $6.6 million, which again included the charges for stock-based compensation and the acquisition-related estimated litigation claim charge. Our non-GAAP net loss for the quarter was $1.8 million compared to the non-GAAP net income of $2.3 million in the same period last year.



Our EPS basic and diluted was a loss of $0.23 per share for Q3. Non-GAAP EPS basic and diluted came in at a loss per share of $0.06 compared to non-GAAP EPS basic and diluted of $0.12 per share in the year ago period.

A comment on our balance sheet. We ended the September quarter with $100.4 million in cash, cash equivalents and marketable securities. For the third quarter, free cash flow was an outflow of $2.16 million, similar to the $1.84 million outflow in the same period last year.

Our basic and diluted share count for the third quarter was 29 million shares. As to share count, following the IPO lockup expiration last week, approximately 2.9 million vested RSUs were released.

Given the decline in our share price, we chose to utilize net settlement to minimize dilution. This resulted in the issuance of approximately 725,000 fewer shares for a net of 2.2 million shares and the company utilizing approximately $5.3 million of its cash to settle the associated taxes.

As a result, as of last week, the company had approximately 28.5 million shares outstanding. We expect the shares outstanding at the end of Q4 to be approximately 28.6 million.

On Slide 17, I will now review the full year guidance, which is unchanged from the guidance we provided in our October 15 press release. For bookings, we expect gross bookings for the full year to be in the range of $64 million to $67 million, which would represent a 10% to 15% increase from 2023.

As Babak and I noted earlier, the updated forecast reflects macro uncertainty in Asia. Despite this near-term headwind, however, we still believe bookings remain a great leading indicator of performance and relative strength of the business.

We continue to see strong customer demand across our key markets, driven by an increasing adoption of our software solutions and positive feedback from new and existing customers.

This demand, coupled with our strategic initiatives and execution of our land-and-expand strategy gives us confidence in our ability to achieve our long-term targets, which I'll discuss in a moment.

We expect revenue for the full fiscal year to be in the range of $60 million to $63 million, which would represent a 10% to 16% increase from 2023. This full year guidance implies a strong sequential rebound in Q4 for both bookings and revenue.



Specifically, we expect Q4 bookings to be in the range of $18.5 million to $21.5 million, which would exceed what we believe was a record for quarterly bookings in Q2 2024.

Likewise, we expect Q4 revenue to be in the range of $18.1 million to $21.2 million, which would exceed what we believe was a record for quarterly revenue in Q1 2024 of $15.9 million.

This forecast includes approximately $2.8 million in revenue expected to be recognized in Q4 from the $5 million order received in the first week of the quarter. For non-GAAP gross margins, we are at 85% year-to-date through Q3.

Based upon expected strong Q4 revenues for the full year, we are forecasting non-GAAP gross margins to be in the range of 85% to 87%. For non-GAAP operating income for the full year, we are now expecting to be in the range of $5 million to $8 million, which would be an increase from 2023 of between 14% and 82%.

Now, let's move to Slide 18 to review our long-term financial targets.

While we are disappointed with the near-term revisions to our guidance due to the challenges we faced this quarter, we are confident in our ability to regain momentum and execute on our long-term strategy.

We continue to target 15% to 25% top line growth, 90% non-GAAP gross margin and 25% plus non-GAAP operating margin over the next several years. We expect to achieve these targets by expanding our presence in key end markets and pursuing the right strategic inorganic opportunities.

With that, Babak and I would be happy to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from Krish Sankar with TD Cowen.

[Robert Mertens, analyst]

This is Robert Mertens on the line on behalf of Krish. You mentioned that you signed 14 new customers in the quarter up from, I think, 10 wins last quarter, which was split sort of between power and auto and I think one solar customer.

So, it looks like this quarter, you added Foundry and Display, which is nice to see. But could you provide any more breakout maybe between where the main SKU of these customers operate in? Was it primarily power and automotive or more evenly spread?

[Babak Taheri, executive]

Yes. So, this is Babak Taheri. 14 addition of new customers, new logos this quarter, 11 last quarter, just to give the record straight. Out of the 14, in Q3 of 2024, we had more power.

As a matter of fact, we had also MilAero, that's U.S.-based, as well as we had some, as Ryan mentioned, in automotive and Display but majority over 5 of them were from power.

If you think of our revenue for Q3 2024 in terms of markets, the top 4 were power, in terms of landing new logos, it was 58% of the lands were power. MilAero was about 10%, automotive was 8% and IoT was 7% and some foundry as well. So, those are the top ones.

[Robert Mertens, analyst]

And then, just in terms of the guide for December, it looks like the implied OpEx is sort of flat to maybe up 25% quarter-over-quarter. How much of that would be seasonal factors in the compensation structure versus just general growth in the hiring? And is there any sort of directional guide you're comfortable giving into the first quarter next year?

[Ryan Benton, executive]

Similar to last year, there absolutely is a portion of the operating expenses that we expect to grow sequentially in the fourth quarter, really attributable to variable comp.

Some of the compensation structures have yearly accelerators that get hit depending on those levels, as well as there's also some one-off things that tend to happen in December.

We haven't really given guidance for 2025, so, I won't comment on that. But again, I think you expect that some of the costs that we've added in Q4, we've built out the headcount as we said. So, there's obviously some natural growth that's happened in Q3 and Q4 as we've added staff.

[Operator]

Our next question comes from Charles Shi with Needham & Company.

[Yu Shi, analyst]

I do want to check in with you on the China revenue side because mostly it's the sum of the shortfall in your China revenue that's causing you to move the full year outlook down by roughly speaking $3 million.

I recall right around the time you had the pre-announcement that you were speaking about maybe some of the Chinese customers were delaying the contract renewals in light of the U.S. presidential election. Now the election is over. How is that conversation changing with your Chinese customers?

In addition, I think in the prepared remarks, you said you expect to recoup some of the lost sale with those Chinese customers? Is there a time line for that? Are you expecting maybe in Q1 or Q2? Or can you provide some specifics there?

[Babak Taheri, executive]

Yes, last time we did the pre-release announcement, we said that it will take several quarters. And we still stand to say several quarters.

As a matter of fact, we have seen some that we are working with customers meeting practically on a weekly and monthly basis, that a few of them have the potential of closing this quarter, a few Q1 and few Q2, I would say.

So, the message we are trying to give is these are not lost opportunities. It has been a delayed opportunity, as Ryan stated, some of it has to do with the macroeconomics in Asia in general and China specific and then also having impact on decisions based on that as when to place the order, and that's what we have seen.

So, we haven't seen any cancellation. It's a matter of delay. And in summary, we think in the next few quarters, we'll close all those.

And the last color I want to add, as Ryan said, to date, our China revenue has been about 17%, we've always said 15% to 20%. So, it doesn't mean that it's gone down. Bottom line is our expectation for growth, as much as we thought, some of that growth is delayed rather than canceled.

[Yu Shi, analyst]

Obviously, the $5 million deal that signed in earlier part of this quarter probably kind of pushed up the Q4 revenue a little bit more than you originally planned, but could potentially make the sequential growth in Q1 look a little bit lighter.

But any directional color on the Q1? I know you're not guiding for '25, but you want to get a little bit sense on where you think Q1 revenue could potentially land, especially given the base for Q4 is a little bit higher. But at the same time, it does sound like some of the delayed opportunity in Q3, Q4, some of that won't be fully recouped by the time you get into Q1.

[Ryan Benton, executive]

Maybe I'll take first stab and let Babak. So look, of course, as we kind of said in the prepared remarks, previously, we believe Q1 of '24 was a record for the company in terms of quarterly revenue, which was $15.9 million.

And so, the forecast range for revenue that we provided for the fourth quarter of this year is obviously $18.1 million to $21.2 million, anywhere in that range will be a substantial record revenue quarter for the company.

Again, we haven't given guidance yet in Q1. I don't want to talk about Q1, but I think a more reasonable approach would be to, again, to look at Q1 and '24 and think of sequential, think of that as a good comp rather than looking at Q4.

[Operator]

[Operator Instructions] Our next question comes from Craig Ellis with B. Riley Securities.

[Craig Ellis, analyst]

I wanted to go back to the second $5 million tranche on the FTCO deal that booked here in early 4Q and just try and get a better understanding of what some of the project milestones are related to that since this is the second element that's with this customer. Is there potential for further such extensions to the deal? Or will this really take the deal to its natural fullness?

[Babak Taheri, executive]

We've said historically and continue on our same path that even though we sell new technologies, we've always tried to provide solutions that address issues 3 to 5 years down the road.

And by the nature of FTCO that we have actually worked on for the past 4.5 years and now soon to be 5, we've always said that these kind of products are suited for enhancing yields, getting to market faster and lowering cost for manufacturing.

And we've said always that one element of these software tools and AI platforms are always going to need an improvement and enhancement based on what product lines our customers run into their fab and which fab it is.

So, the addition that we had in Q3 was a natural extension that we knew and we have been working on with the customer on what we call wafer level elements and physics modeling rather than going from simple process level, we are actually getting to more of the wafer level enhancements and improvements on our modeling.

And that was a natural course of it, and that's what we started. And also we proposed an enhanced version of what we thought are new algorithms and better solutions for what we call parasitic extraction, and that's what extended this work.

And as we go along the path of exploration and see how we can improve this thing, I foresee and expect that this continues to grow.

Again, we are on the cutting edge of the technology. And every time we're in the cutting edge of the technology, I assume you have solved all the problems, but there's always something that requires more attention, more details, more enhancements.

And those are what we consider to be our extension to our projects, and I expect that to keep on going for the years to come. So, because of the fact that technology changes, the technology gets improved, requirements for technology are different than what it was 4 years ago and enhancements are needed and advanced enhancements are needed.

So, we will continue on this path with this customer. And as we announced also on our advanced CMOS, we've been working for a couple of years on TCAD with our advanced CMOS customer that we are actually working with them and in order to get them switched into FTCO, and that's our next step in growing that whole business in that market.

[Craig Ellis, analyst]

And then I'll switch gears, M&A was brought up a couple of times as an important part of the growth strategy and how you'll get to longer term targets, not a new strategic thrust for the company, but I was wondering if there's any new information you can share with us just in terms of how things are progressing with funnel management and getting closer to selecting potential targets?

[Babak Taheri, executive]

So, that's a great question. As you know, we have the funnel. We have been working through it. We have narrowed it down much, much closer, and we have started discussions with potentials.

And that's the vehicle we have. But as you know, we have a very high bar in terms of our requirements for acquisitions. And the ones that we are looking at fall in that category, and we're working very hard to see how fast and how quick we can close them.

[Operator]

Thank you. I would now like to turn the call back over to Babak Taheri for any closing remarks.

[Babak Taheri, executive]

Yes. Thank you very much. I wanted to thank all of you for joining us on this call. We always enjoyed having this conversation and be transparent to the public as well as our investors and analysts. We welcome any questions, follow-ons. And thanks again. I appreciate your time for joining us.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.