And lastly, we believe that the transformational process we have executed over the past year is enabling us to quickly turn the corner to profitability. And with our current visibility, we believe we will achieve this key milestone in the second half of 2024. Now turning to our outlook for Q1 and the year ahead. We entered 2024 with strong momentum in our ATS business, which we expect to continue. With our current visibility, we expect Q1 revenues in the $80 million range. This reflects a similar level of ATS development revenues as Q4, which would represent nearly a 20% growth over Q1 of 2023. We also expect a high level of customer-funded CapEx as we enter 2024 and estimate tool sales will increase to approximately $14 million in the first quarter.
We expect that offsetting the sequential growth will be a further decline in Wafer Services revenues, which we expect will be down about 25% from Q4. As we look ahead to our full year outlook for 2024, we expect the uniqueness of our ATS business model and strong customer-funded CapEx will enable SkyWater to achieve another revenue growth year. First, we expect our ATS development revenues to show solid growth in the range of 10% to 20% after outperforming our growth objectives with greater than 50% growth in 2023. We also expect a record year of customer CapEx investments, and we believe tool revenues will grow to at least $60 million. Furthermore, this level of customer-funded CapEx is expected to continue over the next few years with the investments planned by our customers in 2025 and 2026 expected to match or even exceed these strong levels forecasted for 2024.
As previously stated, given the broad-based weakness in the industrial market and expectations for a prolonged inventory correction, customer demand with the broader industrial end market is expected to remain soft throughout 2024. As a result, we are accelerating the pace at which we are phasing out our less profitable legacy programs as we redirect Wafer Services resources to ATS development. We expect that this will result in an increased mix of our ATS business in 2024 in advance of more material transitions of ATS development into Wafer Services in the future, which we again expect to be far more profitable than our legacy business. Altogether, we anticipate that our Wafer Services revenues will be down by at least 50% in 2024 compared to 2023 levels.
2024 is all about the continued acceleration of our business transformation as we aggressively prepare to launch our new secure CMOS platforms, expand our ATS development business, convert existing ATS customers to Wafer Services and build out the development and production capabilities of our two fabs in Minnesota and Florida through our demonstrated public-private partnership model. Before turning the call over to Steve, I’d like to close by highlighting that since our IPO nearly three years ago, the SkyWater team has outperformed our long-term annual revenue targets with a three year CAGR exceeding 25%. We believe that the distinction of our business model to highly differentiated innovative technologies we are making available to the domestic IC market and the strong customer pipeline we continue to build positioned SkyWater for several years of above-industry growth and strong operating leverage.
I will now turn the call over to Steve.
Steve Manko: Thank you, Tom. Before I begin my review of our fourth quarter results, I will direct you to the financial supplement available on our IR website, which summarizes our quarterly financial results for the last three years. Starting in Q3, we changed our policy regarding a couple of our non-GAAP financial metrics, and the helpful supplement on our IR website is where you can find all comparable non-GAAP adjustments as well as the impact of tool sales on our gross margins. Now turning to our Q4 results. Fourth quarter revenues reached another record for us, exceeding our expectations to total $79.2 million, which was up 11% from Q3 and up 22% from the fourth quarter of 2022. Record ATS revenue of $67.1 million was up 17% from Q3 and up 40% year-over-year.
ATS revenue included $9.9 million of tool sales compared to $3.2 million in Q3 and a nominal amount in Q4 of 2022. The growth in ATS exceeded our earlier expectations due to another quarter of sequential growth in ATS development revenues. Offsetting this growth was the decline in Wafer Services revenue, which, as expected, was down 17% sequentially as a result of the softening demand environment in the broader industrial markets. Our non-GAAP gross margin for the quarter was 17.4%, a bit better than expected, primarily due to more favorable ATS development revenue compared to the forecast. The nearly $10 million of tool sales in the quarter impacted non-GAAP gross margin by 130 basis points. As a reminder, tool sales represent CapEx that is funded by our customers.
These enable us to increase our capacity and capabilities without requiring us to use our own capital. Additionally, since this CapEx is funded by our customers, there was no expansion of our fixed asset base and therefore no ongoing depreciation for us to carry. And while tool sales will often reduce our overall gross margin, they typically have no negative impact on gross profit dollars. Non-GAAP operating expenses declined to just $10.5 million, which was well below our guidance of $13 million to $14 million, primarily as a result of the recovery of approximately $4 million of prior bad debt expense. Turning to our business transformation process. We completed the outside investment phase of our process with $5.3 million of management consulting fees in the quarter.
We also completed a workforce reduction of approximately 10% of our headcount which, going forward, is going to support our gross margin expansion strategies through decreased manufacturing costs and also better align the company’s resources with our long-term growth strategy. Non-GAAP operating income was $3.3 million, and adjusted EBITDA was $10.6 million, both exceeding expectations due to the favorable gross margin performance and expense recovery mentioned earlier. Interest expense was $2.9 million and with a tax benefit of $0.5 million, a GAAP net loss was $0.22 per share and a non-GAAP net loss was $0.02 per share. Turning to the balance sheet. We continue to improve upon our capital position in fiscal 2023. We consistently generated positive cash flows from the P&L prior to working capital changes and reduced our total indebtedness by $30 million compared to year-end 2022.
