Good day, everyone, and welcome to the Qualys First Quarter 2017 Earnings Conference Call. This call is being recorded. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions for asking a question will be given at that time. I would now like to turn the call over to Jumi Kim, Vice President of P&A and Investor Relations.
Please go ahead, ma'am.
Thank you. Good afternoon, and welcome to Qualys' Q1 2017 earnings call. Joining me today to discuss our results are Philippe Courteau, our Chairman and CEO and Melissa Fisher, our CFO. Before we get started, I would like to remind you that our remarks today will include forward looking statements that generally relate to future events or future financial or operating performance. Actual results may differ materially from these statements.
Factors that could cause results to differ materially are set forth in today's press release and in our filings with the SEC, including our latest Form 10 Q and 10 ks. Any forward looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in today's earnings press release. As a reminder, the press release and an accompanying investor presentation with supplemental information are available on our website.
With that, I'd like to turn the call over to Philippe.
Thank you, Jimmy, and welcome, everyone, to our Q1 earnings call. For those who don't recognize my voice, I've not lost my accent. I'm just out of good flu. So with that, Medissa and I are pleased to report another great quarter that included strong performance, both on revenues and profits. This quarter, we saw year over year growth across renewals, upsells and new customers.
Qualys continued to replace McAfee Voluntary Management solution with both small and large customers, and we continue to see evidence of the large underpenetrated opportunity within our customer base as our Policy Compliance, for example, solution was adopted by major banks who were only VM customers before. We also were pleased to see sustained growth performance from our newer solutions Cloud Agent and Threat Protect. Melissa will provide you with more color on this. We have now partnerships with all of the major global MSSPs as we announced a partnership with IBM earlier this quarter that will add Qualys Continuous Cloud based IT Security and Compliance solutions to its Managed Security Services portfolio. IBM will integrate Qualys technology to enable its customers with enhanced visibility of IT assets, vulnerabilities and threat data, accelerating how they prioritize remediation and simplify management of their IT security and compliance posture at scale.
Concurrently, we launched a new Qualys app for IBM's QRadar security intelligence platform that allows young customers to have an improved visibility and analytics tools to help them identify risk metrics and take actions against key threats. As you may recall, as I was saying, we launched WAF 2.0 combined with WAF 5.0, which integrated together brings web application security to its next level by offering unprecedented scalability and remediation capabilities in the form of a one click patching. We also showcased our file integrity monitoring, which is in beta now and the detection of indication of compromised solutions, which will be in beta in the next few weeks. These new solutions, which leverage our Cloud Agent technology, enables our customers to have a deeper, continuous view into their security and compliance posture at a click of a mouse, their dynamic and customizable dashboard and alerts. These new solutions expand our potential share of our $4,000,000,000 addressable market and position us very well for continued growth As and as already mentioned in our last earnings call, we plan to launch additional solutions in beta in Q4 of 2017, including Patch Management, Digital Certificates Management and Passive Scanning.
During the quarter, we also continued to widen the technology gap between our cloud platform and the competition, with our Qualys virtual scanner appliances now able to be directly deployed from the Google Cloud Launcher to the Google Cloud Platform. Our virtual cloud scanning capabilities now cover all major Elastic environments. Furthermore, IDC confirmed that we have taken the number one market share position of our IBM and HP in the $1,600,000,000 vulnerability assessment market. Our strong positioning in the market is driven by our unique ability to provide enterprises with both a single pane of view that enables 2 second visibility of their entire global IT assets, whether on premise, endpoints or elastic cloud environment, as well as the continuous view of the security and compliance posture via customizable dynamic dashboards and alerts. As importantly, our cloud platform and solution help enterprises, large and small, to secure their digital transformation, while reducing significantly the security and compliance spend, enabling them to consolidate multiple disparate on premise security and compliance solution in a single platform that is centrally managed and self updating.
Our cloud platform and the global visibility it provides is the result of 10 plus years of continuous innovation, starting in the Silicon Valley and now also in Pune, India. We believe it is the most comprehensive and technologically advanced in the markets in which we compete. And yet, we continue to innovate in order to deliver more value to our customers and remain ahead of the competition. In fact, we have now added new technology components to our platform to enable us to ingest, process, analyze and store high volume of sensor data coming from our agents, scanners and soon passive scanning analyzer and correlate that information at near speed, light speed in a distributed manner for millions of devices. We now have in fact over 25,000,000,000 security data points indexed in our Elasticsearch clusters, providing almost instant query results.
This gives our customers 2 second visibility without them having to index large amount of data. We have deployed new Cassandra node clusters as the back end for FIM, file integrity monitoring, and IOC, detection of indication of compromise data collection, providing us highly scalable data store compared to traditional RDBMS. This failure resistant and highly available data store with linear performance stores millions of events per second and adjusts data regardless of type, which will provide superior performances specifically for FIM and IOC, which depends on analyzing millions events. We have deployed also new Kafka nodes to enable us to have a heavily distributed processing farm that will allow us to process data points and events coming from our sensors in near real time at rates of 1,000,000 per second, minimizing processing delays in analyzing events and changes happening in customers' network on a continuous basis. We are also now deploying Redis, which is a high speed in memory cache that reduces expensive disk rights and speeds up all analytics operation.
In summary, with our upcoming solution and strengthening back end, we believe we will be the only platform capable of providing global prevention, detection and remediation in a scalable and cost effective manner across on premise, endpoint and elastic cloud environments. Supporting these, just yesterday, Frost and Sullivan recognized Qualys with the 2:17 Global Verity Management Market Leadership Award, highlighting the company's area of excellence in growth, strategy, product quality, customer ownership experiences and unique platform technology leverage. As we seek to ensure that the market recognizes the full breadth of Qualys Cloud Platform and the value we provide not only to security teams but also CIOs who have hired a new CISO. Many of you met Mark Butler at our last Analyst and Investor Day in New York. He was formerly a customer of ours as a Chief Information Security Officer at Fiserv.
He joined Qualys because he saw the opportunity for Qualys to emerge as a leading platform amidst the stack consolidation occurring in the marketplace. In addition to Mark, we have also recently hired a new Vice President and General Manager for our SMB and SMB market as we see additional upside to increasing management of our very profitable smaller enterprise business. With that, I will turn the call over to Melissa to discuss our financial results in detail. Thank you.
Thanks, Philippe, and good afternoon. I'd like to begin by sharing some color on, as some would call, our durable top line. We are delighted with our Q1 performance. Total revenues in the Q1 were $53,100,000 which represents 18% normalized growth over the Q1 of 2016. There was a negative impact on Q1 2017 revenue growth rate of approximately 200 basis points from the MSSP contract and 100 basis points from FX.
As Philippe mentioned, we saw strong performance across renewals, upsells and new customer business during the quarter. We continue to see adoption of our platform increasing with the number of enterprise customers with 3 or more quality solutions rising to 27%, up from 21% a year ago and their spend in the quarter increasing 27% year over year. The number of customers with a quarterly average spend of over $100,000 continued to show strong growth increasing 32% year over year in Q1, and the cumulative revenues for these customers grew 44% year over year. In fact, the average deal size for all new customers grew 44% year over year. On a reported growth rate basis, our other security and compliance solutions revenues increased 27 23% over the year ago quarter, in part in web application scanning in our SMB and SME customer base.
And our vulnerability management solutions revenues grew by 12%. As we have discussed, we see the opportunity to accelerate our growth rates with our new solutions, but we are in the early stages of adoption. Having said that, we continue to see very good performance from both the Cloud Agent platform and from Threat Protect, with new products released since 2015 contributing approximately 8% of total bookings in the quarter. These bookings are mostly due to Cloud Agent, which includes the associated subscription to either vulnerability management or policy compliance and include renewals that convert to cloud agent. We had 2,600,000 cloud agents purchased in the last 12 months, up from 2,000,000 last quarter, and we saw the highest year over year growth rate of Cloud Agent bookings since launch.
Let me now address our deferred revenue balance. Our current deferred revenue balance was $120,000,000 as of March 31, 2017, 18% greater than our balance at March 31, 2016. Normalized for the impact from FX, our current deferred revenue balance would have grown approximately 20% year over year. Before moving to our profitability and cash flow, I would like to remind everyone that unless otherwise specified, all of the expense and profitability metrics I will be discussing on this call are non GAAP results. Our non GAAP metrics exclude stock based compensation and nonrecurring items.
A full reconciliation of all GAAP to non GAAP measures is provided in the financial tables of the press release issued earlier today and is available on our Investors section of our website. Also note that certain amounts in prior periods have been reclassified to conform to the current period's presentation. As we discussed in our last call, 2017 is another investment year for Qualys and in Q1, we continued to grow both our head and gain greater scale enables higher margins for the future. And gain greater scale enables higher margins for the future. In Q1, our gross margin remained flat sequentially at 78 percent, which is very healthy when you consider our continued investments.
Gross profit increased by 11% year over year to $41,000,000 in the Q1 of 20 17, but our margin was down from 80% in Q1 2016. The year over year decline in margin was driven by increased headcount as well as higher expenses in Q1 increased by 18% year over year to $29,000,000 Research and development expense increased to $8,600,000 or 26% year over year, primarily due to higher headcount. Sales and marketing expense increased to $14,900,000 or 16 percent year over year, primarily due to higher headcount as well. G and A increased to $5,800,000 15 percent year over year, largely due to payroll taxes from a larger amount of options exercised this quarter. Adjusted EBITDA for the Q1 of 2017 was $16,800,000 representing a 32% margin as compared to 35% in the Q1 of 2016.
Net cash from operations in the Q1 of 2017 increased by 89% to $32,400,000 compared to $17,100,000 in the same period in 2016. Free cash flow generated in the Q1 of 2017 was $27,900,000 compared to $12,800,000 in the comparable period of 20 16. The year over year increase in operating cash flow was driven by the overall growth of our business, an increased number of prepaid multiyear deals and the benefit of the new accounting standard ASU 20 sixteen-nine, which bumps operating cash flow compared to prior periods by including the excess tax benefits from stock based compensation. Excluding the benefit of the new accounting standard, cash flow would have still grown very strongly at 60% year over year. Capital expenditures were $4,500,000 in the Q1 of 2017 compared to $4,200,000 in the Q1 of 2016.
Capital expenditures in Q1 came in below our previous expectations as timing on certain on certain purchases shifted into Q2. We expect CapEx related to our operations in the Q2 of 2017 of between $6,000,000 $7,000,000 We also expect to begin work on our new headquarters in Q2 and we anticipate CapEx related to that to be another $3,000,000 to $5,000,000 for a total Q2 CapEx spend of between $9,000,000 $12,000,000 Now turning to guidance, starting with revenues. For the Q2 of 2017, we expect revenues to be in the range of $54,300,000 to 55,100,000 dollars representing an estimated normalized growth rate of 16% to 17% based on our current FX forecast as well as the previously mentioned impact from the MSSP contract. We expect GAAP EPS for the Q2 of 2017 to be in the range of $0.15 to $0.17 per diluted share, while non GAAP EPS is expected to be in the range of $0.19 to $0.21 per diluted share. We expect our operating expenses to sequentially increase throughout the year as we continue to expand our platform and build out and move into our new headquarters.
We are thrilled to have started 2017 with such a strong quarter and are excited about the expansion of our solutions, which uniquely position us to become the ubiquitous security and compliance platform. For the full year 2017, we are raising the bottom end of our guidance for revenues, bringing our current guidance to a range of $225,000,000 to $228,000,000 We believe the additional services will increase our stickiness with our customer base, accelerate growth and set ourselves up for expanded margins in the future. With that, Philippe and I would be happy to answer any of your questions.
Thank The first question is from Melissa Gorham of Morgan Stanley. Your line is open.
Great. Thanks for taking my question and congrats on the quarter. Thank you. So I just wanted to dig into the up sell metrics that you disclosed. So you noted a pretty meaningful uptick in the number of customers adopting 3 or more products.
I'm wondering, if you could maybe give us more details on what solutions are driving that adoption beyond VM?
It's really a mix. I mean, we see our customers expanding their scope of VM. We see them, Philippe talked about some customers adding on policy compliance that were VM only customers before as well as taking up our newer products like Cloud Agent and Threat Protect.
Yes. And the web applications and scanning as well, so.
Okay. And then Melissa, you mentioned the cash flow benefit from an increase in prepaid multiyear deals. Can you provide a little bit more color on that? And specifically, I'm wondering if you can quantify the extent to which contract durations increase?
Yes. Overall, we still haven't seen a meaningful change in our contract length. But as our deal sizes get larger, that combined with an increased number of prepaid multiyear deals, created a situation where we were able to collect a significant amount of cash flow this quarter. We don't actually manage to we don't manage our business to necessarily drive multiyear prepaid deals. It's often, frankly, our customers who view us as a strategic partner who come to us to seek a longer term agreement.
Okay. Thank you very much.
Thank you. And the next question is from Bill Choi of Wunderlich. Your line is open.
Okay. Thank you. Last quarter, you talked about an environment where deals kind of closed towards the end of