Rapid7 to lay off hundreds as it invests in MSPs

The cuts are a ‘difficult decision’ and ‘may be surprising’ to employees ‘when we are meeting performance expectations,’ Rapid7 CEO Corey Thomas said

Despite double-digit growth in its most recent fiscal quarter, US cybersecurity vendor Rapid7 is pivoting to MSPs and shedding around 18 per cent of its workforce - about 470 employees, with significant cuts to sales and engineering - as well as permanently close some office locations.

The layoffs are a "difficult decision" and "may be surprising" to employees "when we are meeting performance expectations," Rapid7 CEO Corey Thomas said in a blog post. But "making decisions from a place of strength allows us the opportunity to restructure intentionally.

"I would always prefer to speak to each of you individually. Unfortunately, there is no ideal way to have this conversation with all of our global Moose simultaneously, and I regret that some of you will be reading this after the news is public," Thomas said. "I will remain online with you as morning reaches each timezone to host town hall meetings with local teams and leaders."

Sister publication, CRN US, has reached out to Rapid7 for comment.

Notably, earlier this year, publicly traded Rapid7 reportedly considered a sale to private equity investors. In March, Rapid7 acquired Minerva Labs for $38m in cash and stock.

Thomas continued: "It is difficult and heartbreaking to say goodbye to Moose who have been integral to our teams over the years. We would not go forward if we were not confident that this is the best and only way we will be able to deliver the experience that our customers demand, vault over our competition, and remain the best place to work for the most Moose possible."

On the vendor's quarterly earnings call Tuesday, Thomas told listeners that Boston-headquartered Rapid7 sees "massive potential to drive high-margin managed services, both through existing offerings and investing in accelerating our strategic managed service partnerships," according to a transcript of the call.

"We are not interested in commodity, low-value managed services that do a poor job security for customers," Thomas said.

"We want to have world-class services that are good. We're also not interested in low-margin businesses."

Rapid7 has about 800 worldwide channel partners, 300 of them in North America.

Although the vendor has sustained 20-plus per cent growth "for many years," customers have sought a more integrated experience from the vendor, according to Thomas' post.

During the earnings call, Thomas said that an integrated experience will also help with MSP recruitment. "It gives them the ability to go to customers with a holistic solution," he said. "That's critical."

Thomas added that MSPs are important for customer interactions because of a lack of talent and expert job candidates.

The vendor will focus on expanding managed detection and response (MDR) leadership across all security operations, invest in more adoptable cloud capabilities and align operations for improved customer engagement and support, Thomas said in the blog post. Roles were cut in organisations throughout the vendor, which had 2,673 employees at the end of 2022.

Quickly adding capabilities as customers demand them led to an increased employee base, new regions and "unnecessary friction and inefficiencies which hinder our customer experience."

"This restructuring and near-term reduction will set up our teams and customers for long term success," he said. "It will increase our capacity to invest where customers need it, and give us the flexibility to scale intentionally, foster innovation, and improve processes."

Rapid7 investing in MSPs

During the vendor's earnings call for the second fiscal quarter, Thomas said the cuts "include streamlining management layers, reduction of role overlap and optimising our own and offshore talent mix."

Rapid7 will look into new investment in managed service partnerships.

The vendor's board of directors approved the restructuring plan Monday, according to a regulatory filing.

Rapid7 expects to pay between $24m and $32m for employee transitions, severance payments, benefits and other costs related to the restructuring plan. Most of the charges are in the third and fourth quarters, with the plan "substantially complete" by the end of the fourth quarter.

Wall Street appeared to hail the layoffs, with Rapid7's stock soaring about 18 percent from market close Tuesday to Wednesday afternoon Eastern time, trading at about $47 Wednesday afternoon.

Rapid7 Q2 results

Rapid7 reported results for its second fiscal quarter Tuesday - a quarter that ended June 30.

The vendor saw annualised recurring revenue of $751m from about 11,000 customers, up 14 per cent year-over-year. Total revenue was $190m, climbing 14 per cent year-over-year. Products revenue came to $182m. The company saw $26m in free cash flow.

However, using generally accepted accounting principles (GAAP), Rapid7 reported an operating loss of $52m. Not using GAAP, Rapid7 reported an operating income of $13m.

Rapid7 Q3 guidance

Rapid7 expects to report current quarter revenue between $196m and $198m, according to the company. That would be year-over-year growth of 12 per cent to 13 per cent.

The vendor expects non-GAAP income from operations between $29m and $31m.

Dell, Microsoft, Ingram Micro, Cisco and Accenture are among the tech companies to announce or conduct layoffs in recent weeks.