Rapid7 Layoffs to Shed 18% as Vendor Reorients Around MSPs

Almost 500 people will be impacted by Rapid7 layoffs as the network security provider seeks to increase its profit.

The cybersecurity provider on Sunday filed a disclosure with the Securities and Exchange Commission (SEC) to outline a restructuring plan. It will reduce its headcount by approximately 18%. Considering that Rapid7 reported 2,623 full-time employees in its latest annual report, cutting 18% amounts to approximately 470 people.

In the meantime, Rapid7 leadership say they see strong results with channel partners and intend to “lean heavily” into the MSP community.

“… part of what we’re doing in the efficiency and the streamlining is not just internally aligning our team. We’re actually leaning heavily into a partner strategy,” CEO Corey Thomas told investors on Tuesday.

Rapid7 Layoffs Spur Change of Focus

Executives on Rapid7’s Tuesday second-quarter earnings call said the cuts will help it focus on its security operations business.

“We have noticed a customer shift from cloud security as a specialized function to cloud security as an integrated capability within security and SecOps teams. We view this as a massive demand driver for integrated SecOps and think that we have a significant opportunity to be the leader in delivering integrated risk and threat management across on-prem, cloud and external tax services,” Thomas said.

The Rapid7 layoffs also will aid the company on its quest to become a Rule of 40 software company by cutting costs. CEO Corey Thomas said the “optimizations” will double free cash flow for the vendor in 2024.

“While it was an extremely difficult decision, we believe this step is critical to build on the momentum we’re seeing in security operations and to position us to be a more profitable growth company in 2024 and beyond,” Thomas told investors.

Rapid7’s Corey Thomas

The combined revenue growth rate and profit margin of a Rule of 40 company meets or exceeds 40%. Rapid7 in its second quarter reported annualized recurring revenue of $751 million, a 14% growth over the quarter a year prior. It also reported a GAAP gross profit margin of 69%.

Thomas said Rapid7 is taking a look at overlapping job roles, “streamlining management layers” and mixing its domestic talent with offshore talent.

The restructuring plan will cost between $24 million and $32 million, with Rapid7 spending money on employee transition, notice, severance and benefits.

Rapid7 in its annual report stated that nearly 500 of its employees work product and service delivery and support, while a little more than 1,000 work in sales and marketing, and almost 800 work in research and development. More than 300 work in general and administrative.

The vendor will also shutter some of its offices permanently. That will create an impairment lost at approximately $4 million, according to the SEC filing.

Rapid7 Layoffs and Channel Expansion

At the same time, Rapid7 is expanding its effort with partners – particularly managed service providers (MSPs) – to conduct more co-selling and partner support.

“We are rotating our orientation,” Thomas said on the earnings call. “Partners have actually grown well with our business. And we see a lot of opportunities to actually partner with key folks in the ecosystem going forward.”

Thomas said business customers need a combination of technology and services.

“As people try to tackle [sic] a complex security environment, there’s just not enough talent and other expertise. We have to scale with a strategy of both technology that’s great, well integrated, [and a good] service experience,” he said. “Rapid7 does some of that, but we have no aspirations to actually do all of it. We actually think MSPs are great partners.”

Five months ago the company announced a $38 million purchase of Minerva Labs to expand its anti-evasion and ransomware prevention tech.