‘Pax8 recently made the difficult decision to conduct a reduction in workforce. This move primarily impacted North America and was less than five percent of our global workforce. Parting with valued teammates is never easy, but these actions will enable us to optimize operations, increase alignment, and position our business for long-term success,’ said a Pax8 spokesperson in an email.

Pax8, the born-in-the-cloud distributor that has seen strong year-over-year revenue growth in the last few years, Thursday confirmed that it had conducted layoffs amounting to less than five percent of its global workforce in a move aimed at positioning the company for “long-term success.”

“Pax8 recently made the difficult decision to conduct a reduction in workforce,” a spokesperson for the Denver, Colo.-based distributor told CRN via email. “This move primarily impacted North America and was less than five percent of our global workforce. Parting with valued teammates is never easy, but these actions will enable us to optimize operations, increase alignment, and position our business for long-term success. We care deeply about our employees and are providing resources to those impacted to support their continued success. We remain laser-focused on creating an exceptional marketplace experience for our partners and vendors and empowering their growth.”

In an internal email from CEO John Street sent to employees not impacted by the cuts and obtained by CRN, Street said, “There are a number of reasons that we must reduce the size of our staff today, and I want you to know that this is a decision we reached after extensive consideration. While this is a business decision, it is also a deeply personal one that affects the entire company.”

The internal email said the company does not anticipate further company-wide reductions in the near future and that the cuts were made to make Pax8 “a fit company.”

Street shared what he called the “difficult news that Pax8 is reducing the size of our Americas and corporate workforce by just under five percent and saying goodbye to valued colleagues in the process.”

The cuts come, Street said, after Pax8 had “enjoyed strong year-over-year revenue growth in the last few years, thanks to your work and our investments in acquiring customers, establishing the Pax8 offering and building a vibrant community in the channel.”

Street said the industry has pulled back from the “unfettered growth in 2019 to 2022 to a slower, cost efficient” model. Furthermore, he said, the company underestimated “the importance” of the shift from “high growth at all costs to a precise, cost-efficient growth approach” in the aftermath of the pandemic.

“As leaders, we have not always provided clear priorities on the most effective ways to grow,” Street said. “We have had too many initiatives, diluting our efforts at times, and resulting in confusion for our teams and inefficient spending.”

Street also cited economic conditions in the U.S. and across the globe remaining “uncertain: with conflicts, elections, higher interest rates and other forces requiring companies to prepare for any challenge.”

Finally, he said: “Every company reaches an inflection point at which they need to become profitable, and that time is now for Pax8. To be clear, this [staff reduction] is not the outcome any of us in leadership wanted.”

A company spokesperson confirmed the email’s authenticity but would not comment beyond that on the contents of the internal email or the layoffs. While the company would not confirm the total number of employees at Pax8, a news release from May 2023 said there were 1,600 team members.

‘The Writing Was On The Wall’

An impacted employee reached by CRN, who asked to remain anonymous, said cuts were made across multiple departments.

“This is the first time I’ve experienced something like this at Pax8—there’s always been growth,” the impacted employee said. “But I saw that this could happen, you see it happening everywhere else. I have nothing but respect for everyone at Pax8, and I know that in the future if I work for another vendor of Pax8’s or a partner or a customer, it’ll be open arms.”

The employee expressed gratitude for the support of fellow employees in the wake of the layoff. “A lot of them have built me up as mentors, and it really put me to where I am today,” the impacted employee said. “I have nothing but good words.”

Another impacted employee, who also wished to remain anonymous, said they were not completely surprised by the cuts.

“This was the worst kept secret ever,” the other impacted employee told CRN. “There were rumblings that this could potentially be happening because senior level executives kept talking about workforce optimization. They started having conversations about being more financially fit, so I think the writing was on the wall.”

Partners Weigh In

Michael Goldstein, president and CEO of LAN Infotech, a Fort Lauderdale, Fla.-based Pax8 partner, said the cuts do not dampen his passion for the MSP programs Pax8 has provided for a wide variety of cloud-based products, including Microsoft 365 and Copilot.

“Pax8 has provided strong technical and business guidance that has dramatically increased our profitability,” Goldstein told CRN. “Pax8 broke the mold for distribution and set a higher standard for cloud distribution.”

He said he is looking forward to attending Pax8 Beyond in Denver in June to get updates on the Pax8 marketplace and new initiatives at the cloud distributor.

“I see a bright future ahead working with Pax8 on how to grow our business,” he said.

Longtime Pax8 partner Zac Paulson, director of product and strategy at ABM Technology Group, a Fargo, N.D.-based MSP that was among Pax8’s earliest customers, said he sees the industry job cuts and layoffs at the likes of Pax8, Kaseya and ConnectWise as private equity investors responding to economic conditions.

Kaseya earlier this month cut scores of sales employees in a move the company described as “performance-based terminations,” while ConnectWise Wednesday cut “significantly less than 100” positions in an effort to improve operations and spearhead partner growth opportunities.

“My thought is the investors are actually wanting these companies to make money now,” he said. “Many seemed to be in a mode of acquire customers and territories at all costs. Now they seem to be shifting to actual profitability.”

Another longtime Pax8 partner, Mark Essayian, president of KME Systems in Lake Forrest, Calif., began doing business with the company early on because its technology platform and margins were superior to any distributor in the marketplace.

However, the distribution market has evolved, and Pax8’s advantages over traditional competitors are no longer as stark, he said.

“Pax8 is a good company. We still do business with them,” he said. “We’re going to continue to do business with them, but we are shifting our stuff, and have been over the last 18 months, back to Ingram.”

He said Ingram Micro offers Microsoft support for his largest customers and it offers the same margin as Pax8. Additionally, he said, other distributors have caught up with Pax8’s platform in terms of provisioning and ease of use.

‘The Trajectory Of Pax8 Is Only Upward’

In the internal email, Street said the impacted employees are leaving the company “on good terms and are an important part of our alumni network.”

“I appreciate their many contributions to Pax8’s success and encourage you to offer your support to those affected,” he said in the email.

As for next steps, he said the company expects the next few weeks to be challenging, “and so we ask that you please stay focused on helping Pax8 partners and vendors, each other and our departing colleagues.”

“While today’s changes are hard, the trajectory of Pax8 is only upward,” he said. “Our value proposition is strong and our future is bright. This action will enable us to become a self-sustaining business, and we are committed to creating even greater value for our partners and vendors.”

Steve Burke contributed to this story.