The American Lawyer reports on law firm financial performance for the first nine months of the year, concluding that for the first time this year, law firm revenue growth outpaced expense growth, according to a recent report by Citi Private Bank’s Law Group. The Citi results, based on a sample of 190 firms including members of the Am Law 200 and boutiques, showed that revenues grew at 5.1% for the first nine months of the year, compared to 4.1% from just the first half. The bulk of that increase stems from higher rates, which grew 4.7%, compared to demand, which grew 0.9%.
“While the first nine months of 2019 saw slower revenue growth than we saw through the same period in 2018, there are several positive trends in the results. Demand growth continued to gain momentum. Rate growth has been strong. Expense pressure has moderated, easing margin pressure. Dispersion and volatility remain but are less acute than we saw earlier in the year,” notes Gretta Rusanow, research co-author and head of Citi Bank’s advisory services. “Looking ahead, inventory levels are high. The biggest challenge to a strong year-end is the continued lengthening of the collection cycle. If firms are able to collect on strong inventory levels, 2019 should end well,” she adds.
The report also revealed that law firms headquartered in Chicago and the Midwest matched or exceeded the revenue growth across the legal industry for the first nine months of 2019. Law firms headquartered throughout the Midwest reported their revenue is 7.8% higher this year when compared to last year, the report found. “Demand is up 1.6%, which is higher than the industrywide average of 0.9%, and rates have gone up 5.8%—more than anywhere across the United States,” Rusanow notes.
“Chicago is one of the most popular legal markets in the country. From a revenue point of view, they’re matching where we’re at for the industry. On top of that, they’re sitting on pretty healthy inventory levels going into year-end,” Rusanow adds. “I’m pretty optimistic about what the top-line stories will be for Chicago through the end of the year,” (as quoted in The American Lawyer).
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The U.S. legal industry climbed to 1,142,700 jobs last month, returning to last year’s highwater mark set in October, according to recent data released by The U.S. Department of Labor’s Bureau of Labor Statistics on Law360. Professional and business services, which includes the legal sector, showed stronger gains, adding 42,000 jobs last month, in line with the average monthly gains for those services over the past 12 months, the report said.
In addition, some other recent reports indicate that the legal industry as a whole is performing well financially. One report, released in late January by Wells Fargo Private Bank’s legal specialty group, in a check-in on 2018’s year-end results found the strongest annual performance among law firms in a decade, with firms reporting average revenue growth of 5.9 percent and average net income growth of 7.6 percent.
That was consistent with another report published in December by Citi Private Bank Law Firm Group and Hildebrandt Consulting, which found that last year was the U.S. legal industry’s best for financial growth in nearly 10 years, Law360 reports. According to the report, law firm revenues during the first nine months of 2018 grew by 6.3 percent on average, due to increases in billing rates and, to a lesser degree, demand growth.
The Citi report was generally optimistic about the industry’s outlook for 2019, predicting that law firms will become more adept at using technology, project management and alternative pricing to become more efficient. It also predicted an uptick in equity partner retirements, putting the onus on firms to invest more time and energy into client transitioning.
“We are optimistic about 2019 and do not anticipate a downturn in the industry. When the inevitable downturn does occur, the biggest expense management opportunity for firms will be to study whether the composition of their leverage models makes sense from a profitability standpoint,” Brad Hildebrandt, chairman of Hildebrandt Consulting, said in a statement at the time the report was released. “That said, experience tells us that law firms are typically quick to recover from economic downturns, so long as their internal fundamentals are sound,” (as quoted in Law360).
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The American Lawyer reports that law firm revenue growth in the first nine months of 2018 was the highest it’s been since 2007, and the outlook going forward remains positive. According to a new report, released by Citi Private Bank’s Law Group, overall revenue grew by 6.3 percent and demand was up 2.5 percent during the first nine months of 2018 compared to the same period in 2017. Many firms showed wider profit margins as a result of demand and billing rates grew at a level that outpaced an increase in expenses, the report revealed.
The Citi Private Bank’s report found that among the Am Law segments, size mattered, with Am Law 50 firms outperforming the other market segments in both lawyer rates and demand. Smaller, niche firms saw the greatest growth in revenue at 7.8 percent, and the second-greatest growth in demand at 2.5 percent. Looking at firms by geographic reach, the report revealed that global and international firms posted stronger revenue, demand and rate growth than national and regional firms, (as quoted in The American Lawyer).
“More than likely, this will be a year of strong top-line growth for the industry, but also characterized by expense pressure and continued dispersion among market segments,” notes Gretta Rusanow, research co-author and head of Citi Bank’s advisory services. “As firms end 2018 and look forward to 2019, it will be even more important to ensure that continued growth is profitable, particularly as this extended period of growth points to a looming downturn at some stage. Further, while our dispersion results show that some firms are enjoying even greater success than the average results of 2018 are showing, it also suggests that some firms are struggling mightily. We would expect this phenomenon to lead to further and perhaps accelerated consolidation ahead,” she adds.
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Law firms had their best revenue growth in the first half of the year since the recession, with 5.5 percent growth in the first six months of 2018. That’s up from 4.9 percent in the first half of 2017, and the outlook continues to look good for rest of the year, according to a new report released by Citi Private Bank’s law firm group. In addition to revenue growth, law firm demand increased by 2 percent and lawyer billing rates increased by 4.5 percent. According to the report, improved demand (total timekeeper hours) and lawyer billing rate increases were the main drivers of growth.
The Citi Private Bank’s report found that among the Am Law segments, size mattered, with Am Law 50 firms outperforming the other market segments in the first half of the year. Smaller, niche firms had slightly stronger revenue growth, at 6.9 percent, than at those in the top group. Their demand was up 1.6 percent, and billing rates up 3.6 percent. Firms that have a dispersed geographic reach saw the strongest revenue performance, reaching 8.1 percent. Firms that had fewer lawyers outside the United States did less well, underscoring the strategy of the largest multinational firms which have numerous offices and a phalanx of lawyers spread around the globe, (as quoted in The American Lawyer).
The analysis also adds, however, that upward pressure on expenses–particularly from recent salary increases–could drag down profits. “Looking ahead, the revenue outlook for the rest of 2018 is very positive, with a solid buildup in inventory heading into the third quarter. The industry will need this, given the upward pressure on expenses we expect to see in the second half of the year as firms absorb the recently announced salary increases, ” notes research co-author Gretta Rusanow, the group’s head of advisory services.
See highlights from the full article on The American Lawyer.
Contact Bill Sugarman for more information.