Cozen O’Connor saw a 1.3 percent decline in gross revenue in 2013 as its headcount dropped nearly 3 percent in a year that saw a number of attorneys leave the firm in places such as Chicago and Philadelphia.
But Cozen O’Connor CEO Michael Heller said that while the firm’s full-time equivalent headcount was down for the year, the total number of lawyers was actually flat at year’s end thanks to the firm’s hiring of nearly as many laterals as had left.
Heller said that if the new lawyers had joined earlier in the year, the firm’s total headcount and gross revenue would have been higher.
Cozen O’Connor’s gross revenue fell from $310.5 million in 2012 to $306.5 million in 2013. Total FTE headcount dropped from 509 lawyers to 495 with the equity tier remaining flat at 153 equity partners and the nonequity tier growing 3.8 percent from 104 to 108 attorneys.
There were 33 partners who lateraled out of the firm in 2013 and 28 who joined the firm. A group of attorneys left the Philadelphia office in February to start a new office in the city for Gordon & Rees. A number of attorneys left in Chicago in September for Carroll McNulty.
Cozen O’Connor expanded its footprint in 2013, however, opening offices in Minneapolis and West Palm Beach, Fla. The firm also added a number of attorneys in New York toward the end of the year.
Cozen O’Connor opened an office in Minneapolis in June with eight transactional and commercial litigation attorneys from Chicago-based Hinshaw & Culbertson. The firm opened a West Palm Beach office in March 2013 with the addition of six partners from Edwards Wildman.
“We were able to replace the laterals that left with more productive lawyers and … higher-revenue-producing lawyers,” Heller said. “In a sense we added by subtraction and added by addition.”
Heller said the additions were a bit heavier on the equity partner side and he would look to hire more associates in those offices in the coming year to improve leverage.
Those higher-producing lawyers, coupled with some rate increases, helped Cozen O’Connor see a rise in both revenue per lawyer (RPL) and profits per equity partner (PPP).
With headcount falling more than revenue, Cozen O’Connor saw RPL rise 1.6 percent from $610,000 to $620,000. Heller also said Cozen O’Connor was able to raise rates across some of its practices, averaging out at an increase of between 3 to 4 percent.
Heller said the firm was able to raise its PPP in large part because of the higher-performing lawyers and practices it has added, managing expenses and the “unique” practice mix at the firm. The PPP rose 1.4 percent from $710,000 in 2012 to $720,000 in 2013. The average compensation for all partners increased just under 1 percent from $540,000 to $545,000.
Cozen O’Connor’s net income rose 1.4 percent from $108.5 million to $110 million, while the firm’s profit margin rose 1 percentage point to 36 percent.
Heller said there were no major expense management initiatives in 2013. Cozen O’Connor did reduce some real estate expenses last year, he said. Heller also noted the firm continues to look at its support staff and has reduced that headcount “in ordinary course,” not through any layoffs.
A portion of Cozen O’Connor’s revenue each year comes from contingency fees, namely through the firm’s insurance practices. In 2013, 18 percent of the firm’s revenue was earned on a contingent-fee basis, Heller said. He said that represents a typical year on the contingency-fee front barring any major recovery that would boost that figure.
“Our insurance practices continue to do well year in and year out,” Heller said.
The investments the firm made during the past few years post-recession have also paid off, Heller said, pointing to the addition of Wolf Block’s real estate and private client group in 2009 and the hiring of a number of commercial litigators over the past few years. Heller said the firm’s intellectual property practice also had a strong year in 2013.
General corporate work was relatively flat in 2013, Heller said. The boom in corporate work a number of firms saw in the fourth quarter of 2012 “put us in a little bit of a hole in the first quarter of 2013, so I was really happy with how we ended up,” Heller said. He said the corporate practice had strong third and fourth quarters, helping the practice break even at the end of the year.
Heller said the industry continues to face a general reduction in demand for legal services, forcing firms to be more creative and more careful in how they invest. He said 2013 was consistent with the firm’s strategic plan, which is to continue year-over-year growth in RPL and PPP.
For 2014, Heller said the focus will be on growing the new offices in Minneapolis, Florida, California and Texas. He said the firm is also always looking at expansion in New York and Washington, D.C. Heller said there aren’t new locations on the firm’s radar for now.