Firms headquartered in Texas fared worse than the overall U.S. average during the first quarter of 2018, according to the Citi Private Bank Law Firm Group survey.
Revenue was down 4.3 percent in Texas during the first quarter of 2018, compared with the same period in 2017, and demand, which is the number of billable hours logged, slid by 5.3 percent for Texas firms.
In both cases, the declines in Texas were the largest among the 11 regions tracked by Citi for the industry survey.
In contrast, survey results for the overall U.S. legal industry showed that revenue grew by 4.2 percent during the first quarter and demand grew by 1.3 percent.
Texas firms also posted the lowest billing rate increase for the quarter, at 2.2 percent, compared with an overall 4.8 percent increase nationally. Also, expenses were up 5.9 percent for the Texas firms, compared with 4.8 percent overall.
Despite the “challenging start” to the year, the Texas region did not lag the legal industry in all areas, said David Altuna, a client adviser with Citi Private Bank’s law firm group.
“The region did respond with a reduction in head count,” Altuna said, noting that Texas was the only region where firms reduced leverage, which is the ratio of salaried lawyers per equity partner.
Altuna said the decrease in leverage in Texas is important, considering the other metrics in Texas for the first quarter. “If you don’t have the hours to support it, higher leverage won’t necessarily drive profit,” he said.
Altuna said inventory improved nationally by 7.3 percent in the quarter, the strongest number for a first quarter since 2008, which is a condition that “does bode well for the rest of the year.” However, Texas inventory, which is work that is done but not collected, increased by only 3.4 percent.
“It’s a tough start,” Altuna said of the Texas numbers. But he noted that circumstances can easily change over the rest of the year.
He said that the Texas results are based on eight firms headquartered in Texas. The national sample is based on 179 firms, including 80 Am Law 100 firms, 47 Second Hundred firms and 52 niche/boutique firms.
Because activity for out-of-state firms with Texas offices is not included in the Texas sample, Altuna said the broader picture may be rosier. Many firms are investing in Texas, launching or expanding offices in the state. As a result, Altuna said, it is likely that demand was higher in Texas than what was reflected in the numbers for the eight Texas firms.