K&L Gates had a relatively flat year when it came to gross revenue and revenue per lawyer, growing each by under 1 percent.

The firm saw a 4.3 percent decrease in profits per partner in what Chairman Peter J. Kalis said was a year of expenses growing at a faster rate than revenue.

K&L Gates’ gross revenue increased 0.6 percent from $1.055 billion in 2010 to $1.061 billion in 2011. The firm’s revenue per lawyer (RPL) grew by nearly 0.7 percent from just under $599,000 in 2010 to nearly $603,000 in 2011. Profits per equity partner (PPP) dropped from about $930,000 in 2010 to around $890,000 last year, according to preliminary reports from the firm.

K&L Gates’ headcount remained almost unchanged, decreasing by one lawyer to 1,762 in 2011. Kalis said the equity tier was “down some.”

“While a solid performance, it was a sobering reminder of the power of the marketplace,” Kalis said of the firm’s 2011 financial results.

He said the firm’s transactional practices started off strong but lost some wind in its sails in the second quarter and never regained it. That falloff in the transactional space was enough to “take the oomph out of a number of practice areas that were very hot,” such as intellectual property litigation, government enforcement work and regulatory work tied to financial services.

Mergers and acquisitions, capital markets and real estate were more “subdued” in 2011, Kalis said, adding that his firm has more exposure in those areas than some other firms.

With such minute changes in RPL and gross revenue, Kalis said, it would be splitting hairs to guess what caused the change. With offices in so many smaller venues such as Spokane, Wash., or Harrisburg, the firm will always have relatively lower RPL, he said.

“Our business model is different from a lot of firms we’re compared with and [the model] will depress any metric expressed as an average,” he said.

As for the dip in the firm’s PPP, Kalis said that, for the first time in memory, the firm saw expenses outpace revenue gains. He said the firm is resolved in 2012 to attack that problem from both angles. Although firms did much in 2008 and 2009 to cut expenses through large-scale amendments to their business models, they now need to focus on the smaller, incremental increases in expenses any business would see, Kalis said.

They need to challenge every expense item and negotiate with their vendors as clients are negotiating with law firms on price, he said.

K&L Gates made some investments in 2011, adding 50 laterals and opening offices in Brussels; Doha, Qatar; Sao Paulo; and Charleston, S.C. It added a Milan office earlier this year.

While the transactional practice saw a slowdown, the firm did help close significant deals in Europe and Asia. K&L Gates lawyers represented state-owned power company Guodian Kehuan of China in the company’s initial public offering on the Hong Kong Stock Exchange. The firm also handled financing deals in Europe.

Closer to home, K&L Gates has handled Marcellus Shale deals as well as litigation and regulatory work related to the booming energy space. It worked on the $1.7 billion deal to sell the Phillips Companies to Exxon.

On the litigation front, K&L Gates represented one of five banks in settlement discussions with the Department of Justice and other governmental agencies over residential mortgage loan default servicing practices. Those talks resulted this year in a $25 billion settlement.

K&L Gates was also able to secure in mid-2011 the role of U.S. litigation counsel for Alcoa after finalizing an alternative fee arrangement. Kalis said the fact that the firm has 24 offices across the country means the firm can actually do most of the work rather than managing work it has to farm out to local counsel. He said that helps the firm give a better idea of projected costs and makes both sides feel more secure about agreeing on an alternative fee arrangement. Kalis said the firm is looking to market the Alcoa structure to other clients.

The firm’s expansion of its offices abroad has also proven beneficial, Kalis said. K&L Gates is starting to get more pan-European work involving more than one of its offices on the continent. The firm now has more than 300 attorneys across Europe.

K&L Gates has continued to see an increase in interoffice work in which a matter is generated out of one office and handled by attorneys in another, he said. Between 25 and 30 percent of the firm’s gross revenue in 2011 was generated from such matters, he said.

Kalis said 2012 will be a challenging year for firms if the current economic conditions continue. He said his firm will look to overcome those challenges by focusing on that interoffice work, with a particular focus on cross-border matters. Kalis said K&L Gates’ strength in regulatory work and intellectual property litigation, areas not affected by deal flow, will help it weather the year.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI. •

* * *

This report is part of The Legal Intelligencer’s early coverage of the 2011 financial results of local firms as part of the Am Law 100 and Second Hundred reports.  Full results for The Am Law 100 will be published in The American Lawyer and online in May. The Am Law Second Hundred will be published in June. View our interactive chart, which will be updated as additional law firm financial data is reported.