According to both reports, revenue growth at firms headquartered in Pennsylvania has not been driven by rate increases, but by demand.
Jeff Grossman of Wells Fargo Private Bank’s Legal Specialty Group said Pennsylvania’s numbers, as shown by Wells Fargo’s survey, reflect a stable market with healthy inventory on hand.
“In the context of what’s still a challenging environment, these are not bad results,” Grossman said. “If you pull the most profitable firms out of New York, the gap between them and Pennsylvania is not as large.”
John Wilmouth, a senior client adviser in Citi Private Bank’s Law Firm Group, said many of the patterns illustrated by Pennsylvania’s results are similar to the broader industry trends. Expense growth has generally outpaced revenue growth, he said, and that held true for Pennsylvania.
However, Wilmouth noted, a slimmer 30 percent of Pennsylvania firms saw a decline in demand in the first nine months, compared with 50 percent industrywide.
Wells Fargo Report
According to Wells Fargo, gross revenue was up 3.3 percent in Pennsylvania compared with the first nine months of 2016.
There were about a dozen law firms in the Pennsylvania group, Grossman said, all of which have 100 or more lawyers. Of those firms, the greatest revenue growth for the first nine months was about 7 percent, and the greatest decline was a little over 10 percent. Revenue per lawyer was up 1.8 percent on average in Pennsylvania, he said.
Demand was up 2.3 percent on average for the Pennsylvania firms, and hours per lawyer were up almost 1 percent. That’s good news, Grossman said, as most regions saw demand that was flat or down. Pennsylvania firms had a high inventory buildup at the beginning of 2017, he noted, so they may have collected better than other firms.
Standard rates in Pennsylvania were up 2.5 percent, and effective rates were up 1.4 percent. That was on the lower end of the regional averages, Grossman said. In New York, for instance, the standard rate increased by 4.5 percent.
“The larger the firm and the more profitable the firm, the higher the rate increases were,” Grossman said.
Inventory is up 5.5 percent for Pennsylvania firms, he said, and that bodes well for the last quarter of the year.
Wilmouth said both revenue and expenses increased more at Pennsylvania-based firms than they did on average in the broader industry for the first nine months, according to Citi’s survey. Revenue grew 4.6 percent and expenses were up 4.8 percent.
Demand increased by 2.7 percent for the Pennsylvania firms surveyed, which was the second highest of the 11 regions where Citi breaks down its data. The region with the greatest demand increase was northern California.
But Pennsylvania’s rate increase was the second lowest compared with other regions, at 2.4 percent. So revenue growth was driven by demand, not rates, Wilmouth said.
As for the rest of 2017, Wilmouth said Pennsylvania firms’ year-end results will depend on several factors, but inventory at the end of nine months is up both among Pennsylvania firms and industrywide.
“Assuming that a lot of this is collected in the fourth quarter, that will help bolster your revenue through year-end,” Wilmouth said. “A lot of it will depend on how collections grow and whether the expense growth can be moderated somewhat.”
Inventory was up 3.4 percent in Pennsylvania, which was right around the industry average, he said. Accounts receivable were up 6.5 percent, but unbilled time was only up 0.6 percent. Because of the latter number, Wilmouth said, the revenue pipeline could be week at those firms in the early part of 2018.