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Law Firm Revenue Rose as Demand Dropped in the First Quarter of 2019
The legal industry saw greater revenue growth during the first quarter of 2019 than it did to start the strong year of 2018. However, the drivers of that growth were much different, as the demand growth that characterized 2018 gave way to a demand decline during the first quarter of 2019, and much of the revenue growth came in the form of cash collections from 2018 inventory. Billing rate increases continued at the elevated pace that we saw in 2018, and they retake their position as the primary revenue driver to begin 2019, as they have been for much of the post-recession period. Looking ahead, the industry maintains a strong inventory position heading into the second quarter, which should continue to provide momentum. This is important, as expense pressure, which had also been a theme of 2018, outpaced revenue growth and is likely to accelerate into the second quarter.
These results are based on a sample of 187 firms (75 Am Law 100 firms, 52 Second Hundred firms and 60 niche/boutique firms). Thirty-two of these firms fit our definition of either “international” (less than 25% but more than 10% of lawyers based outside the United States) or “global” (at least 25% of lawyers based outside the United States). Citi Private Bank provides financial services to more than 600 U.S. and UK law firms and more than 35,000 individual lawyers. Each quarter, the Law Firm Group confidentially surveys firms in the Am Law 100 and the Second Hundred, along with smaller firms. In addition, we conduct a more detailed annual survey and semiannually produce the Law Firm Leaders Confidence Index. These reports, together with extensive discussions with law firm leaders, provide a comprehensive overview of current financial trends in the industry as well as forward-looking insight.
Revenue growth of 4.5% in the first quarter of 2019 was driven largely by lawyer billing rate growth of 4.4%, as demand declined 0.3%. Firms told us that the government shutdown in January, volatility in the markets, and a comparatively weaker M&A market contributed to the demand decline. The collection cycle lengthened 1% on average, and firms continue to tell us that a shift in client bill payment behavior drove much of this collections slowdown. That said, inventory growth levels moderated from year-end 2018, and many firms did drive revenue growth through cash collection from 2018 inventory. Still inventory growth remained relatively strong at 5.6% and should continue to provide collections momentum into the second quarter.
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