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Texas firms posted a solid year in 2018, but financial results in the Lone Star State largely fell a little short of national numbers in the Wells Fargo “year-end check-in” report, which shows results at the highest level since the recession a decade ago.

Texas firms did outpace the national average in one key area—profits per equity partner—with an 11.03 percent increase. That compares with an overall national increase in PPP of 8.1 percent, said Joe Mendola, senior director of sales with the Wells Fargo Private Bank Legal Specialty Group.

Mendola said the strong PPP increase in Texas indicates there are fewer equity partners at the nine Texas-based firms that participated in the survey. He suggests that is the result of Texas' hot lateral hiring market, with some equity partners moving from Texas-based firms to out-of-state firms with Texas offices.

“Some of the dilution that's occurred in that market from new entrants coming in…are a reason for some of the lower results,” Mendola said.

A total of nine Texas-based firms, primarily in the Am Law 100 and Second Hundred, are among the 150 firms that participated in the survey conducted by the law firm lender.

The overall industry results were strong, with Wells Fargo reporting average revenue growth of 5.9 percent for the 150 firms, and average net income growth of 7.6 percent—the strongest numbers the industry has seen since the Great Recession.

For the Texas firms, revenue grew by 4.2 percent from 2017 to 2018, while net income grew by 6.3 percent. Mendola said both numbers were good, but shy of meeting the industry-wide metrics.

Mendola said the fact that revenue for the Texas firms improved by 4.2 percent, but net income jumped by 6.3 percent, is an indication that the firms are managing expenses.

Texas firms lagged considerably in demand growth in 2018, compared with the national figures. Demand improved by 2.3 percent nationally, while it moved only 0.6 percent in Texas, Mendola said. He said that statistic for Texas was one of the lowest among the 10 regions in the survey, and it affected the Texas revenue growth in 2018.

Mendola noted that billing rates increased by 5 percent in 2018 for the Texas firms in the survey, which is almost exactly in-line with the 5.1 percent increase among all 150 firms surveyed.

Looking ahead to 2019, inventory in the pipeline at the end of 2018 in Texas was 1.4 percent higher than the prior year, compared with a national average increase of 5 percent.

Nevertheless, Texas firms forecast revenue growth of 4 percent in 2019—a little bit shy of 2018—and demand growth of 2.2 percent, which is substantially higher than in 2018, Mendola said. Nationally, the firms forecast revenue growth of 4.4 percent and demand growth of 2.6 percent, he said.

Further Reading:

More Evidence Rolls In: Law Firms Boosted Revenues, Profits in 2018

What's So Hot About Texas? For Law Firms, Apparently Everything