Texas firms beat industry averages for growth in revenue and billing rates during the first half of 2019, but productivity declined by a greater margin than the market, Citi Private Bank's Law Firm Group reported this week.

Revenue improved by 4.6% at the 11 Texas firms that provided data to the Law Firm Group for its first-half 2019 survey, compared with a more modest average growth of 4.1% for the 191 firms surveyed industrywide.

Billing rates helped drive that growth at the Texas firms, increasing by 6% over the first six months of the year, compared with rate growth of 4.6% for the industry.

Gretta Rusanow, head of advisory services at Citi Private Bank's Law Firm Group, said in an interview that revenue growth at the Texas firms was driven by the billing rate increases and a shorter collection cycle.

The collection cycle shortened by 3.8% at the Texas firms during the first half of 2019, in  contrast to a 1.6% lengthening for the industry as a whole.

But while clients were paying their Texas firms, Rusanow said, inventory improved by only 0.6% during the six months.

"There was a lot of payment out of existing inventory for the first six months. That suggests the challenge for those Texas firms has got to be more than rate increases," she said. "They need to get more work."

Inventory improved by 5.8% for the industry as a whole.

Average lawyer productivity was down by 2.4% at the Texas firms, Rusanow pointed out, which resulted from the combination of a 2.4% decline in demand during the six-month period and a 1.1% drop in total lawyer head count.

Productivity dropped by 1.2% industrywide, according to the survey, based on a 0.1% growth in demand and a 1.7% growth in lawyer head count.

Margins for the Texas firms, and industrywide, are under pressure as expenses grew at a faster rate than revenue during the period. Expenses increased by 5.5% at the Texas firms, and 5.9% industrywide.

Rusanow said expense growth was largely driven by compensation increases fueled by associate salary increases that went into effect midyear 2018.

Because of strong inventory balances at midyear, the Law Firm Group expects 2019 to be a good year for the industry compared with the last several years, but it may not reach 2018′s strong performance.

The group of firms in the survey include 77 Am Law 100 firms, 54 Second Hundred firms and 60 niche or boutique firms. Rusanow declined to categorize the 11 Texas firms by size.

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