While few would call it a blockbuster year, large Pennsylvania-based law firms mostly had a positive 2017, enjoying modest to strong growth in revenue and profitability.

With demand in the industry largely flat, the growth appeared to be driven by rate increases, and in some cases by geographic and practice group expansion.

Of the eight Pennsylvania-founded Am Law 100 firms that have shared 2017 financial results with the Legal Intelligencer, all but one reported growth in gross revenue compared to 2016. And all of them saw revenue per lawyer and profits per equity partner increase year-over-year.

“That's consistent with what we've seen so far nationwide,” said consultant Eric Seeger of Altman Weil Inc. He said much of that growth is driven by rate increases, and in some instances firms are showing revenue improvements after “some rather dismal years.”

“Two percent revenue growth is treated as good news these days, which shows a recalibration of expectations,” Seeger noted.

Gross revenue growth varied, including modest gains at Blank Rome (2.1 percent) and Duane Morris (2.6 percent). Cozen O'Connor had the greatest increase in gross revenue, at 10.7 percent, in a year when the firm was constantly making lateral hires. It was the only one of the eight to have double-digit revenue growth.

Just one of the firms, Pepper Hamilton, reported a decline in gross revenue from 2016 to 2017, dropping by 1.7 percent to $341.8 million. But Pepper Hamilton's revenue per lawyer increased as head count shrank.

The other firms whose results have been reported in the Legal showed growth of 3 percent or more, including Reed Smith (4.1 percent), Dechert (7.3 percent), Drinker Biddle & Reath (6.3 percent) and Ballard Spahr (3.4 percent).

Among the eight firms, profitability improvements were all over the board. Blank Rome was essentially flat, on the one end, with PPP increasing by just half a percent. But Pepper Hamilton saw PPP grow by more than 14 percent, partially recovering from a 2016 when partner profits tanked.

All eight firms saw revenue per lawyer increase by a single-digit percentage, ranging from a  high of 6 percent at Pepper Hamilton and Ballard Spahr to a low of 1.1 percent at Duane Morris.

Finding Balance on Rates

Seeger said law firms have generally told him they outperformed their expectations in 2017, largely due to conservative budgeting at the outset of the year. And while rate pressure has not gone away, firms have learned that failing to raise rates one year makes it all the more difficult to do so the following year, he said.

“Firms are back in the habit of increasing their rates, and they discount the rates back down where necessary,” Seeger said. “Overall that yields an increase in collections.”

Leaders of Pennsylvania firms confirmed that they did raise rates in 2017 by around 3 percent or 3 to 5 percent depending on the practice. But most said they are more focused on other variables that effect collections and revenue.

The ability to grow, is “about market share and the type of work you're getting,” rather than rate increases, said Drinker Biddle chairman Andrew Kassner, as pressure on budgets, value and efficiency increases. Thinking back on when law firms could increase rates by 7 percent a year every year, he said, “that era is over.”

Reed Smith global managing partner Alexander Thomas said his firm raised rates in some practices, but “one of the things we focused on more than ever in 2017 was realizing more of the rates we charge.” That effort included doing some work on a fixed-fee basis and improving efficiency on matters, and resulted in a slight improvement in realization, he said.

Generally, firm leaders said they are open to alternative fee arrangements, and that such arrangements are being used more often. But their popularity, while increasing steadily, has not spiked, Dechert chair Andrew Levander said.

“When you give clients an idea of pricing and how that's going to play out, it really is a win-win,” said Grant Palmer, litigation chair and incoming managing partner at Blank Rome. He said his firm, like the others, is working toward implementing those arrangements more, and doing so profitably.

“It's not something you can do overnight,” Palmer said.