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While their billing rates grew more slowly than the industry average, Pennsylvania-based firms were able to pull ahead of the pack, reporting greater revenue growth than any of the 11 regions surveyed by Citi Private Bank in its latest report on legal industry performance.

Citi published the results Tuesday of its flash survey on law firm performance in the first nine months of 2019. The survey of 190 law firms included 13 firms based in Pennsylvania.

Pennsylvania firms reported revenue growth of 9%, compared to an industry average of 5.1%, according to Gretta Rusanow, head of advisory services within Citi Private Bank's Law Firm Group.

That growth came thanks in part to demand that outpaced the market. Pennsylvania firms saw 2.6% demand growth, while demand was up just 0.9% industrywide.

Additionally, Pennsylvania firms bucked the industry trend of slowing collections. While the collections cycle continued to lengthen nationally—by 1.5% in the first nine months—Pennsylvania firms saw the collections cycle shorten by 4.6% in the same period.

On a related note, inventory at firms based in the Pennsylvania region is up by 3.9%, while nationally inventory is up 6.7% on average for the first nine months. Still, there is a strong opportunity for Pennsylvania firms for the end of the year, Rusanow said, as unbilled time was up 6.1% in the first nine months for those 13 firms.

And while rate increases among Pennsylvania firms were behind the national average, it wasn't by too much. Rates at Pennsylvania firms increased by 3.9% in the first nine months, versus 4.7% across the industry.

"In a nutshell," Rusanow said, Pennsylvania firms' performance was driven by "a combination of strong demand growth, decent rate increases and a focus on collections."

Rusanow said rate increases in various regions may be affected in part by how firms are managing head count—firms that have added more junior lawyers in large numbers are seeing a change in the mix of rates they are charging to clients. More young lawyers often means lower average rates.

Head count growth was up 2.3% at Pennsylvania firms, versus 2% industrywide. Equity partnership growth was also not far off for the Pennsylvania region, coming in at 0.6% compared with 0.3% for the industry.

Even with that head count growth, Pennsylvania firms saw productivity improve by 0.2%, versus a productivity decline of 0.7% nationally.

The demand and revenue growth came at a good time for Pennsylvania firms, Rusanow said, because their expenses also grew more than those of firms in any other region.

Expenses were up 7.5% at Pennsylvania firms, and 4.7% industrywide. That was driven both by compensation expense, which was up 7.8% in Pennsylvania, and operating expense, which was up 7.2% in the region. All of these numbers were ahead of the national averages.

Rusanow noted that expense growth comes with the territory when head count is growing. Still, Bradford Winton, a senior vice president in Citi's law firm group, who is based in Philadelphia, said he has noticed Pennsylvania firms taking extra care to protect their bottom lines.

"What I've been seeing more and more with the local firms in Pennsylvania is that they're being so much more focused on their business in general," Winton said. He said many of these firms have a presence in New York, but they are still able to leverage the fact that they, and many of their attorneys, are based in lower-rate Pennsylvania markets.

Winton said these firms have been disciplined about equity partnership—not growing it for the sake of growing it, and being efficient about discerning which partners are contributing to the firm and which are not.

"A lot of the firms are focusing on looking down the road," Winton said. "They're just being generally proactive … getting their houses in order. They're not going to get caught being reactive."

Rusanow said Citi is not projecting a recession in 2020. "That said, in our travels it does look like there are certain markets where firms are almost talking themselves into a recession. They're very fearful of it," she added.

But, she noted, it's "prudent" at any times for firms to be watching their expenses and finding ways to speed collections.

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