K&L Gates Revenue Up 9.3 Percent, RPL Down 5 Percent

, The Legal Intelligencer

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K&L GATES

After remaining flat between 2011 and 2012, Pittsburgh-based K&L Gates saw its revenue grow by about 9.3 percent in 2013, a year that saw the firm's financials impacted significantly by its Jan. 1, 2013, merger with Australia-based Middletons.

The firm's gross revenue rose from about $1.06 billion in 2012 to $1.159 billion in 2013, with a larger chunk of that figure being generated by its overseas offices than had been the case the previous year.

The firm said in a statement issued Feb. 20 that its performance in 2013 "continued to reflect a challenged legal marketplace."

According to the firm, its revenue growth in 2013 was primarily driven by the Middletons merger, along with the opening of new offices in Wilmington, Del., and Houston and the commencement of operations in the Seoul office it opened in 2012.

The growth achieved through those moves was, however, "offset to a degree by a net decrease in revenues elsewhere in the firm resulting from reductions in productivity and collection performance," the firm said.

K&L Gates Chairman Peter Kalis declined through a firm spokesman to comment on the firm's numbers beyond the statement the firm issued.

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In 2012, revenues from the firm's offices in the Asia Pacific, Europe and Middle East accounted for about 13 percent of the firm's total revenue.

In 2013, those overseas offices accounted for about 22 percent of the firm's gross revenue. The Asia Pacific region saw the most significant jump in revenue in 2013, from about $41.5 million to $147.8 million, which the firm attributed largely to the Middletons merger.

The rest of Asia, however, saw a net decrease in revenue of about 23 percent from 2012, which the firm attributed to the combination of "a net productivity decrease, unfavorable U.S. dollar exchange rates related to the Japanese yen and a modest headcount decline."

Mary K. Young, a legal consultant with the Zeughauser Group in Maryland, said foreign exchange rates can have a significant impact on a global firm's financials in a given year, depending on the extent to which the firm derives its revenues from overseas work.

K&L Gates' Europe and Middle East offices saw a revenue boost from about $93.9 million in 2012 to $109.5 million in 2013, on the strength of increased productivity and a 6.2 percent spike in headcount in the region, the firm said.

The firm's revenue in the Americas, meanwhile, fell from about $924.9 million in 2012 to about $901.6 million in 2013, which the firm said was the result of an average headcount decrease of about 3.5 percent in its offices in the Americas.

The firm did, however, see its overall average headcount increase by about 15 percent, from about 1,720 attorneys in 2012 to 1,975 attorneys in 2013, as a result of the Middletons merger, the new U.S. office openings and the commencement of operations in Seoul.

The firm's headcount growth outpaced its revenue gains and, as a result, its revenue per lawyer (RPL) dipped by about 5 percent in 2013, from about $615,000 to about $585,000.

The firm blamed the RPL drop on the influx of new attorneys brought on by the Middletons merger and the revenue drop in Asia.

K&L Gates offered data for its average profits per all equity partners as well as more specific data for profits per "fully participating equity partners."

The average number of equity partners grew in 2013 from about 503 to 538, an increase of about 7 percent. The average number of fully participating equity partners increased by about 4.3 percent, from about 253 in 2012 to about 264 in 2013.

The firm's average profits per all equity partners dropped by about 6.7 percent in 2013, from about $637,000 to $594,000. Meanwhile, its profits per fully participating equity partners dropped by about 7.7 percent in 2013, from about $900,000 to about $830,000.

By comparison, similarly-sized Pittsburgh firm Reed Smith, which came in one spot below K&L Gates on last year's Am Law 100 list after bringing in $1.01 billion in revenue, posted a PPP figure of $1.08 million per each of its 300 equity partners in 2012.

Reed Smith has not yet reported its 2013 numbers.

K&L Gates broke down its net income figures based on total profits available to all equity partners and those available to fully participating equity partners. According to the firm, about 27.6 percent of its gross revenue in 2013 was profit available for all equity partners, a slight drop from 30.2 percent in 2012.

The firm said about 19 percent of its gross revenue in 2013 was profit available for fully participating equity partners, as compared to about 21.4 percent the previous year.

K&L Gates said the net income decline "was principally due to the decreased revenue experienced by the combined firm on a pro forma basis."

"The profit percentage continued to be influenced by the firm's commitment to meet market demand with large numbers of income partners, whose compensation is accounted for as expense," the firm added.

Young said it's difficult to do an apples-to-apples comparison between firms' financial data, even if those firms are of similar sizes.

"It varies so much with practice mix and geographic mix," Young said.

In general, according to Young, most firms are likely to have seen a modest revenue boost in 2013, in the range of 5 percent or less, along with slight profit increases.

But annual profit margins are often a wild card because so many factors, from the number of significant investments a firm makes in a given year to the firm's utilization rate, affect the bottom line, Young said.

The only accurate way to measure a firm's success is to examine whether it has grown over a period of years, according to Young.

According to K&L Gates, its energy, infrastructure and resources practice, as well as its real estate and litigation and dispute resolution practices, all "turned in measurably stronger performances in a year-over-year comparison."

The firm's corporate and transactional practice, however, continued to suffer from low demand, the firm said.

The percentage of the firm's work attributable to matters generated in one office and performed in one or more other firm offices remained nearly flat, from 27.5 percent in 2012 to 27.7 percent in 2013.

In 2013, 466 of the firm's 500 largest clients used lawyers from two or more firm offices, and 15 of the firm's 20 largest clients used lawyers in 10 or more firm offices. The firm's 100 largest clients in 2013 generated 31.7 percent of annual revenues, down from 34.4 percent the previous year, according to the firm.

The average number of offices engaged on matters for those 100 largest clients in 2013 was 10.9, the firm said.

K&L Gates said no client accounted for more than 5 percent of the firm's revenues in either 2012 or 2013.

Looking ahead, the firm said it plans to consolidate its four-lawyer San Diego office, which it acquired when it combined with Chicago-based Bell, Boyd & Lloyd in 2009, with its Orange County office by September of this year.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

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