Amid Energy Investment Slowdown, Thompson & Knight Feels Revenue, Profit Pinch in 2019
Bankruptcy is one practice that started slow at Texas firm Thompson & Knight in 2019, then picked up as the year went on.
Coming off a record 2018, Thompson & Knight saw revenue slip 3.8% in 2019 thanks to a slow start in intellectual property and bankruptcy, and a midyear decline in capital investment in the energy sector.
Revenue per lawyer at the Dallas-based firm was $784,000 in 2019, down 2.2% when compared with $802,000 the year before, as lawyer head count dropped by 1.4%. Gross revenue totaled $217.9 million, compared with $226.5 million in 2018.
Profits per equity partner came in at $1.07 million, down 3.7% from $1.11 million in 2018. Net income was $90.6 million, a decline of 4.9% from $95.3 million the prior year.
Mark Sloan, managing partner of Thompson & Knight, said 2019 was a “little bit of a back-off” from last year, when gross revenue grew by 6.8% and PEP improved by a hefty 15.9%.
He said most of the firm’s practices stayed busy during the first quarter, but intellectual property work was slow because a large lawsuit settled in January. Bankruptcy also took off slowly, although it picked up considerably by the third quarter, he said.
By May and June, the firm’s transactional side started seeing the effects of the lack of capital investment in the energy market. On the plus side, Sloan said the trial group and real estate were busy all year, along with health care and tax controversy.
Significant transactions in 2019 included representing EnCap Investments in the sale of its foreign investments in Sierra Oil & Gas to a subsidiary of DEA AG; representing Haggar Clothing Co. and Yue Yuen Industrial as Haggar was acquired by Randa Accessories; representing Frog Scooters in launching its global operations; and representing US Bank National Association in three note offerings totaling $1.85 billion.
Collections also slowed in 2019, Sloan said, which was related in part to the energy industry. But because of that, the firm started the year sitting on “pretty high” inventory and accounts receivable, and he said collections improved a bit after the first of the year.
The firm raised billing rates at the beginning of 2019 as part of a normal annual review to fit the market. “We aren’t the highest-cost provider. We aren’t the lowest-cost provider,” Sloan said.
Hiring during 2019 was largely focused in Houston, but Sloan said the firm also added some lawyers in Dallas. Laterals included project finance partner George Humphrey and tax partner Louis Jenull in Houston.
This year, the firm is open to “good opportunities” in Dallas and Houston, and also looking to expand in New York, a location “not as large as we want it to be,” Sloan said. Like other Texas firms, Thompson & Knight is aiming to hire more bankruptcy and restructuring lawyers, he said, particularly as energy companies feel the effects of a downturn in oil prices.
“The energy industry is not in favor right now by investors and I think obviously what’s happening with energy prices right now, there will be some shakeout,” he said.
Head count in 2019 was 278, down slightly from 282 in 2018, but the firm’s nonequity partner count dipped to 50 from 60 the year before while the firm had 85 equity partners, only one less than the prior year.
Sloan said the drop in nonequity partners is due to some retirements and departures, but the firm is nevertheless focused on increasing its leverage by adding associates.
“Long term, it makes sense to have fewer income partners and more associates in terms of our leverage model. It’s happening naturally,” he said.
The firm closed its 7-year-old Los Angeles office in 2019. “Frankly, it wasn’t strategic,” Sloan said. He said the firm is not seriously considering any new locations this year.
2020 started out a bit above budget, Sloan said, noting that uncertainty in energy markets led the firm to budget conservatively for the year. Real estate continues to be busy, and IP, bankruptcy and technology are also showing strength, he said.
But much remains to be seen in the coming months.
“This coronavirus thing is the big unknown. Nobody knows how long it’s going to impact things,” Sloan said.