Head of Advisory Services, Law Firm Group
July 15, 2020Posted InLaw Firm Group
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Operating challenges persist in the age of COVID-19 but there are a number of reasons why some in the legal industry have fared better than expected in Q2.
After a strong start to 2020, law firms faced a much different environment going into Q2. As shared on our bi-weekly Legal Industry calls - Responding to COVID-19 Risks - at the start of Q2, we saw firms projecting median 15% declines in Q2 demand and revenue with the latter also impacted by an expected 11% lengthening in the collection cycle. As the quarter progressed, many firms experienced better than expected results in April and May, moderating their initial projections.
There are a number of reasons why firms may have fared better than expected in Q2. Strong Q1 inventory growth and rate increases placed many in a good position for collections in Q2. While firms anticipated more discounting pressure and a slowdown in clients paying bills, many have seen their clients continue to pay on time and have not had to increase discounting.
Demand levels have also varied based on practice mix. While M&A/transactional practices have generally been weak, and we hear mixed views on Litigation, firms have reported strong activity in their Bankruptcy and Financial Restructuring, Finance and Capital Markets practices, to name a few.
Given the better than expected performance during the first two months of Q2, by June, firms were projecting median Q2 declines of 7% in demand and just 1% in revenue, as the lengthening of the collection cycle had moderated to an expected 4.5%.
Looking forward, we have just released the results of two surveys indicating what we might see during Q3, and for the second half of 2020. Our 2H’20 Law Firm Leaders Confidence Index, measuring the leadership sentiment of 150 firms about the second half of 2020, showed very low levels of confidence in both macroeconomic and law firm performance.
This is unsurprising, given that the survey was conducted in April when confidence levels were at their lowest. On the other hand, Q3 industry projections, collected in early July, show expected 5% drops in demand and revenue during Q3 vs. the same period of 2019. Compared to Q2, firms expect a more moderate decline in demand, but more pressure on revenue. As for actual Q2 and 1H’20 performance, we look forward to sharing 1H’20 flash survey results in August.